Government Scrambles to Solve Apparent Labor Shortage

Are Unemployment Benefits to Blame or Do Wages Need to Go Up?

President Biden delivers remarks on the economy from the East Room of White House on May 10, 2021.
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Drew Angerer/Getty Images

Leaders at both the national and state level are scrambling to address an apparent—and surprising—shortage of workers that some say has been exacerbated by extra pandemic-era benefits for the unemployed.

Key Takeaways

  • Two recent government reports, including one showing a record number of job openings in March, signal some employers are finding it challenging to fill positions.
  • After the economy added about a quarter of the jobs economists expected in April, President Joe Biden this week took steps to encourage people to return to work, including reinstating job search requirements for those collecting unemployment benefits.
  • At least six states have withdrawn early from federal pandemic unemployment programs, citing worker shortages.
  • Increasing wages may become key to attracting people back to the workforce, some economists say. Other factors keeping people on the sidelines may include fear of contracting the virus and lack of childcare.

Despite resisting the suggestion that Americans would rather stay home and collect unemployment insurance than return to work, President Joe Biden on Monday took several steps designed to urge people to get back into the labor force, including re-imposing an across-the-board requirement that those who collect benefits must be searching for a job. Meanwhile, at least six state governors have said they will withdraw from federal pandemic unemployment programs early because the programs have outlived their usefulness.

The moves come as debate rages over whether pandemic-triggered government benefits—including a $300 a week federal supplement to state-administered unemployment insurance—are actually discouraging work as increasing vaccination rates reinvigorate the economy. Two recent government reports signaled hiring has become a challenge: Not only did the Bureau of Labor Statistics on Friday report a sharp and unexpected decline in job growth in April, but on Tuesday, in a separate report, it said the country had a record number of job openings in March.

“I know there’s been a lot of discussion since Friday’s report that people are being paid to stay home rather than go to work. Well, we don’t see much evidence of that,” Biden said in a speech at the White House Monday. “So we’ll insist that the law is followed with respect to benefits, but we’re not going to turn our backs on our fellow Americans.”

Biden directed the Department of Labor to reinstate job search requirements for collecting benefits—a rule that had been suspended when the pandemic hit, but which 29 states have already brought back. He also directed the agency to clarify that workers cannot turn down jobs and still collect unemployment insurance because of “non-specific” concerns about COVID-19. This follows federal guidelines issued in February that said unemployed people could decline work over pandemic safety fears and still collect benefits.

States Cut Off Pandemic Unemployment Benefits

At least six states have set dates for withdrawing early from federal programs not set to expire until September. South Carolina, Arkansas, Alabama, Iowa, and Mississippi followed Montana in cutting the programs off in June. Residents of those states will no longer be able to participate in programs that extended the length of time people could claim regular state unemployment benefits, allowed gig workers and contractors to collect benefits, and provided the extra $300 a week.

And the U.S. Chamber of Commerce, a lobbying group representing more than 3 million businesses, has called for an end to the supplements for everyone, saying Friday that the disappointing jobs report showed “paying people not to work” was harming the labor market.

“This will cause enormous suffering of those whose benefits are prematurely cut off,” Heidi Shierholz, senior economist at the Economic Policy Institute, a nonprofit think tank, wrote in an email about the states withdrawing early. “It will also damage the economies of states that do it, since they are turning away federal money that is providing fiscal support. It’s terrible economics!”

Other Potential Influences 

It makes sense that additional unemployment benefits could be encouraging some people to sit on the sidelines, since about half of those collecting unemployment benefits are getting more than they would in wages, according to Harvard University economists Jason Furman—who was previously a top economic advisor to former President Barack Obama—and Wilson Powell III.

But the biggest factor holding people back from working is probably wariness about contracting the COVID-19 virus, they wrote in a commentary Friday. A lack of available childcare due to schools being closed is likely also contributing.

What’s more, one man’s labor shortage is another man’s bargaining power. Workers may be holding out for better wages, particularly in light of increased risks in some workplaces, Powell and Furman wrote.

For example, the restaurant chain Chipotle Mexican Grill announced Monday it would raise starting wages and add hiring bonuses in an effort to fill 20,000 positions.

Indeed, the poor numbers in the April report might be an indication that the job market—still short 8.2 million jobs from pre-pandemic levels—will take some time to sort itself out, Stephanie Aaronson, director of economic studies at the Brookings Institution think tank, said during a podcast Friday.

“There’s a way that employers can resolve that problem, which is to pay higher wages to make it more appealing for workers to return to work, and in fact, we have been seeing wages rising,” Aaronson said.