Labor Market Shortages Plague American Businesses

As the American economy came to a screeching halt in March 2020 when the pandemic unraveled on the country, the extreme economic downfall that followed for the next year was unexpected and extremely difficult to combat. Factors such as the overall longevity of the pandemic and the sudden shutdown of everyday life left our economy extremely vulnerable. Though efforts such as decreasing interest rates and pumping money back into the market through stimulus benefits for both individuals and businesses tried to combat the recessionary effects of the pandemic, unemployment rates in the United States managed to reach an all-time high.

The unemployment rate is one of the best indicators of the health of a country’s economy. If an economy is doing well, the result is a low unemployment rate because the markets and businesses are effectively using their available labor force to produce goods, services, etc. However, when the unemployment rate is high, it usually indicates that businesses do not have the capacity or confidence to support and meet their workers’ wages and benefits due to new changes that caused losses in profit.

So, when the pandemic hit, companies ranging from restaurants, airlines, and hospitality services all experienced a sudden loss in profit. With no capital, laying off their workers was the only option for many companies, resulting in skyrocketing unemployment rates at the beginning of the pandemic.

With businesses virtually shut down and everyone working from home, the unemployment rate signaled rough months ahead for the U.S. economy. Fast forward a year later to March 2021, the economy is looking up. After a year of stimulus checks, PPE loans, and extremely low- interest rates, the economy seems to be bouncing back up. And the two coveted words that everyone loves to hear finally start to come around again: Now Hiring!

It’s a phrase that everyone loves to see after an economic downfall. The prospect of new jobs means that businesses once again have the capital and capacity to hire and pay more workers. Throughout history, job growth has ultimately been a sign of economic growth and recovery.

But this economic recovery is different. The jobs are there, ready to be filled, but there are no available workers. Usually, it’s a surplus of workers who can’t find jobs during a period of economic downfall. Now, its businesses are unable to find workers to fill their open jobs. Restaurants, who can now open up as Covid restrictions have been lifted in states across the country, are still closed to business because they cannot find workers to staff their kitchens. Retail stores are still operating on shorter workdays because they also cannot find workers. So, the economy is opening up and recovering, businesses are hiring, and the economy is in a much better place than it was a year again. But the unemployment rate is still relatively high than before the pandemic, a clear contradiction of our progress over the last year.

This unusual trend of having a scarcity of available workers when the unemployment rate is so high is attributed to a few factors, both economic factors and social.

The first is the new introduction of direct payment and stimulus checks to individuals and families during the pandemic. This extremely expansive stimulus bill expanded unemployment benefits in a way Americans had never experienced. Now, everyone reaps the benefits of this stimulus bill, which gives a large sum of money compared to unemployment benefits before the pandemic.

As a result, many Americans, especially those who work in more minimum-wage jobs or low-paying white-collar jobs, find it more beneficial to stay home and collect an unemployment check rather than work. In some cases, people are making more of their unemployment benefits than their actual wages in their jobs, so they have no incentive to forfeit their unemployment benefits.

The increased safety net that these stimulus checks create also decreases people’s psychological need and motivation to work. For example, someone may work to put food on the table, be able to dress their children, and survive overall. Before the pandemic, people understood that the only way to make money to survive was to get a job. Having a job was crucial for survival, which is why we always had such an active and available labor force. However, after the pandemic, Americans abandoned this mindset of working as a means of survival. They experienced a year of getting “free” money, which was allowing them to survive by buying food, clothes, etc., without having to actually work for it.

As the government continues to give Americans unemployment benefits, it makes it harder and harder for people to once again embrace the mindset of working as a means of survival. Ultimately, this problem is now manifesting itself by creating a shortage of workers in an economy that now has a high volume of available jobs and hiring capacity.

The second factor contributing to this unusual phenomenon of unemployment stems from social problems and new social trends that emerged in the pandemic. Growing problems such as child care encourage people to stay home and not work. For example, a parent who cannot find a caretaker for their young child, since schools are virtual or hybrid, will opt to stay home rather than go back to work. They can now do so because their unemployment benefits make it easier to choose to stay home. These same benefits are also the reason why many caretakers and babysitters are no longer working, causing a scarcity in the child-care industries.

On top of this, many people are still scared of the pandemic. While vaccine rollout has been pivotal in reopening the economy, many people still do not feel safe. Whether it be that they have a vulnerable older family member or not every child in a household is vaccinated, people are still cautious for the most part. So, when they think of the prospect of going back to work, they compare the possible exposure to Covid at work to the safety of their house and the unemployment benefits they receive. And, they ultimately conclude that going back to work is not worth the risk, significantly decreasing the available labor force.

And finally, one of the most unexpected and indirect consequences of the pandemic was the mass movement of people out of urban cities into suburbs and more rural areas. As offices and businesses closed and embarked on entire virtual or remote work, many people, especially millennials who were paying high amounts of money for rent and transportation in cities like New York City, left and moved into places like New Jersey and Connecticut. People experienced a higher quality of life for less money in the suburbs while still having an income either through remote work or unemployment benefits.

As a result, as many businesses start to open up in cities, such as restaurants, bars, and stores, a lot of the labor force is no longer available because they have left the cities.

Between unemployment benefits, fear of the pandemic, and overall complacency with the pandemic lifestyle, the American labor force is now extremely unmotivated to get back to work. The economy is on an upward trend, and companies are ready to hire and open for business. Life and the economy are so close to reaching normalcy, but we are just missing one thing: the workers.

It is crucial to find a way to combat the scarcity of available workers in the coming months. If the American government and businesses do not find a way to do so, we are at risk of slowing down or completely stopping the economic recovery we have just started to experience.

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