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In the past few weeks, 22 states have announced they would end federal pandemic unemployment benefits, which pay recipients $300 on top of state benefits and are scheduled to run into September. (New Hampshire is the latest.)
Many of the states’ governors, all Republicans, made statements similar to that of Gov. Henry McMaster of South Carolina, who said the expanded benefits are “incentivizing and paying workers to stay at home rather than encouraging them to return to the workplace.” The U.S. Chamber of Commerce said the same.
Businesses of all types report that they are having trouble hiring despite high unemployment. But are expanded unemployment benefits really to blame?
We asked experts in economics, recruiting and other fields what’s making it hard for many U.S. businesses to hire right now — and what they can do to fix it.
Aaron Sojourner: ‘The labor market remains sick with the virus’
Mr. Sojourner is a labor economist and an associate professor at the Carlson School of Management at the University of Minnesota.
Are expanded unemployment payments to blame for apparent labor shortages?
The labor market remains sick with the virus, affecting both supply and demand. The virus reduces the value of jobs to workers — by making many jobs riskier for workers and their loved ones and less pleasant if policing customers — and reduces the value of jobs to many employers because they haven’t been able to serve as many customers per worker. Further, the value of being home increased both because of increased child, elder and sick care responsibilities and additional unemployment insurance benefits. What’s being called a labor shortage is still a health shortage, a wage shortage and a care shortage.
Sensible theories tell us that unemployment insurance levels could reduce workers’ job search intensity, but well-done studies found that wasn’t really the case in 2020. Demand may be rising faster than supply but things are changing fast, systematic data is slow, and so anyone who tells you they know exactly what’s happening in America broadly now is wrong.
What else is going on here?
Assuming employed, essential workers were more likely to get vaccinated earlier, the non-vaccinated rate is substantially higher for working-age Americans who are not working. My analysis of census data shows that, in January through March, for every 10 percent of working-age people vaccinated, about 1 percent more became employed. Our working-age employment rate remains about three percentage points down from February 2020. If this relationship continued to hold as we vaccinate the next 30 percent of working-age Americans, the remaining employment gap could close. It’s not that simple, but I do think that it suggests that public health remains the first-order issue.
For employers with some flexibility in setting wages, they may not raise wage offers to new hires because internal equity then pressures for raises to incumbents and that reduces their profit. These employers will feel like they want to hire, but not so much that they will raise wage offers enough to attract candidates. They will cry about labor shortages but not compete hard.
What can companies do to attract workers?
First, make the job better. Improve wages, benefits, training, safety and respect. Ensure every supervisor treats employees with respect. Are any consistently experiencing higher turnover in their unit?
Second, promote public health by taking coronavirus precautions. This will help everyone and reassure workers who’ve stayed out of the labor market due to health concerns.
Third, be more transparent about what the job offers. Many managers post vague job openings in order to preserve their bargaining flexibility, so they can make a tailored offer after learning about a specific candidate’s circumstances. However, vague vacancy descriptions can lead to two kinds of expensive errors. First, some people who would be a good fit don’t apply because they can’t recognize that the job would be a good fit. Second, people who would not be a good fit apply because the ad is not clear and then the manager has to waste time interfacing with them.
“What we’re seeing is companies post job openings in record numbers, but applicant activity is at record lows.”
— Steve Lucas, the chief executives of iCIMS, a recruiting software company used by 4,300 employers worldwide. Since the beginning of the year, job openings on the platform have increased by 35 percent, while job applications are down by 20 percent. On average, employers have been receiving 3.5 fewer applications per job opening.
Tsedal Neeley: ‘People are not merely financial engines’
Ms. Neeley is a professor at Harvard Business School and the author of “Remote Work Revolution: Succeeding From Anywhere.”
Are expanded unemployment payments to blame for apparent labor shortages?
Context matters. People are not merely financial engines. We are still in the middle of a pandemic even though we are seeing significant improvements. Nearly every facet of people’s work and nonwork lives has been upended. For many people, support systems that were in place for child and elder care have disappeared.
What else is going on here?
Caretaking responsibilities are coupled with the fear and anxiety wrought by the contagious virus. Even those who are currently employed are hesitant to return to their workplaces immediately. It takes time to secure workplaces and give people confidence that they will be safe.
What can companies do to attract workers?
Companies can leverage flex time, the greatest gift that remote work offers. To be able to say in job searches that “mode of work is flexible” will help attract and retain workers.
A hallmark of virtual work — autonomy — allows for a degree of control over one’s working conditions and processes. Pragmatically, this means offering candidates the opportunity to segment their day as they wish, provided they are available for synchronous and asynchronous collaborative efforts.
Autonomy does not mean giving employees free rein to do whatever they want. Even if they are out of sight, remote workers are still accountable to their teammates, project goals and productivity agreements. Nor is autonomy equivalent to isolation. Employees still need leadership, guidance, feedback and connection.
“Women account for a disproportionate number of job losses, and for them to be able to re-enter the work force, we’re definitely going to have to have the pandemic under control and also have schools and day care open.”
— C. Nicole Mason, president and chief executive officer of the Institute for Women’s Policy Research. Millions of women have either lost their jobs or stopped looking for work since the beginning of the pandemic.
Steven Rattner: ‘Government transfers only tell part of the story’
Mr. Rattner, a contributing opinion writer for The Times, led the auto industry task force during the Obama administration.
Are expanded unemployment payments to blame for apparent labor shortages?
While a variety of factors are at work, expanded unemployment benefits and stimulus payments have doubtless played a role. Though jobless benefits vary from state to state, in most parts of the country, unemployment insurance can result in higher earnings for some members of the work force than taking a job. In Pennsylvania, for example, the extra $300 per week from the federal government on top of the state benefit raises a minimum wage earner’s weekly pay by more than 50 percent. Pennsylvania residents who make close to the median hourly wage will find themselves with as much pretax income as they had when they were working. In addition, some of these earnings, as was the case for this past year, may go untaxed. All of that has led some Americans to choose to sit back and wait.
What else is going on here?
Government transfers only tell part of the story. While the economy has shed more than eight million jobs since February 2020, the overall labor force is also 3.5 million people smaller. Workers who have exited the labor force are by definition not receiving unemployment benefits (though they likely received stimulus payments), which suggests that other factors are also at play.
Many have chosen to retire somewhat earlier than expected. But others, especially mothers, have had to exit the labor force to take care of their children as schools remain closed for in-person learning. As with the expiration of expanded unemployment insurance, it will be interesting to see the extent to which the labor force grows once children are back in school and parents are no longer required at home. Ditto for those who chose not to work because of the public health crisis, as that concern recedes.
What can companies do to attract workers?
One way is the way they always have: with increased pay and incentives. In many ways, enhanced unemployment benefits are a backdoor to higher wages for those closer to the bottom. We saw an analogous situation before Covid-19, when unemployment was as low as 3.5 percent. Companies were forced to raise pay, and wage earners in the bottom quartile saw the fastest growth in pay. That trend may now be accelerating. For example, big retailers like Costco have been raising wages for entry-level applicants. That’s encouraging.
What the research says
Since the first pandemic relief bill — the CARES Act, which was passed in March 2020 — economists have studied how workers’ behavior has changed along with the value of extra federal unemployment benefits. Most researchers found that the payments didn’t have a big effect:
“We find no evidence that more generous benefits disincentivized work either at the onset of the expansion or as firms looked to return to business over time.” — Researchers at Yale used data from a company that provides scheduling software to small businesses to examine whether the $600 weekly supplement early in the pandemic led to increased layoffs or discouraged workers from returning to their jobs.
“Simple job search models predict a sharp decline in search in the wake of a substantial benefit expansion, followed by a sustained rebound when benefits expire. We instead find that the job-finding rate is quite stable.” — Researchers at the University of Chicago and JPMorgan Chase analyzed anonymized bank account data to assess the effects of the $600 supplement.
“I find little impact of job gains from the benefit reduction.” — Arindrajit Dube, an economist at the University of Massachusetts Amherst, used data from the weekly Census Household Pulse Survey to show how the end of the $600 supplement affected hiring trends.
“Over all, our evidence suggests that employers did not experience greater difficulty finding applicants for their vacancies after the CARES Act, despite the large increase in unemployment benefits.” — Researchers at the University of Pennsylvania, the New York Fed and Glassdoor analyzed job applications and vacancy listings data from December 2019 to June 2020.
But research that examined what happened in 2020 may not tell the full story of what is going on now, said Douglas Holtz-Eakin, president of the American Action Forum. Research “unambiguously” finds that more generous unemployment insurance is linked with longer spells of unemployment, he said.
“We are increasingly, every day, coming closer to a more normal situation in the labor market, not driven by health concerns in the coronavirus,” he said. “And I’d want to look at evidence about behavior in those circumstances.”
What do you think? Are unemployment benefits the cause of labor shortages? Should companies do more to attract workers? Let us know: [email protected].
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