Where did the employees go?

There is a growing problem in our country. The economy is now recovering from the government-imposed mandates which effectively shut down the national economy. However, employment has not matched that growth. Employers are now searching for employees but are having difficulties finding applicants. What happened to our workforce?

The economy had a modest steady growth rate (2-3%) after a slump in 2016. The rate of growth collapsed after the pandemic-related directives came into being which shuttered many operations, particularly small businesses. There was a significant drop starting in early 2020 and a subsequent crash by mid-year (negative 9%). Since the start of the recovery in 2021 the rate is now above six percent.

Unemployment initially followed this trajectory. In 2020, unemployment rate increased to 10.3 percentage points and peaked in April 2020 at 14.7 percent. The number of unemployed workers rose by 15.9 million to 23.1 million. Since that time, the unemployment rate has steadily declined and stands at 6.4% a year later.

However, the growth in jobs has been sporadic despite an increasing demand for labor. In March 20201, job growth was well ahead of the 675,000 estimate and the fastest since August 2020. Nonfarm payrolls were estimated to increase by 916,000. U.S. job openings rose 8% to a record 8.1 million, but overall hiring rose less than 4%. In April that growth collapsed, and figures were dramatically below expected (266,000 jobs added versus an estimate of 1 million). Further, the manufacturing sector lost 18,000 despite strong consumer demand. The actual March remployment figures have now been adjusted downward to 770,000.

What has happened?

There are two disparate notions to explain the dichotomy between economic growth and employment. They differ significantly in their explanation of causes, which promotes significantly different solutions. However, both point to a potential negative impact on the national economy.

One posits a fundamental mismatch between job openings and the skills of the unemployed. The argument is that the “New Economy” now emerging from the Pandemic Era is substantively different than before while the workforce skill base remains the same.

When the unemployment rate spiked during the spring of 2020, jobs that required a college degree declined more than those that did not. The rapidly growing e-commerce sparked by pandemic-related government restrictions will likely continue. This will further increase demand for technology-based jobs which were already in short supply.

This growing mismatch may be true in the some (primarily tech-related) and explain part of the problem, but there is a hidden issue that policy wonks in Washington do not want to address because it runs against their “big government” narrative. The counter argument may appear more anecdotal in nature, but is at the heart of the growth-employment gap.

In response to the very real pain caused by the business shut-downs (mostly a result of their mandates), the government has dramatically increased spending. Already, there have been two tranches of stimulus expenditures totaling over $3 trillion in deficit spending (much of it unrelated to the current issue).

The relevant outlays were targeted at both businesses and their employees. Programs like the PPP (Payroll Protection Plan) aimed at assisting companies retain employees. Because these created an artificial situation, employees were generally furloughed once the payments expired. This has helped generate the mismatch in the employment because it discouraged businesses from transforming to meet the market.

Likewise, employees were supported through stimulus payments and supplemental unemployment funding. Unfortunately, this has created an “adverse incentive.” In many cases, the payments to stay home are larger than the amount an employee could make in their previous jobs. This is particularly true in the hospitality and retail sectors where wages are lower.

Hospitality is the second largest sector of GDP, second only to the Government (which ought to alarm us). These business account for $1.4 Trillion with 1 in 18 Americans working in the industry. By 2020, the restaurant industry alone declined by $240 billion and had lost over 2.2 million jobs.

With the easing of government-imposed restrictions, the reopening of the American economy has created a significant impetus for rehiring, yet many jobs go unfilled. Locally, “now hiring” signs have become ubiquitous. A significant reason for this is the $300 weekly unemployment boost the Biden administration extended through the beginning of September. Sensibly, Gov Lee is now withdrawing Tennessee from that program.

Lest my comments be misunderstood, there are clearly cases where some form of assistance is warranted; however, when the Federal government gets involved and creates a “one kind fits all” policy, the result is what we see today. The mismatch is not only in skills (which targeted workforce programs and the market could largely resolve), but also caused by a deliberate program which disincentivizes workers from actually “working.”

Do we really think that COVID changed human nature? As Fazoli’s CEO Carl Howard put it, “If I was a kid and … I’m making all this money to stay at home. I’m playing PlayStation till four o’clock in the morning. I’m not going back to work. Are you kidding me?” This epitomizes the predicament facing small businesses across the country. Some local restaurants have gone to pick-up only or have extended wait times for service simply because they cannot find enough workers to fill open positions. Yet there are able-bodied citizens available.

What will happen in September? Will we allow the additional benefits to sunset giving people an incentive to reenter the workplace? Or will the government simply say, “Look at all these unemployed people; we need to continue our support them?” Discounting the fact that many are being paid to be unemployed, the latter is the more likely outcome. This will continue to undermine the health of our economy and further the trend towards dependency on government largess.

Where have all the employees gone? Well, they appear to be at home. The questions are, “Why?” and “How do we get them back to work?