The lessons of Prohibition in Minnesota
One hundred years ago today, the 21st Amendment to the Constitution was ratified, the first line of which read: The eighteenth article of amendment to the Constitution of the United…
Earlier today, the Bureau of Labor Statistics (BLS) published employment numbers for June. And according to the data,
Total nonfarm payroll employment rose by 850,000 in June, and the unemployment rate was little changed at 5.9 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in leisure and hospitality, public and private education, professional and business services, retail trade, and other services.
This has led to some interesting comments.
Also, as the AP reported,
Speaking at the White House, President Joe Biden touted the job gains and suggested that his economic policies, including a $1.9 trillion economic relief plan that was enacted in March, were intended to make it easier for workers to find higher-paying jobs.
“The strength of our recovery is helping us flip the script,” Biden said. “Instead of workers competing with each other for jobs that are scarce, employers are competing with each other to attract workers.”
There are a couple of issues with this line of reasoning. For one, for an economy coming out of a pandemic that initially led to tens of millions of job losses, there was little where else to go but up. Especially considering that vaccination and a general waning coronavirus pandemic has enabled most states to loosen the restrictions they placed on businesses and that individuals are more confident about going outside and socializing, recovery was bound to be inevitable.
A very telling factor about this trend is the fact that most of the job gains have been concentrated in the leisure and hospitality industry, one that was majorly impacted by COVID-19 restrictions. As the Wall Street Journal reports
Perhaps no sector is heating up more than leisure and hospitality, which includes restaurants, bars, sports venues, museums and amusement parks. Nearly 1 in 4 jobs created last month were at restaurants and bars. Hourly wages for restaurant and other hospitality workers were up 7.9% in June from their pre-pandemic level.
“The floodgates have opened for events and food service and they didn’t open with regards to getting staff back,” said David Lombardo, general manager of Lombardo’s, a venue that hosts events in an ornate hall in Randolph, Mass., south of Boston.
Additionally, in recent weeks, employers have reported difficulty hiring workers. A couple of factors contributed to this, but the main culprit has been shown to be the expanded unemployment benefits that have been paying a lot of workers more to stay home than to work. So, if anything, the $1.9 trillion stimulus package has been more of a hindrance to recovery than a cause for it.
Unemployment benefits are usually intended to cover a fraction of wages. This is to ensure that unemployed individuals are able to afford a certain level of subsistence but are still motivated to find a job so they can go back to their initial level of income. Expanded unemployment benefits at the beginning of the pandemic presented little threat to employment considering massive job losses that were largely caused by governments’ response to the pandemic and workers fearing for their health.
However, as the virus weakened and businesses reopened, the expanded payments became a liability –– they discouraged individuals from looking for jobs. In Minnesota, individuals were receiving more on unemployment than from working. In fact, businesses were having trouble hiring for jobs paying as high as $25 an hour.
Indeed, employers are raising wages to attract workers. But that is largely due to government action, not the market. Businesses are raising wages because they are having to compete with higher than normal unemployment benefits, a trend that that is not sustainable.
Sustainable wage raises come due to increased productivity. Currently, productivity is not the driving factor for higher wages, which means that is it consumers, most of whom haven’t seen their incomes rise, that will be the ones on the hook for these higher labor costs.
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The legislature appropriates more money, the unions grab it for salaries, the school board cuts middle school band, and everyone blames the legislature for underfunding. Rinse and repeat.