The July jobs report ends the myth of a ‘damaging’ labor shortage, former Obama economist says

A 'now hiring' sign hangs in front of a Popeyes location
Businesses across the leisure and hospitality industry are trying to staff up as the economy reopens, but they’re having a hard time getting people to come work for them. Joe Raedle/Getty Images
  • The July jobs report beat expectations, adding 943,000 payrolls and bringing down unemployment.
  • Notably, leisure and hospitality added 380,000 jobs in July, and wages grew by 9.6% from the prior year.
  • Heidi Shierholz says those wages are what pay would’ve been barring a pandemic, and they show there’s no labor shortage.
  • See more stories on Insider’s business page.

The July jobs report should finally put to rest the idea that there’s a labor shortage, a former Obama administration economist told Insider.

Heidi Shierholz, who is currently the director of policy at the left-leaning Economic Policy Institute, said the employment and wages figures unveiled in Friday’s data show that reports of a labor shortage still aren’t right. Or, she said, it’s not a labor shortage we should be worried about.

“A concerning labor shortage would be very tight, strong wage growth that is not accompanied by strong job growth. That’s a bona fide labor shortage,” Shierholz said. When wage growth isn’t accompanied by accelerating job growth, that’s when we should get worried – and that’s not what’s happening here.

Overall, the July report beat expectations handily, with 943,000 more workers added to the workforce, and the unemployment rate sinking. Leisure and hospitality saw 9.6% wage growth year-over-year, and led the way by adding 380,000 jobs. However, the average hourly earnings for a nonsupervisory leisure and hospitality worker was $US16.47 ($AU22) in July 2020. That’s about $US9 ($AU12) less than the average hourly earnings of $US25.83 ($AU35) for all nonsupervisory employees.

“Are we seeing labor shortages that are really hurting us? I don’t see any evidence of that,” Shierholz said.

So what about those stories of low-wage businesses around the country scrambling to find workers? Some restaurants have been closing early amidst a labor crunch, Insider’s Hillary Hoffower reports. Others are just closing completely for days at time, according to Insider’s Grace Dean. In New York City, bar lines are stretching blocks, and bar managers can’t staff up enough to meet the demand, Insider’s Hannah Towey reports.

“There are always pockets, there are always places where people can’t find the workers they need,” Shierholz said. But it’s not widespread enough to be a core dynamic in the labor market.

Still, some economists are pointing out that the wage increases in leisure and hospitality does indeed point to a labor shortage – although that’s not necessarily a bad thing.

Jason Furman, a former top economist to President Barack Obama, wrote in a tweet that “You can reasonably argue it was a ‘huge good labor shortage’ and not a ‘huge damaging’ one.” He later said in an interview the lower rates of job-searching stemmed from the $US300 ($AU409) federal weekly supplement in President Joe Biden’s stimulus law, which he now favors scaling back.

“It was appropriate in January when 3,000 people were dying a day,” Furman told Insider. “It was much less appropriate by June or July when the situation was very different. You need something that is flexibly responsive to circumstances, not the same policy in a rapidly changing pandemic.”

He added in his tweet that “the large wage increase in the sector indicates that demand increased more than supply & workers were not available at the prevailing wage – the definition of a labor shortage.”

Shierholz, for her part, said she doesn’t think those elevated wages will stick around.

“In low-wage industries, it’s even actually easier for employers to quote unquote ‘cut wages,’ without giving anyone an actual pay cut, because there’s a lot of turnover in industry,” she said. “That does make it easier to bring new people in at a lower level and sort of make the adjustment over time.”