They say “labor shortage” like it’s a bad thing.
“America’s labor shortage is approaching epidemic proportions, and it could be employers who end up paying,” CNBC reported this week. That was before yet another monthly jobs report showing solid growth in jobs and wages.
This framing is backwards.
A “labor shortage” is good news: It means it’s easier for unemployed people to find jobs, more appealing for people who quit the workforce out of frustration to get back in, and likelier that companies will decide they must pay higher wages to attract talent.
The economy could reach a point where upward wage pressure led to an inflationary spiral, with companies raising prices so they can afford to pay higher wages, and those higher prices eating up much of the wage increases. But we’re far from that point, with corporate profits still high as a share of the economy.
For now, the “labor shortage” is very good news for workers, and we should root for it to continue.
A labor shortage is great for workers
Annie Lowrey recently reported for The Atlantic from Iowa, where the “labor shortage” is considerably more acute than it is nationally.
She spoke with a co-owner of a pizzeria chain who has raised wages and started offering more vacation to attract workers. She spoke with the human resources director at a retirement community, who is hiring and training high-school students for jobs where she would have previously relied on college students.
These two stories reflect how, in a “labor shortage,” two key human capital problems in the economy start to fix themselves.
One problem is that not enough of the benefits of economic growth have been accruing to workers. If workers are scarce, wages have to go up, and that means workers get a larger share of the economic pie.
The other supposed problem is “skills mismatch,” where firms would like to hire but can’t find employees with the right skills. In an environment of rising wages, it suddenly becomes possible to match skills again.
Workers have a greater incentives to get new training, because they can expect a job with a good wage to result. And firms have reason to take on more responsibility for training workers, to avoid the rising cost to find an employee who’s already trained.
A labor shortage is also an antidote to needless credentialism in the economy.
When unemployment is high, firms get picky, requiring a college degree for a job that used to require a high school diploma, or screening out employees with criminal records or long spells of unemployment. When workers are scarce, employers are forced to find ways to be more flexible about who they hire — and that means the economy works better for a broader swath of people.
Another report shows Americans are quitting their jobs at the fastest rate since 2001 thanks to a robust and growing capitalist economy.
The numbers: Americans quit their jobs in May at the fastest rate since 2001, showing that workers feel so good about the economy they are willing to leave one company for another.
The percentage of people in the private sector who left their jobs by choice rose to 2.7% from 2.5%, the government said Tuesday. The so-called quits rate among all workers edged up to 2.4% from 2.3%. Both hit the highest levels since 2001.
Most workers who leave jobs voluntarily end up getting better pay or benefits elsewhere. More people are willing to make the switch when the economy is booming.
Job openings, meanwhile, fell to 6.64 million in May from a record 6.84 million as companies filled more open positions.
What happened: Some 5.75 million people were hired in May, up 170,000 from the prior month. that’s also the biggest gain in hiring in 17 years.
About 5.46 million people lost their jobs in May, the Labor Department reported Tuesday.
Most the decline in job openings was concentrated in the highly populated Northeast. Opening for information-services such as media and public relations fell by 60,000. Arts and entertainment-related job openings also declined.
Big picture: The economy is surging. Companies are hiring rapidly to keep up with demand for their goods and services and soon the unemployment rate could fall to levels not seen since the 1960s.
As the rising quits rate shows, more workers are striking out for better jobs or better-paying jobs, confident they’ll succeed. If more workers do that, it could force companies to raise wages faster to retain their best employees or to attract new ones.
While better pay is great for workers, it would also set off alarm bells at the Federal Reserve. Senior officials are watching closely to see if higher wages spur inflation, an outcome that would force the central bank to raise interest rates more aggressively.
What they are saying?: “The rise in the job quits rate points to wage growth accelerating to 3% by the end of the year,” said senior U.S. economist Michael Pearce at Capital Economics.
Market reaction: The Dow Jones Industrial Average DJIA, +0.58% and the S&P 500 SPX, +0.35% rose in Tuesday trades to extend a recent rally. Both indexes have receded from record highs set earlier in the year, however, because of the threat of a potential trade war.
Mr Americana, Overpasses News Desk
July 10th, 2018