There Is No Labor Shortage

From the Wanderland on The Dispatch

Our friends at the U.S. Chamber of Commerce occasionally publish reports arguing that the U.S. economy is being held back by a “labor shortage.” They just came out with one in February, in fact.

But there isn’t any labor shortage. The Chamber of Commerce does a lot of very good work as an advocate for U.S. businesses, but its views on labor tend to be distorted—for entirely understandable reasons—by self-interest. What we need isn’t more workers willing to take low-wage jobs—what we need is better wages for those jobs.

As the Chamber’s own findings confirm, healthy industries offering high-paying jobs do not have much trouble getting workers off the sidelines and into the game. Whether measured by the “quit rate” (the share of workers leaving their jobs) or by the industry-specific unemployment rate, the issue of relatively intense labor scarcity is concentrated—this will not surprise you—in largely low-paying hospitality and retail jobs. There’s no urgent labor shortage on Wall Street, in Silicon Valley, in Hollywood, in Big Law, or in manufacturing. In the Chamber’s report, we read that the quit rate in hospitality (4.3 percent) is more than three times what it is in manufacturing (1.3 percent). The Chamber of Commerce’s analysis reflects these facts: “Workers in traditionally lower paying industries, including leisure and hospitality and retail, have been most likely to quit their jobs. Meanwhile, in more stable, higher paying industries, the number of employees quitting has been lower.” While the workforce participation rate has declined, there are still workers out there: The unemployment rate in hospitality (4.8 percent) is two-thirds more than it is in financial services (2.9 percent) and more than twice what it is in manufacturing (2.1 percent). That means there are many workers looking for jobs in those industries but not taking the jobs on offer.

Conclusion: Put that filthy lucre on the table and watch those supply curves slope upward like that’s what they were born to do, because they were.

But that obvious conclusion seems to have escaped our friends at the Chamber of Commerce. While they recognize that much of the problem is driven by organic trends such as the aging of the U.S. population, their proposed solutions—increasing the labor supply through immigration and child-care subsidies designed to attract more women into the workforce—are mainly exercises in cost-shifting and market-distorting. That’s pretty unimaginative, but, in fact, we don’t need an imaginative solution. There are two sides to the employment negotiating table, and rather than use subsidies and immigration (which can act as a form of subsidy to certain firms) to stack the policy deck in favor of employers, business owners should probably make peace with the fact that businesses are going to have to pay more to ordinary workers in humble jobs if they want to get good people—or any people.

The real lesson is this: Hotel maids don’t make enough money. Shop clerks don’t make enough money. Restaurant managers don’t make enough money. That’s what the markets are telling us. Sometimes, the market tells you things you don’t want to hear. (Ask me about my Journal Register Co. stock options.) The solution to that problem is not painless, but there is a solution: higher wages.

That’s not an easy fix, but it is a relatively straightforward one.

I’m not exactly what you’d call a raging populist. (“We noticed!”) I just want Starbucks to get my order right and not to have to wait in line for an hour at Hertz. If you aren’t going to automate those roles, then pay the people what it costs to fill the damned jobs and get on with it.

Some companies get this. From time to time, I like to check in on the job openings at Buc-ee’s, the convenience store/cult whose billboards promising squeaky-clean toilets are a fixture on Texas roadways. Buc-ee’s has high standards for its employees. It is, by reputation, not an easy place to work, but a surprisingly demanding one—not what most people think it will be like when they go to work for a gigantic gas station. But the company’s management understands that anybody can sell diesel and Monster energy drinks and kolaches. Buc-ee’s real value proposition is basically one of customer experience, which depends on having the right kind of people. This is why they will pay $125,000 a year to their next car wash manager in Ennis, Texas, $33 an hour to assistant deli managers at the same location, and $125,000 a year to an assistant general manager in Smiths Grove, Kentucky. The assistant gift counter manager in Madisonville, Texas, will earn $50,000 a year, plus medical, dental, vision, three weeks paid time off, and a 100 percent 401(k) match up to 6 percent of income. That’s not Silicon Valley money, but it’s pretty good for assistant-managing the gift counter at a gas station.

By way of comparison, I spent some time looking at the job openings for some of the biggest hotel brands. In most cases, they don’t even advertise what a job pays—as though workers are supposed to go through the process of applying for a position at Hilton or Hyatt with no clue about the one variable that matters most to them. That kind of non-transparency does not suggest that the companies think that the wages they offer will be a big draw to the best candidates. It reminds me of those car lots where they don’t put prices on used cars: “Golly, one thing I have noticed is that people who intentionally withhold information from me always have my best interests at heart and are totally aboveboard and honorable in their dealings!” The implicit contempt for potential customers or employees demonstrated by being so blatant in the hide-and-seek game makes it even worse. If your management philosophy is that you are doing potential workers a favor by offering them a job and that they should be grateful when they learn that whatever it is you are offering them isn’t even more disappointing than they might have expected it to be—yeah, you’re going to experience a “labor shortage.” Because you’re a terrible employer.

“Why work for Hyatt?” one ad asks. The first reason offered—the first reason!—is “free room nights.” Because that’s why you’re going to work for Hyatt—you just want to spend more time in hotels.

(I did see one Hyatt ad with a wage listed: $20/hour for the sales system administrator at the Driskill Hotel in Austin. The Buc-ee’s car-wash guy in Ennis probably will end up paying more in income and payroll taxes than the Driskill guy’s take-home pay in Austin.)

Higher wages would eat into some corporate profits, to be sure. Have you had a look at the corporate profit chart lately? It looks like my blood pressure graph after two Red Bulls. Corporate profits at last reading were more than 40 percent higher than their pre-COVID peak. I don’t want to be simple-minded about this—a lot of those profits are being driven by the businesses that aren’t complaining about a labor shortage, while many of the firms struggling to attract workers are not hugely profitable—but there’s an awful lot of money sloshing around in the profit bucket, and we have many examples of highly profitable high-growth businesses paying considerable wages for jobs that aren’t reserved for STEM graduates and artificial intelligence specialists and the like. Every C-suite dork walking the face of God’s green Earth says something like, “Our people are our most important asset,” but a little bit of scrutiny shows that to be, in a lot of cases, pure unadulterated corporate-speak bulls—t.

(I’m a libertarian, let-markets-work kind of guy, and some of my lefty or populist friends sometimes act like they’ve pulled a dispositive rabbit out of the rhetorical hat when they point out that there exist—angels and ministers of grace, defend us!—badly run businesses, dysfunctional markets, dishonest businessmen, etc. They don’t seem to understand that the choice is between stupid, greedy men and stupid, greedy men with an army and a police force. One of these groups of stupid, greedy men has to compete for your business, and you can say “no” to them; the other kind doesn’t have to take “no” for an answer. That’s the whole enchilada, really: I want more decisions affecting my life made in the context of negotiations I can walk away from and fewer of them made at the point of a bayonet.)

So, put yourself in the position of Hospitality Executive X. You have low-skilled jobs you need to fill and shareholders demanding returns, and the bottom line is that these demands are rivalrous if not entirely incompatible. So, what do you do? Do you raise wages and explain to your shareholders that their diminished profits are going to be a lot more diminished if the hotel rooms don’t get cleaned and the food doesn’t get cooked, or do you admit that you have painted yourself into the corner of an economically nonviable business model? Yes, some employers have to bid against the welfare state for the time of potential workers. Everybody is super sympathetic to your complaint that you can’t get workers for wages that give them a lower standard of living than welfare provides. I’m weeping tears of blood over here.

So, do you raise wages? Seek savings elsewhere? Or do you insist that there is a national crisis in the form of a “labor shortage”?

Groups such as the Chamber of Commerce are pretty consistently in favor of alleviating the so-called labor shortage by means of immigration, flooding the market with low-wage/low-skill workers willing to do—all together now!—“jobs Americans just won’t do [sotto voce] at the wages we are offering.” Again, I don’t want to sound like a raging populist (“You don’t!”) or, conversely, a cynical Machiavellian amoralist (“…”). Still, when it comes to immigration, I keep coming back to one thing: We have enough poor people in our country, and we don’t need to import more of them. There’s a lot more to citizenship than economic calculation, but if it’s just green cards or the equivalent we’re talking about, then I’m all for opening the national door to people who have offers for jobs at, say, $200,000 a year, or people with seven-to-10-figure sums to invest in businesses and projects. But unskilled and low-wage workers? We have plenty. And if I have to pay more for an avocado to get control of our runaway illegal (literally illegal, Mr. President—literally) immigration problem—fine. Everything involves trade-offs, including law and order. Although, for the record, we wildly overstate how much agriculture relies on the labor of illegal immigrants. If you’ll forgive my quoting myself:

So, that’s illegal immigrants. But lawfully flooding the labor market with unskilled low-end labor is a terrible idea, too.

Immigration is a nice fix politically for Chamber of Commerce types (that may read as though it were written with a sneer, but it isn’t—I like these guys and am, in some senses, one of them; I agree with them on about 94 percent of the big issues) because nobody believes that anybody is actually going to fix the schools (and, even if you did, it would be years and years before those new workers were in the market). Nobody wants to say out loud that the only reliable cure for the low workforce participation rate is cutting public benefits enough to force malingering working-age men into the workforce when they’d rather be playing video games, watching porn, and smoking weed.

Again, the Chamber’s findings back this up. In its February report, the Chamber found that two-thirds of those who lost full-time jobs during COVID are not really looking for work, that half of them won’t take a job that isn’t remote, and that 1 in 4 say they don’t think it is necessary for them ever to go back to work. How did that happen? One in 5 became full-time homemakers, but a larger number—1 in 4—say that government aid packages have disincentivized them from looking for work.

So, there’s a potentially harsh and thoroughly unpopulist policy lingering in there: Turn back those huddled masses at the border and starve the welfare cases into going back to work. I do not endorse the harsh policy or harshness per se—what I endorse is letting labor markets work. Yes, there is room for policy reform regarding low-wage immigration and work-disincentivizing government benefits. But there are a lot of businesses out there that just probably need to be putting more money on the table if they actually want to fill those jobs. Those workers aren’t going to feed their families with Chamber of Commerce publications or corporate platitudes about how people are our greatest asset. The disruptions of the supply chain associated with COVID-19 showed a lot of business managers just how acutely they depend on ready labor from workers doing fairly ordinary but—as we were all saying there for a minute—essential work: operating warehouses, stocking shelves, driving trucks, unloading containers, delivering packages.

Pay up. Or don’t, and then figure out how to get that work done without workers. But don’t tell me it’s a national crisis that being on food stamps pays better than your company does.

And Furthermore … 

Not that everything looks rosy in the job market. Far from it. President Joe Biden, in his recent State of the Union address (really, for the love of all that’s still good and decent in this ailing republic—rid us of this hideous imperial spectacle and go back to sending a letter to Congress), insisted that things are super-shiny for U.S. workers, and media cheerleaders at outlets such as the New York Times are eager to reinforce the official line. But there are wrinkles in the story.

Let’s unwrinkle a few of them.

As the Times reports, the U.S. economy added about 275,000 jobs last month. Hooray for that. But what kind of jobs? Some 52,000 were in government, and another 85,000 were in education and health care—which is to say, in government or almost-government and practically government in many cases. Outside those sectors, the biggest growth was in leisure and hospitality, i.e., in the fields that Democrats (especially the ones who do their campaign work at the Washington Post) like to sneer at as “McJobs” when a Republican president boasts about job growth. I’m against sneering at any kind of honest work, but for the record—that’s where the growth has been. Construction jobs? Those grew at about half the rate of government jobs. Business services? An anemic 9,000 new jobs. Manufacturing? Down some 4,000 positions. Joe Biden may like to pretend to be blue-collar Joe from Scranton and is a practitioner of old-fashioned union-hall politics, but—with the usual caveat that the president, in reality, has basically nothing to do with any of this!—according to the current data, he’s presiding over an economy that is adding vice principals and deans of students and shedding factory workers. Which is probably not what he’d prefer and—more to the point—not what he wants you to think is happening.

The political story is always better—and always worse—than the real story. “I inherited an economy that was on the brink,” Biden claimed. “Now, our economy is literally the envy of the world.” Horsepucky. Our economy is pretty much always the envy of the world. Quoting myself again:

Economic growth and long-term prosperity basically come from one place: investment. Yes, you need the rule of law and the necessary public goods and all that stuff—stipulated, Sen. Warren—but, assuming we aren’t talking about Haiti or Pakistan or some such place, it’s investment. Which means: savings. The more corn you save for seed this season, the bigger next year’s crop is. The United States is, and traditionally has been, a good place to invest. But investors looking at the U.S. economy in Anno Domini 2024 have to think a little harder about some risks that hadn’t been at the top of the list in some time. Inflation implies both interest-rate and foreign-exchange risks, and galloping toward fiscal Armageddon, as Washington seems intent on doing, raises all sorts of risks. The fact that Donald Trump & Co. ended a centuries-long tradition of peaceful transfers of power highlights a new set of political risks in what had once been assumed to be the safest and most stable regime in the world. The steady move away from constitutional government under legislation passed by Congress to populist-autocratic government by presidential fiat, with policies enacted willy-nilly by one administration only to be rescinded by the next, creates critical uncertainties in areas such as trade, energy, and labor policy. Businesses and institutions don’t have to stop investing in the United States for those factors to damage the economy; all that is needed is for businesses and institutions to recalculate the risk in a sufficiently adverse way. It already costs the U.S. government significantly more to borrow money than it costs, e.g., the Canadian government. That has knock-on effects for business borrowers, whose bankers and financiers right now can get 5 percent back by just putting their money in Treasuries and forgetting about it.

In the long term, if you want a higher standard of living—better jobs, better wages, better prices—then you want lots of investment, which means that you want a stable policy environment and a national government that is a few decades past its most recent autogolpe by a sitting president.

Words About Words

I suppose that if Economics for English Majors can be rendered E4EM, then Economics for English Minors should be E4Em. On that score, I’ve been trying to figure out exactly why, in music, we talk about major/minor scales/chords/intervals/etc., but the texts are pretty vague and opaque. There’s an obvious “lesser” or “inferior” sense there, of course, in that the minor intervals are a half-step smaller than their major equivalents. (If you don’t know music stuff: The difference between a C major scale and a C minor scale is that the third, sixth, and seventh notes of the minor scale are a half-step down from their major equivalents. A half-step is the musical distance between one of the black keys on a piano and the white key immediately before or after it, the smallest interval we usually see in Western music.) I am not very well versed in musical nomenclature and have only a very rudimentary understanding of music theory, but to the extent that I do understand these, musical conventions usually seem to me reasonably straightforward. For example, the ubiquitous I–V–vi–IV progression is written with lowercase “vi” to show that the sixth chord is minor while the others are major; lowercase letters generally are associated with minor chords, so that E-major is just “E” whereas E-minor is “Em.”

Again, this isn’t stuff I know very well—I’m just thinking out loud in virtual print here. If you know of a good explanation of the major/minor terminology, let me know.

Elsewhere

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In Closing

I know I shouldn’t, but you’ve been asking. Behold:

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