By Richard M. Ebeling

Not long ago, my wife and I decided to go out to our favorite Thai restaurant not far from our home in the Charleston, South Carolina area, which we had not been to for well over a year. With so many retail businesses having returned to a no-mask, no-distancing “normality,” we were looking forward to a tasty inside, sit-down meal. But when we arrived we discovered they were still only doing takeout orders because the management had not been able to find enough willing waiters to rehire. America is suffering from an apparent “labor shortage,” in spite of unemployment levels being significantly above what they were before the government-imposed lockdowns and stay-at-home orders in early 2020.

Before these shutdown orders and restrictions on freedom of shopping were imposed by, especially, the state governments and reinforced by federal policies in March of last year, the economy-wide average unemployment rate hit a low of about 3.5 percent of the labor force in February 2020, according to the Bureau of Labor Statistics (BLS), something not experienced for several decades. Plus, this unemployment low had its counterpart under the subgroups of men and women, whites and blacks and Hispanics, and for adults and youths. Indeed, if the coronavirus crisis had not occurred with the accompanying government-created collapse of much of the economy, 2020 might have turned out to be an exceptionally good year in terms of many of the standard economic benchmarks.

The BLS June 2021 report on “The Employment Situation” for the month of May showed that the overall unemployment rate stood at 5.8 percent of the labor force, or still about 35 percent higher than in February 2020. And, comparably, each subgroup remains noticeably above their, respective, unemployment rates of 15 months ago.

At the same time, the BLS’s June 2021 report on “Job Openings and Labor Turnover” stated that at the end of April, job openings for which employers were willing and able to hire stood at 9.3 million positions. But hires to fill employment slots in April totaled 6.1 million. The number of people quitting or not willing to accept work increased, especially in the food service and retail sectors, while the number of workers let go or laid off remained low.
Unemployment Due to Government Paying People Not to Work

Clearly, to use Keynesian terms, employment in the United States is not suffering from an “aggregate demand” failure. There are plenty of job openings; it is a failure of a good number of employable people not being interested in filling the slots employers would like to fill. Why?

A number of commentators have suggested that many are still concerned about and fearful of returning to the workplace due to the potential of still catching the coronavirus and the risk of serious illness or death. Some have argued it’s because employers are too cheap; that is, they are unwilling to pay a wage high enough to draw unemployed workers back into the active labor force. The problem with this latter explanation is that it does not make clear why wage “x” at which some of these workers were willingly employed 15 months ago is now unacceptable just a little bit more than a year later, given the lost income experienced during all that time.

However, suppose that before the coronavirus lockdowns and lost employment, a low-skilled employee was making, say, $500 a week. But now let us suppose that during the last 15 months, due to extended unemployment insurance payments and supplementary federal emergency transfers introduced during the coronavirus crisis, this person was continuing to have a government-supplied weekly income of $500, or maybe even more, say, $600. For as long as this continues, what is the incentive for him to return to the workplace for the previous salary when, instead, this individual can stay at home and be no worse or maybe even better off than working his old 40-hour week as before March of 2020?

A few weeks ago, the Foundation for Government Accountability (FGA) issued a report based on work and wages versus government income-transfer programs (state unemployment insurance, supplemental federal emergency insurance bonus, child care credits, earned income tax credit, and food stamps) in, for instance, the state of Florida. A person could receive up to the equivalent of a $20-an-hour wage by staying home rather than accepting available employment.

Government Created Artificial Benefits to Not Take a Job

This, obviously, has nothing to do with a “failure of the market” in not providing jobs or from employer stinginess in the salary being offered. Government redistributive benefits have priced some workers out of the labor market by giving them more received income by not working than from accepting the employment available at more market-based wages reflecting employer estimates of those workers’ value-added contribution in various lines of production, including in the service industry.

What has been created by these government programs is a false “opportunity cost” for those in these labor categories in terms of their trade-off between work and non-work. I say “false” due to the fact that if these redistributive programs were not present, lower-skilled workers would have to weigh differently the income forgone by not accepting gainful employment versus perhaps not earning anything. Instead, for as long as these types of programs are in effect, they, basically, establish a “floor” below which more is lost by working than taking a job.

Even if the government transfers are slightly less than the salary that would be received from working, the trade-off can still be in favor of not taking a job. Suppose someone could earn a weekly salary of that $500 versus unemployment insurance plus some of these other government redistributions that give him the equivalent of, say, $475 or $450 per week. Would it always be in every such worker’s personal interest to give up the $475 or $450 of government-supplied income to, instead, work 40 hours a week to make an extra $25 or $50 for that total of $500 of earned weekly income? Surely, for most people an extra $25 or $50 a week would not be worth foregoing the 40 hours of free time the government money enables him to enjoy.
Limited Means to Serve Our Many Ends Require Trade-Offs