Is the U.S. suffering from a labor shortage?
If so, capitalism has an answer.
The baguette solution
The chief executive of Domino’s Pizza
has complained that the company can’t hire enough drivers. Lyft and Uber
claim to have a similar problem. A McDonald’s franchise
in Florida offered $50 to anybody willing to show up for an interview. And some fast-food outlets have hung signs
in their windows saying, “No one wants to work anymore.”
The idea that the United States suffers from a labor shortage
is fast becoming conventional wisdom. But before you accept the idea, it’s worth taking a few minutes to think it through.
Once you do, you may realize that the labor shortage is more myth than reality.
Let’s start with some basic economics. The U.S. is a capitalist country, and one of the beauties of capitalism is its mechanism for dealing with shortages. In a communist system, people must wait in long lines
when there is more demand than supply for an item. That’s an actual shortage. In a capitalist economy, however, there is a ready solution
The company or person providing the item raises its price. Doing so causes other providers to see an opportunity for profit and enter the market, increasing supply. To take a hypothetical example, a shortage of baguettes
in a town will lead to higher prices, which will in turn cause more local bakeries to begin making their own baguettes (and also cause some families to choose other forms of starch). Suddenly, the baguette shortage is no more.
Human labor is not the same thing as a baguette, but the fundamental idea is similar: In a market economy, both labor and baguettes are products with fluctuating prices.
When a company is struggling to find enough labor, it can solve the problem
by offering to pay a higher price for that labor — also known as higher wages. More workers will then enter the labor market. Suddenly, the labor shortage will be no more.
One of the few ways to have a true labor shortage in a capitalist economy is for workers to be demanding wages so high that businesses cannot stay afloat while paying those wages. But there is a lot of evidence
to suggest that the U.S. economy does not suffer from that problem.
If anything, wages today are historically low. They have been growing slowly
for decades for every income group other than the affluent. As a share of gross domestic product, worker compensation
is lower than at any point in the second half of the 20th century. Two main causes are corporate consolidation
and shrinking labor unions
, which together have given employers more workplace power and employees less of it.
Just as telling as the wage data, the share of working-age Americans who are in fact working has declined
in recent decades. The country now has the equivalent of a large group of bakeries that are not making baguettes but would do so if it were more lucrative — a pool of would-be workers, sitting on the sidelines of the labor market.
Corporate profits, on the other hand, have been rising rapidly
and now make up a larger share of G.D.P. than in previous decades. As a result, most companies can afford to respond to a growing economy by raising wages and continuing to make profits, albeit perhaps not the unusually generous profits they have been enjoying.
Sure enough, some companies have responded to the alleged labor shortage by doing exactly this. Bank of America announced Tuesday
that it would raise its minimum hourly wage to $25 and insist that contractors pay at least $15 an hour. Other companies that have recently announced
pay increases include Amazon, Chipotle, Costco, McDonald’s, Walmart, J.P. Morgan Chase and Sheetz convenience stores.
Low wages seem normal
Why the continuing complaints about a labor shortage, then?
They are not totally misguided. For one thing, some Americans appear to have temporarily dropped out
of the labor force because of Covid-19. Some high-skill industries may also be suffering from a true lack of qualified workers, and some small businesses may not be able to absorb higher wages. Finally, there is a rollicking partisan debate
about whether expanded jobless benefits during the pandemic have caused workers to opt out.
For now, some combination of these forces — together with a rebounding economy
— has created the impression of labor shortages. But companies have an easy way to solve the problem: Pay more.
That so many are complaining about the situation is not a sign that something is wrong with the American economy. It is a sign that corporate executives have grown so accustomed to a low-wage economy that many believe anything else is unnatural.