A sign of how messed up the moving parts of the economy have become, amid massive excesses and distortions connected by malfunctioning gearing.
By Wolf Richter for WOLF STREET.
In an interview a few days ago that aired locally, the owner of an Italian restaurant in San Francisco – the restaurant scene is now vibrant in a different way than before – put her struggles with hiring on the table. The kitchen staff had come back, she said, but she had trouble hiring back the staff for the front of the restaurant, the wait staff, who are normally fairly well paid via tips.
She said that many of these people have other dreams. They were artists or writers or students or entrepreneurs, or whatever, and waiting tables wasn’t their career, it was just a way to make ends meet. And many of them had moved on during the pandemic or were using their unemployment benefits to push their dreams forward, rather than returning to restaurant work.
Employment in food services and drinking places rose by 186,000 in May from April, according to the Bureau of Labor Statistics today. In the leisure and hospitality industry overall – which also includes hotels and casinos – employment jumped by 292,000 in May, and has been gaining all year as restaurants and hotels reopened, but was still down by 2.5 million people compared to the peak in February 2020.
Every restaurant owner has their own struggles. Pay raises are being implemented to bring people back, including at big chain restaurants. But what the owner of the Italian restaurant said was that for her, hiring waitstaff, who earn substantial tips, was the difficulty; and that her kitchen staff, the hourly employees, were largely back at work. Which makes the whole story a lot more complex.
Then there is manufacturing. The complaints from manufacturers about the difficulties of hiring have been circling for decades, as the industry is requiring ever more sophisticated labor because automation is playing an ever-larger role.
But now, in addition to the difficulties of finding the right kind of labor, manufacturers are deeply tangled up in supply-chain issues and being able to get components, raw materials, and supplies in time, with lead-times blowing out, putting a damper on what they could manufacture, and on the labor they could employ if they got everything they needed.
Every crisis has incentivized manufacturers to cut costs by investing in automation or by offshoring production. Manufacturing employment peaked in the 1970s and has since fallen by about one third.
In May, the number of workers in manufacturing ticked up by only 23,000, after falling by 32,000 in April, and was still 509,000 below where it had been in February 2020:
In 2008, during the Great Recession, employment in manufacturing and employment in the leisure and hospitality industry crossed for the first time, driven by offshoring, automation, and Americans’ love for traveling and eating out. This trend – with exception of the collapse of travel and eating out during the lockdowns – has broadened since then. Note that during the Great Recession, as employment in manufacturing plunged, employment in the leisure and hospitality industry only dipped. This time, it collapsed:
And then there are construction jobs. Construction is booming, especially residential construction – but handicapped by material shortages, spiking prices, and long lead times for some materials, and complaints in residential construction about labor shortages.
So back to the weird phenomenon: Construction employment fell by 20,000 jobs in May, compared to April, and was still 225,000 lower than in February 2020. But it wasn’t evenly spread. The number of people working in building construction rose by 4,900, nearly all of the gains in the segment of residential buildings.
It’s with businesses in heavy and civil engineering construction, where employment fell by 5,500 and with specialty trade contractors, where employment fell by 19,300.
Then there is the so-called retirement boom, which is curious but makes sense on a conceptual basis: At least 1.7 million more workers than expected retired due to the pandemic, according to the Schwartz Center for Economic Policy Analysis. These are people who are sitting on their stock market gains or crypto gains or housing gains, and they’ve got enough, and they lost their jobs or quit their jobs, or they closed their businesses and medical practices, and they don’t feel like returning to work, and they’re not looking for a job.
This is another element in the weird phenomenon of complaints about labor shortages while millions of people are not working who might otherwise be working. These early retirees are no longer in the labor force.
The labor force fell in May by 53,000 people. The labor force consists of people who were working during the survey period or who actively looked for a job in the prior four weeks.
People such as the 1.7 million who may have retired that otherwise wouldn’t have retired, who wish to rest on their laurels, they’re no longer in the labor force. People who took off to take care of their kids as schools were closed and are not looking for a job because they don’t have time for a job – they’re not in the labor force either.
There were roughly 6.6 million people in May who want a job in general terms but who didn’t look for a job over the past four weeks for whatever reason, and who were therefore not included in the labor force, according to the BLS. This was roughly unchanged from April but was still 1.6 million people higher than in February 2020.
So there are millions of people on the sidelines of the labor market, and the labor force remains 3.5 million people lower than it had been in February 2020.
When there is talk about “labor shortages” it is grounded in this phenomenon that there are plenty of people and potential workers, and there is no shortage of people, but for myriad reasons, companies have trouble bringing these people back in.
Hiking wages and improving benefits would, and does, solve some of those issues, and this is happening. But that’s not the only factor, and the reasons are complex, and the way back to old normal is likely impossible.
Employers of all types – companies, governments, and nonprofits – reported that they added 559,000 workers to their payrolls in May, according to the BLS. The total number of jobs at these establishments, at 144.9 million, was still down by 7.6 million from February 2020 (green line).
Households reported that 444,000 more people were working in May than in April, including self-employed workers, bringing the total number of workers to 151.6 million, still down by 7.1 million from February 2020 (red line):
It is a strange phenomenon, hearing complaints about “labor shortages” even as millions of people who could work are not working. It’s a sign of just how messed up the moving parts of the economy have now become, with massive excesses and distortions in some parts, connected by malfunctioning gearing.
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