Carney: How Can We Have Labor Shortages in an Era of Mass Unemployment?

SAN FRANCISCO, CALIFORNIA - DECEMBER 02: A FedEx worker stacks packages on a cart on December 02, 2019 in San Francisco, California. Cyber Monday shoppers are on track to spend a record $9.4 billion on online purchases, a nearly 19 percent jump from one year ago, following strong Black Friday …
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It’s a pandemic conundrum.

Tens of millions of Americans have lost their jobs and are collecting unemployment. Fed officials say the real unemployment rate, after taking account of people working reduced hours and people miscounted as working, is close to 10 percent.

Yet businesses across the U.S. tell Fed officials they cannot find enough workers.

In the Fed’s Beige Book, a collection of anecdotes from business leaders compiled by each of the Fed’s twelve regional banks, reports of labor shortages arise over and over again.

“Employment was flat, with rising labor demand offset by labor supply constraints,” the Minneapolis Fed reported.

“A contact in St. Louis reported residential construction projects are severely backlogged due to labor and material shortages,” the St. Louis Fed wrote.

The Federal Reserve Bank of Cleveland said that labor demand in the freight sector is especially strong and many firms say they would like to hire more drivers but are prevented by a shortage. Several firms in Cleveland said deliveries to customers were delayed.

Driver shortages were also reported by the Richmond Fed, the Atlanta Fed, and the Kansas City Fed.

The Kansas City Feds says the majority of contacts reported labor shortages.

“Employers in the construction, manufacturing, auto mechanics, and healthcare sectors continued to be constrained by shortages in qualified labor,” the San Francisco Fed notes.

“Labor supply shortages were noted by contacts as most acute among low-skill occupations and skilled trade positions,” the Atlanta Fed’s summary covering all 12 districts says.

So what’s going on?

Part of the problem is that employers are competing with enhanced unemployment benefits. Ordinarily, state-run unemployment insurance pays around half of what a worker got in wages and the exact amount paid is linked to what the workers wages were. But at the start of the pandemic, the federal government started chipping in hundreds of extra-dollars without regard to pre-layoff wage levels. This started out as $600 but was cut in half over the summer. But even at the lower level, a significant number of workers are getting more from benefits than they did while they working.

Another issue is the skills mismatch caused by the way the pandemic roiled the economy. The leisure and hospitality sector has been devastated. At last count, the sector employed nearly 3.9 million fewer workers than it did prepandemic. Hotel managers, bartenders, and actors who paid the rent by waiting tables cannot instantly convert into healthcare workers, home builders, or truck drivers.

In a typical downturn, people in declining industries shedding workers eventually do retrain and move into growing occupations. But the pandemic has shut down businesses that were not in decline and many workers are likely waiting to go back to the kind of jobs they had before. After all, many of the workers wanted to be in those occupations, not the ones that are trying to hire now.

Then there’s the fact that at least some of the increased demand seen in some sectors is likely temporary and may reverse as the economy reopens. In Wednesday’s Beige Book, for example, the Boston Fed says it was told by a supplier of goods to veterinary services that business has boomed because people have been adopting more pets in the pandemic. But they are worried that the heightened demand will go away when the economy reopens. In that case, it wouldn’t make sense for a hotel manager to get trained as a vet when the future demand is going to be for hotel managers.

A third factor is childcare. Many schools remain closed or partially closed. Someone has to stay home to watch the kids. That makes them unavailable for employment.

Finally, some of this is probably a bit of businesses blowing hot air. Claims of labor shortages have persisted in good times and bad for at least the last 15 years—and for much of that time wages were not rising by much. Some employers appear to experience the need to pay higher wages to attract workers as evidence of a labor shortage. Having to compete for workers with other businesses strikes some owners as unfair.

So we find ourselves like the Samuel Taylor Coleridge’s parched ancient mariner, surrounded by undrinkable sea water. Workers, workers, everywhere without anyone to hire.


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