Unfathomable. Inexplicable. Unparalleled. The current labor market is unlike anything America has experienced before, and unlike anything one could have fathomed at the start of the COVID-19 pandemic.
Instead of Americans desperately seeking jobs, employers are desperately seeking workers, with 11 million job openings in October compared to 7.4 million unemployed.
In November, a whopping 48% of business owners were unable to fill open positions—a figure that is more than double the historical average of 22%.
Instead of low pay raises or no raises and potential cuts in benefits packages, Americans have experienced a significantly higher-than-average 4.8% increase in hourly wages alongside expanded benefits packages. But high inflation has eaten away those gains, resulting in a net 1.9% decrease in the value of workers’ hourly wages.
According to the National Federation of Independent Business, 44% of business owners reported raising compensation in November—a 48-year record high). And 32% of business owners said they plan to raise compensation in the next three months, also a record high.
Who are the workers who aren’t working? How did this happen? And how long will it last?
My new report for The Heritage Foundation explores unpublished data from the Bureau of Labor’s Statistics Current Population Survey to see what types of workers have experienced the greatest declines in employment and explores how government policies affect the current, and future, labor market. (Note: That report was based on data through October, while this piece updates some statistics based on November data).
At the start of the pandemic, employment losses were concentrated among women. Somewhat surprisingly, parents—even those with young children whose had day care facilities and schools were closed—had smaller employment declines than nonparents did.
But beginning in the spring of 2021, something shifted. Parents’ employment flattened and even declined as nonparents’ employment continued to rise. And as women’s employment almost caught up to men’s employment, it reversed course sharply.
In March, the employment gaps for men and women (the difference between actual employment and where employment would have been had it stayed steady since before the pandemic struck in February 2020) were relatively close—a 5.7% gap for men, a 6.4% gap for women.
But as of November, the employment gap for men is 1.8% while women’s is 3.3%. The total employment gap across all Americans is 2.5%, or 4 million workers.
Similarly, parents’ employment shifted. In February, the employment gap for parents with children under 18 was 5.8%, while the gap for workers without children was 6.1%. As of November, parents’ employment gap was 4% and nonparents’ was 1.8%.
Although it’s too soon to know for sure, it’s possible that the large government stimulus checks and monthly child care payments passed in March by Congress as part of the American Rescue Package prompted many parents—particularly women—to drop out of the labor force.
Politicians who want to enact a massive new child care entitlement program are quick to blame the worker shortage on child care struggles. However, the former chairman of President Barack Obama’s Council of Economic Advisers, Jason Furman, found in a May report that child care struggles are not to blame for low employment levels.
Another suggestion—sometimes used in defense of unauthorized vaccine mandates—has been that Americans are fearful of COVID-19. But according to the Bureau of Labor Statistics, only 1.2% of those who aren’t in the labor force said they’re not looking for work because of the pandemic. That’s down from 9.5% in May 2020.
Will the labor market improve?
In significant part, the future of the labor market depends on policymakers’ responses and whether they seek to remove barriers to employment and encourage work or to enact new barriers and discourage work.
Excessive welfare benefits enacted in the name of COVID-19 undoubtedly have held back some Americans from working. Weekly $1,000 unemployment checks, a 21% increase in food stamp benefits, huge expansions in Obamacare subsidies, an unlawful eviction moratorium, rental assistance, and three rounds of stimulus payments offered up so much in government “assistance” that many Americans concluded that they were better off not working.
In fact, even with high unemployment, Americans saved $2.2 trillion more in the year following the beginning of the pandemic than they did the year before ($3.5 trillion vs. $1.3 trillion).
An analysis by economist and author Casey Mulligan found that states that did not end unemployment insurance bonuses could have gained an additional 800,000 jobs in July and August if they had experienced the same pace of employment recovery in those months as the states that did end those extra benefits.
The solution to increasing workforce participation is twofold: It has to pay to work and it can’t pay not to work.
The primary problem today is the latter—government benefits have made it too easy for Americans not to work.
Democrats’ so-called Build Back Better Act would exacerbate this problem by making many of the pandemic’s welfare-without-work policies permanent and adding new disincentives to work. Furthermore, the central planning provisions of this huge social spending bill would make it harder for businesses to employ workers.
A study by researchers at the University of Chicago estimated that making child care payments permanent—currently a one-year provision in the legislation—would spur 1.5 million parents to drop out of the labor force. Those losses would occur disproportionately among low-income and single-parent households, where work is critical to breaking cycles of poverty.
When President Bill Clinton signed the historic, bipartisan welfare reform package in 1996, he talked about how many Americans had been “trapped on welfare for a very long time, exiling them from the entire community of work that gives structure to our lives.”
Clinton quoted Robert F. Kennedy, who had declared: “Work is the meaning of what this country is all about. We need it as individuals, we need to sense it in our fellow citizens and we need it as a society and as a people.”
Democrats’ big-government socialism bill would erode work in America, spending $4.9 trillion (if its provisions are made permanent) in an attempt to micromanage the economy and individual households in ways that would leave Americans worse off.
A far easier and more fruitful approach to encourage Americans to pursue their productive capabilities would be to focus on removing existing barriers to work.
Policymakers should ensure that work pays—by limiting taxes, enabling larger natural wage increases, and opening more doors to flexible income opportunities.
Above all, policymakers need to orient America’s entitlement and welfare programs toward work, so that choosing not to work doesn’t pay.
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