If Washington Wants To Do Something Substantive About Shortages . . .

The administration has pointed to supply chain problems as the cause of many of the nation’s economic ills. Most especially, the White House, the Federal Reserve (Fed), and Treasury blame these supply issues for the inflation of the past year.  Inflation probably has other, more fundamental causes, but even if, as the White House claims, it is all supply chain, Biden is approaching matters in an odd way. He has pinned the problems on corporate greed and inefficiencies at the Port of Long Beach. These are dubious ways to relieve general economic problems, but stranger still is how the administration in all its complaining has ignored the biggest supply problem of all, a shortage of workers. Stranger still, Biden & Co. focus elsewhere when worker shortages are one of the few areas where Washington could make a difference.

The data makes the problem clear. The nation’s civilian labor force peaked in December 2019 at 164.6 million either at work or actively seeking it. After the pandemic strictures threw almost 22 million people out of work, many did not even bother to look for work. In the worst of the lockdowns and quarantines, that would have been a waste of time. Besides, emergency legislation offered special unemployment and other benefits to ease the strain on these people, relieving the urgency to find a job. Accordingly, the civilian labor force – those working and looking for work — declined by 6.5 million to stand at 158.2 million in May 2020.

The economic recovery has brought back some 18 million positions since the May 2020, lows. But even now, the civilian workforce remains some 2.5 million short of the December 2019 highs. If these missing workers were to return to the jobs market, it would constitute a 1.5 percent jump in the available workers nationwide and go a long way to alleviate supply shortages.  

Of the four likely reasons for this worker shortfall, Washington has leverage in three. One is a fear of infection. Washington cannot affect this feeling directly, but it does not help that the authorities have chosen fear as the primary motivator in their vaccination push. Second is that many had become accustomed to living without work during the pandemic strictures and have now made a lifestyle choice against employment. In this, Washington does indeed have few options. A solution here will have to wait on time and changing fashion. But on a third issue, making vaccinations a condition of employment, Washington could do a lot to alleviate the shortage. Data on this matter is admittedly spotty, but extrapolating from the available anecdotal reports suggests that as many as 1 million workers have either been fired of walked away from their work rather than comply. A less strident approach by the authorities might have saved these working hands and minds for production and if instituted now might lure them back.

The fourth and probably most significant factor are the generous benefits Washington continues to provide. The biggest of these influences, extra unemployment benefits, ended last September, but there are other benefits —  some standard some still carrying their pandemic-induced enhancements — that allow people to postpone their return to work. The extent of this effect is evident in how workforce participation changed immediately after the special unemployment benefits ended. While the benefits remained in effect between August 2020 and August 2021, the civilian workforce grew by a mere 0.8 percent even as the jobs market boomed. But in just the few months since the special benefits have been rescinded, the civilian workforce has grown at an historically powerful 2.6 percent annual rate. The return of other benefits to pre-pandemic levels could have a similar effect without any of the undue hardship that such a change might have imposed during the worst of the pandemic strictures.

This worker shortage is a problem that Washington clearly can help solve. The administration does not even need new policies. It can make matters better simply by getting its existing policies and practices out of the way. In the end, it is of course not so surprising that the administration refuses to look at work incentives. Its entire legislative agenda includes more rather than fewer benefits of the sort that enable people to postpone work or avoid it altogether. If Washington were to take the needed action to relive the immediate worker shortfall, the contradiction between those actions and much of the broader legislative agenda, most especially the Build Back Better program, would have been glaring. Not surprisingly then the expertise in the White House and the agencies has occupied themselves with peripheral matters instead of what is important.  There seems to be little hope of needed action on this front any time soon.