If you regularly read this paper, spend much time downtown, or stay engaged in local gossip rings, you no doubt have read or heard the newest complaint from local business owners: We are struggling to hire enough workers because of the federal government’s stimulus payments to individuals.
Let’s take a quick look at what economic theory has to say about this complaint.
First, theory does predict that non-labor earnings—government transfers, interest or dividend payments, or even just a birthday check from Grandma—will encourage someone in the labor force to work fewer hours and will make it less likely that someone not in the labor force will choose to enter it.
In other words, we should expect that when the government sends a check to every household, labor supply would decrease, and employers would find it difficult to hire.
But, here’s why this economist is not buying the stimulus as an explanation for local hiring woes.
Data actually show that in February 2021, labor force participation in the Brunswick area was less than half of one percent below its pre-pandemic level from February 2020, and employment is down only one percent over the same time period.
People are working. Available data from 2020 show that the pandemic has caused a shift in the industries in which those people are working. From the beginning of 2020 to the end of the third quarter, Brunswick-area employment in leisure and hospitality dropped ten percent while employment in construction increased three percent. This is just one example of the sort of shift our labor market has seen that could be contributing to the difficulty of hiring in some sectors of our economy.
Moreover, on the supply side, there are much bigger issues keeping some folks out of the labor force right now than a couple of checks from the government.
As the parent of a 3-year-old, my ear is always close to the ground in our community’s childcare market. Due to the expenses involved in meeting pandemic safety requirements, we have lost several childcare facilities in the last year. This has huge implications for the labor market. Childcare is a parent’s prerequisite to participation in the labor market.
Then, there is the whole viral pandemic thing. Vaccines are out and not hard to come by in our neck of the woods, but this pandemic is not over. Many folks are choosing not to be vaccinated, and those who have not yet been approved for vaccination (our kids) are still at risk. Asking someone to tend a bar or run a register is still a dangerous ask. If an employer is hiring for the same job in a now-risky environment as they were hiring pre-pandemic, that employer should expect to pay higher wages than before to compensate the workers for the new risk. (Google compensating wage differentials for more on this.)
Now, we segue to the Demand side of the labor market, where the bottom line is that wage offerings just aren’t cutting it.
From the day I closed on my house in Brunswick and started talking with local employers, a common thread in every conversation with a business owner or hiring manager has been that it is hard to find reliable workers in our area. That was five years ago, long before COVID-19 existed. And my response always has been the same—you get what you pay for. It’s an adage that is true in markets for goods or services and also in markets for labor. If you are an employer who is struggling to hire and/or to keep good employees, economic theory is clear. The wage you are offering is below the market equilibrium.
If that was before families lost childcare, and job risk increased, then that same wage that was below the old market equilibrium is way below the new one. This is especially true in sectors experiencing soaring competition for labor from other sectors.
One could argue that the recent stimulus checks to households have unfairly pushed up the market equilibrium. But, according to the U.S. Chamber of Commerce, each stimulus package that has been passed during the pandemic has included multiple forms of aid to small businesses, including both loans and tax credits for businesses that chose not to lay off employees during the pandemic. The latest package even includes grants specifically for restaurants.
If stimulus aid to families has increased the wage workers are requiring, then stimulus aid has increased the wage employers are able to offer.
You get what you pay for.
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Dr. Melissa Trussell is a professor in the School of Business and Public Management at College of Coastal Georgia who works with the college’s Reg Murphy Center for Economic and Policy Studies. Contact her at mtrussell@ccga.edu.
Reg Murphy Center