Why Has Employment Been So Slow To Recover?

COMMENTARY Jobs and Labor

Why Has Employment Been So Slow To Recover?

Mar 11th, 2022 2 min read
COMMENTARY BY
Rachel Greszler

Senior Research Fellow, Grover M. Hermann Center

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
A "now hiring" sign is posted in the window of a restaurant in Los Angeles, California on January 28, 2022. FREDERIC J. BROWN / AFP / Getty Images

Key Takeaways

Work is fundamental to American society and human flourishing. That is why today’s labor shortage and low labor force participation rate are so troubling.

In fact, inflation has more than erased workers’ above-average wage gains, meaning their bigger paychecks buy them less at the grocery store and gas pump.

It’s time for the federal government to make work attractive again by eliminating work disincentives in welfare and entitlement programs.

Work is fundamental to American society and human flourishing. That is why today’s labor shortage and low labor force participation rate are so troubling.

Employment should have surged in 2021. The widespread availability of COVID-19 vaccines significantly slowed the spread of the original virus and the delta variant. That, combined with a year’s worth of pent-up household savings and trillions of dollars in new federal spending enacted in the name of COVID-19 relief, massively increased the demand for goods and services.

Yet there are 2.1 million fewer jobs today than there were prior to the pandemic, and the labor force has declined by 600,000 even as the population aged 16 and over has grown by 3.7 million.

But unlike past recoveries, it’s not a lack of jobs that’s the problem—it’s a lack of willing workers.

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With 11.3 million job openings, there are 1.7 jobs available for every unemployed worker. At the same point during the last recession and recovery (2009 to 2011), there were 0.27 jobs available for every unemployed worker.

With 48% of businesses having unfilled job openings, many employers can’t meet demand. That’s led to shortages of products and services, delays and even life-threatening limits on access to health care—something the impending vaccine mandates for Medicaid and Medicare providers will only exacerbate.

When businesses can’t get the workers they need, they have to increase wages and/or benefits. In January, a record-high 50% of businesses increased compensation, and 45% did so in February.  

Higher compensation is a great thing when it comes from workers becoming more productive, but when employers have to pay people more to do the exact same thing, that causes inflation. And inflation is a hidden tax that eats away at workers’ wages.

In fact, inflation has more than erased workers’ above-average wage gains, meaning their bigger paychecks buy them less at the grocery store and gas pump.

Bad government policies are directly fueling this inflationary cycle. Welfare-without-work policies have suppressed the labor supply at the same time as trillions of dollars’ worth of deficit-financed federal spending has artificially increased the demand for goods and services.

Excessive unemployment benefits, which paid most people more not to work than to work, were the worst of the work disincentives, but big increases in monthly food stamp benefits and expansions of eligibility for Obamacare are still subsidizing unemployment.

Pumping even more money that we don’t actually have into the economy and adding more unfunded government entitlements—as called for in the Build Back Better Act—would only exacerbate inflation and the labor shortage.

The recent drop in work and labor-force participation, particularly among working-age adults without dependents, is troubling. Counter to the narrative that a lack of child care is preventing many parents from reentering the workforce, the reality is that 71% of those missing from the workforce have no children.

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Workers are literally the fuel for the economy. Continued low levels of employment will reduce the rate of economic growth, result in smaller real incomes and output, cause greater dependence on government social programs, require higher levels of taxation and exacerbate America’s already precarious fiscal situation.

Federal lawmakers would be wise to heed the words of Robert Kennedy, later quoted by Bill Clinton when signing the successful welfare reforms of 1996: “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.”

It’s time for the federal government to make work attractive again by eliminating work disincentives in welfare and entitlement programs and removing government-imposed barriers that prevent employers from providing workers with real wage gains—ones that won’t be eaten away by inflation.

That includes eliminating needless regulations on business, ending double-taxes on investments that make people more productive and allowing people to work in the way that is best for them.

This piece originally appeared in The Washington Times