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What’s Really Causing the Labor Shortage?

July 30, 2021

By Heather Nezich, courtesy of SBAM Approved Partner ASE

Many assume that today’s labor shortage is due to the additional unemployment benefits being provided by the federal government through September.  But is this really the case?

Census Bureau data suggests unemployment recipients didn’t rush to find jobs in the weeks following the first batch of state withdrawals, according to Arindrajit Dube, an economics professor at the University of Massachusetts Amherst.

Adults receiving unemployment benefits fell by 2.2 percentage points in the dozen states that cut federal funding on June 12 or 19, according to Dube. That translates to a 60% reduction in unemployment rolls in those states.  However, there wasn’t a corresponding increase in employment among this group — in fact, the share of adults with a job fell by 1.4 percentage points over the same period, according to Dube.  In fact, employment rose by 0.2 percentage points in states that didn’t end the pandemic benefits.

Jed Kolko, Chief Economist at Indeed Hiring Lab, analyzed job search activity on Indeed before and after states declared an end to the benefits. He found that initially there was an increase in job search activity in states that had announced an early end to the $300 federal unemployment benefit, compared to the national trends. There were nearly 5% more clicks on job postings in states that were ending the benefit early on the day governors made the announcement.  However, by the eighth day this increase diminished, and in the second week after the announcement job search clicks were no higher than before.  

Job search activity data by Indeed Hiring Lab shows that while some states ending the $300 enhanced unemployment benefit early saw an increase in clicks, others saw a decrease.  Kolko stated, “If overly generous federal UI benefits were holding back job seekers, then we would expect search activity to increase, relative to the national trend, in states where those benefits are ending sooner.”

Another study shows similar results. A paper by Federal Reserve Bank of San Francisco researchers concluded that expanded unemployment benefit payments have not created a strong disincentive for workers to return to jobs. Specifically, they found that the current $300 weekly federal unemployment benefit has had only a small effect on the job-finding rate.

So, what is causing the labor shortage? Some theories include:

  • COVID-19 health concerns
  • At-home care is still needed
  • Workers are holding out for higher wages
  • Workers are seeking more flexibility
  • People are making different decisions about work
  • More people are starting their own businesses
  • People are reassessing what they want to do and how they want to work

A recent Pew Research Center survey found that 66% of the unemployed have “seriously considered” changing their field of work, a far greater percentage than during the Great Recession.  For example, people who used to work in restaurants or travel are finding higher-paying jobs in warehouses or real estate.  Many have reconsidered their careers for something more stable and less likely to be affected by a crisis like the recent pandemic.

Even among those who have jobs, people are rethinking their options. Front-line workers are reporting high levels of burnout, causing some to seek a new career path. There’s also been a wave of retirements as workers over 50 quit because they don’t want to return to teaching, home health care, or other front-line jobs. Many workers retired as their retirement portfolios surged and they rethought their views on work.  This past year taught many that life is short – so enjoy it.

It’s impossible to identify one main reason for the shortage.  While unemployment benefits may play a small role, it is definitely not the only factor contributing to the current labor shortage. Organizations must rethink how to attract and retain employees in a workforce that has changed dramatically over the past year and a half.

Sources: CNBC; Hiring Lab; Forbes; LinkedIn; Washington Post

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