My City August 2021

MYECON

J ob openings are everywhere. One cannot drive down a street without seeing “Help Wanted” signs in front of most businesses. Anyone who goes to a bar, restaurant or other commercial es tablishment is likely to encounter slow, short-staffed service. These labor shortages are a unique feature of the CO VID-19 recession. During a typical recession, the situa tion is the opposite – there is a surplus of workers, with more people looking for jobs than there are jobs available, resulting in unemployment.Thus, the labor market dur ing the COVID-19 recession and recovery is unique. In fact, there are currently 9.3 million job openings across the United States, a record high number. If all these job openings were filled, total employment in the economy would exceed its pre-COVID high. However, there currently are seven million fewer jobs in the economy than prior to COVID, with only 58% of the U.S. population currently em ployed.The “employment-to-population ratio,” is currently at its lowest level since the early 1980s.Thus, there is a record number of job openings, but a 40-year low in the percentage of the population that is employed.What explains this? A likely explanation is the enhanced unemployment benefit. Pre-COVID, the average weekly unemployment benefit was approximately $400.The first COVID relief bill, signed into law in March 2020, added an additional $600 per week to this benefit, more than doubling it. This means that an unemployed worker collected $4,000 per month in unemployment benefits during this time. Currently, an additional $300 is added to the weekly unemployment benefit, which still represents a 75% increase compared to the average benefit before COVID. Offering this enhanced benefit during the worst part of COVID might have made sense, given the severity and suddenness of the onset of the pandemic, and the Labor Market SHORTAGES BY DR. CHRISTOPHER DOUGLAS

layoffs that ensued. The average weekly wage in the U.S. is approximately $1,000. Thus, the $600 enhance ment brought the average unemployment benefit up to the average weekly wage so that the typical unem ployed worker was made whole during this time. Given how antiquated the unemployment insurance software is, it was impossible to tune this enhancement more finely, compared to just giving everyone an additional $600/week.Thus, some workers made more on unemploy ment than they would working. A person working 40 hours a week works 160 hours a month; thus, collecting $4,000/month in enhanced benefits is equivalent to mak ing $25/hr. A worker, obviously, would turn down any job that paid less than this! The current $300/week enhance ment is equivalent to making $17.50/hr. Any employer of fering less than that is going to have a hard time attracting workers, which likely explains the labor market shortages. Employers could raise wages to offset this, but many are not able to do so after being shuttered for 16 months. The enhanced unemployment benefits are sched uled to expire in September. If they are not extended, I expect an increase in the employment-to-population ratio and a reduction in the labor shortages. x

Regina / stock.adobe.com

Dr. Christopher Douglas came to the Univer sity of Michigan-Flint in 2006. He earned a B.S. in Electrical Engineering and a B.S. in Economics from Michigan Technological Uni versity in 2001, and his Ph.D. in Economics from Michigan State University in 2007. As

Associate Professor and Chair of the Department of Economics, he teaches Principles of Microeconomics, Principles of Macroeconomics, International Economics, Public Finance, and Sports Economics.

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