By Michael Hicks
The monthly state-level employment summary for September reported Indiana lost 4,200 jobs in August, while the nation as a whole saw a tad more than 250,000 new jobs created. This was worse than the July jobs report, where Indiana picked up a paltry 10,000 jobs out of the 1.1 million created nationally. That’s less than half the job creation rate we should’ve experienced.
The national economy is slowing quickly once again due to COVID, and with Indiana’s low vaccine rate, we should be unsurprised by our relatively poor economic performance. Still, it is good to think through the many possible causes of our slowing economy.
Business leaders continue to complain about few applications to open jobs. A trip to any fast food restaurant or retailer confirms their challenge. Still, in the first two weeks in August when this jobs survey was taken, 18,000 Hoosier workers lost unemployment insurance. We should doubt the argument that generous UI benefits are keeping large numbers of workers at home in meaningful numbers. Something else is happening in labor markets.
Many businesses use third-party employment services firms. These services seem to have been slow to adjust to tighter labor markets, and likely spent much of the summer screening out too many workers. It is anecdotal only, but I know a number of college students who received no follow up contact after dozens of applications. If I know a half-dozen college kids who couldn’t get an interview for $10-$14 per hour jobs, the problem is likely widespread.
I’m also certain a number of businesses haven’t come to grips with new realities of labor markets. I saw a sign this week for $11 per hour jobs at a fast food restaurant. That seems certain to go unfilled. If businesses offering $15-$20 per hour cannot staff their firms, the $11 per hour job is probably history.
It is also certain that a large number, maybe 5-6 million Americans, have dropped out of the labor force entirely during the pandemic. They will have many reasons from childcare or elder care duties to concerns about contracting COVID. The lost labor force in this recession is already greater than all the previous post-World War II recessions combined. This may be a permanent shock, but we just won’t know until COVID is over. COVID is a long way from over.
The new remote work likely has a lot of flexibility, making it especially attractive to workers with childcare responsibilities. As I’ve previously noted, a worker making $18 per hour and paying for childcare and other taxes might be really working for $6 or less an hour. Staying at home and supplementing income with an online job is a very viable option for this worker.
It stands to reason after the labor market shocks of 2020 that we would experience a long-term change in behavior. When we face this type of change, it’s good to go back to first principles in thinking about them.
American labor markets are imperfect, but they aren’t broken. The state or federal government doesn’t owe workers a job at a salary they’d like to earn. Likewise, government doesn’t owe businesses a worker at the salary they’d like to pay. These are markets where services are exchanged for money and other benefits.
In the coming months, many of the current labor market challenges will correct themselves. Some workers will move back into labor markets and discover some positions are not quite worth the salary they thought they were. Businesses that cannot pay enough to hire the workers they need will close, freeing up labor for other businesses. Consumers will have to pay more for some goods or services. Some will do so, while others will spend their money on something else.
We should avoid the temptation to be overly concerned about these sorts of temporary adjustments. People and businesses are acting in ways that make themselves better off. And, in the final analysis, that is how an economy is supposed to work.
