Is there a labor shortage? What the May jobs report tells us

Before Memorial Day near the boardwalk in Wildwood, New Jersey, a Help Wanted sign is displayed outside a store.

Spencer Platt | Getty Images News | Getty Images

The weaker-than-expected job report from April fueled speculation about a labor shortage in the US and prompted some state officials to declare an early end to the increased unemployment benefits.

But forecasters hoping for clarity from the May count could scratch their heads.

According to economists, it is difficult to draw any conclusions about persistent weakness or problems in the labor supply from the data released on Friday. The May report offers something of a mixed bag and somewhat conflicting data points, they said.

“It’s a Rorschach test,” says Nick Bunker, an economist at Indeed job site. “There is a pile of ink on a piece of paper and everyone sees different pictures.”

Job report May

For example, there’s the headline: The US economy put 559,000 people on its payroll in May.

On the one hand, some observers could use the data point to suggest that workers are not re-entering the workforce as quickly as one might expect.

The number of jobs was below the economists’ estimate of 671,000. At this rate, it would take more than a year to restore all jobs lost since February 2020.

On the other hand, employment growth accelerated in May – the number of new employees doubled from April. And the most recent recessions, according to economists, have been marked by a long rebound in jobs.

May job growth was roughly in line with the last three months average – which suggests they were in line with expectations, Bunker said.

“I think it’s a story of expectation versus reality,” he said. “What a good rate of growth is is somehow in the eye of the beholder.”

Labor force participation

Rising wages

Perhaps the clearest evidence of a labor shortage in the May job report is wage growth, particularly in the labor and hospitality sectors, according to Daniel Zhao, senior economist at Glassdoor, a job and recruiting website.

Rising wages suggest that companies struggling to hire may pay more to attract workers.

Unfortunately that is [May] Report will not end this labor shortage debate. Both sides have ammunition to back up their arguments.

Daniel Zhao

Senior Economist at Glassdoor

Hourly wages rose nearly 9% last year to $ 15.87 for non-executive employees in the industry, which includes restaurants, hotels, and bars. (Revenue has increased $ 0.19 an hour since April.)

That growth is significant as recreation and hospitality appear to be the most commonly reported hiring challenges, Zhao said.

However, the increase may not be entirely – or even largely – due to increases in company salaries.

Instead, tips are likely responsible for the raise as restaurants and bars return to pre-Covid customer capacities, according to Josh Bivens, research director at the Economic Policy Institute, a left-wing think tank.

“As of December 2020, the increase in tips, rather than an increase in the base wage, can likely fully explain the acceleration in wages for production and unsupervised workers in restaurants and bars,” he wrote on Friday.

Also, leisure and hospitality jobs rose 292,000 in May – the most in any industry and potentially undermining the labor supply argument. At the same time, it was a slowdown from 328,000 new jobs in April.

Critics of the labor shortage argument point to other data points, such as the relatively unchanged average working hours. (Companies tend to increase working hours for existing employees if they cannot take other employees on board.)

“Unfortunately it is [May] “The report will not end this labor shortage debate,” Zhao said. “Both sides have ammunition to back up their arguments.”

What causes delivery bottlenecks?

To the extent that there is a labor shortage, the recruitment challenges are likely to be temporary, according to economists.

Twenty-five states are ending federal expanded unemployment benefits before it officially expires on September 6 in an attempt to encourage re-entry into work.

The states, all of which are run by Republican governors, do so on June 12th at the earliest.

“The loudest source of speculation [for labor shortages] is that the weekly unemployment benefit supplement is tempting a lot of people to stay home, “said Erica Groshen, Cornell University employment economist and former commissioner of the Bureau of Labor Statistics during the Obama administration.” I think that’s a lot too a lot. “simplified.”

Economists point to a variety of other factors that can also dampen the return of employees to work: childcare obligations, persistent health risks, health complications for Covid long-distance drivers, early retirement, career changes or reassessments as well as a high historical proportion of employees who are on leave and expect to be called back to their previous place of work.

However, it is impossible to quantify how much any of these factors will play a role during the economic recovery, experts said.

“These factors work in conjunction with unemployment insurance, which can allow workers to rethink their careers, try to find jobs in new industries and bargain for higher wages – but also slow job growth and prolong long-term unemployment,” said Harvard University economists Jason Furman and Wilson Powell III.

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