There’s something funny going on in the U.S. labor market. Businesses are desperate to hire and they’re raising wages to attract workers, but they still can’t find enough people to fill a record number of job openings.
The U.S. added a robust 559,000 new jobs in May, but that still leaves the economy 7.6 million jobs short of pre-pandemic levels.
At the current rate of hiring, it would take 14 months to recoup all the jobs lost, never mind a few million extra jobs that would have been created had the pandemic never happened at all.
Making matters worse, people aren’t rushing to rejoin the labor force.
Fewer than 1 million people have entered the labor force since January despite a rapid U.S. economic recovery.
“At a time when the economy is emerging from the pandemic and the labor force is still 3.5 million below its pre-pandemic level, it is nothing short of a disaster,” argued chief U.S. economist Paul Ashworth of Capital Economics.
Economists put forth a variety of explanations as to why so many people still aren’t working:
- Many baby boomers retired instead of waiting out the pandemic. Record stock market gains made it easier for them to cash out, too. A recent U.S. Census survey suggests 1.7 million people between 55 and 65 retired early.
- Limited options for the care of children and elderly family members. A number of women in the workplace suggest these issues haven’t totally gone away even though summer is here and most of the economy has fully reopened.
- Fear of the coronavirus. Some 2.5 million people said they were prevented from looking for a job in May because of the pandemic, the Labor Department said.
- Generous unemployment benefits. Many businesses contend an extra $300 in federal aid to jobless workers each week discourages them from taking a job. Some earn more from unemployment benefits than they do from working.
“Our research suggests that generous unemployment benefit supplements are the main factor holding employment growth back,” said economist Katherine Judge of CIBC World Markets.
The debate over unemployment benefits has grown particularly intense after 25 states announced they would stop offering the federal stipend by the end of June.
Conservatives say the extra benefits are shackling the recovery while liberals argue that companies simply need to pay more money to fill open jobs.
Yet that’s what many businesses are already doing. Average hourly pay rose sharply in May for the second month in a row, with increases particularly strong in lower-wage jobs at hotels, restaurants and entertainment venues.
“Labor shortages in parts of the economy that are opening up are lifting wages in sectors such as leisure and hospitality and retail trade,” said William Foster, vice president at Moody’s Investors Service.
Whatever the case, the end of extra federal benefits in half the country is going to be watched closely.
By early July, economists at Jefferies LLC estimate, “3.9 million people will become very motivated to find work.” The firm expects hiring to surge in July as a result.