Opinion from a Libertarian ViewPoint

How Trillions in Newly Printed Money Created a Labor Shortage | Mises Wire

Posted by M. C. on May 5, 2021

“In our money printing–based economy, printed money is being substituted for production. Thus, millions of workers can stay home while demand remains steady, or even increases. Idle workers still have a lot of dollars to spend. Demand continues upward even as production falls.”

Ryan McMaken

If you’re tired of binge-watching Netflix, there are likely a few restaurants in your neighborhood who would love to hire you. A job might help relieve the boredom.

On the other hand, why work when one can just be one of the more than 6 million former workers now collecting “pandemic unemployment insurance”? Those millions are in addition to the 3.6 million former workers collecting ordinary unemployment insurance. For many workers, these benefits now total $300 per week. In March, President Biden extended the program until September.

And then there are the many millions more who have recently received a piece of the third round of stimulus payments. All three bailouts combined to total around $460 billion in checks mailed out to Americans.

So, it shouldn’t be an enormous shock when we find out that many employers are having trouble finding workers. One McDonald’s restaurant is offering bonuses just for showing up for an interview. One eatery is offering a $400 sign-on bonus.

Nor is it just the service industry that can’t find workers. Construction employers are reporting shortages, as are trucking operations. The NBC affiliate out of Green Bay, Wisconsin, reports that the price of gas may increase because so few tank truck drivers can be found. The problem is “a lack of qualified drivers.”

There are no employees available in California. We are paying dishwashers $21 to start. The two main reasons people tell me they won’t work: 1. They are making enough on unemployment and would rather not work; 2. With schools closed, they can’t pay someone to watch their children— Chef Andrew Gruel (@ChefGruel) April 29, 2021

Even government employers—who tend to offer more job security and a lot more vacation time than private firms—are offering extra cash to get more applicants in the door.

Millions of Workers Have Also Left the Labor Force

An endless stream of unemployment checks isn’t the only thing fueling the worker shortage. Record numbers of Americans are leaving the labor force entirely.

In January 2020, 96 million American adults were outside the labor force. That shot up to 104 million in April of last year. But as businesses opened up and increased hours, there were still 100 million Americans not in the labor force. In other words, over the past year an additional 4 million workers exited the labor force. These people are not actively looking for work, are not on unemployment, and are not factored into the unemployment rate.

Of the 100 million adult Americans who are out of the labor force, 6.5 million say they “want a job now.” Yet, for whatever reason they’re not collecting any wages, even in a time when we’re being told anyone can walk into a restaurant and get immediately hired. 

In other words: yes, millions of Americans are being paid to stay home, but that’s not the whole picture. Millions more have given up looking for work altogether. 

The Illusion of GDP Growth

This contrasts with the rosy picture of employment that the regime is now trying to paint. For example, we’re being told that the employment situation is excellent because the headline unemployment rate has fallen over the past year from 14.4 percent to 6.2 percent. That’s certainly a big improvement, but it also suggests that the number of unemployed job seekers remains high. An unemployment rate of 6.2 percent, after all, puts unemployment at a higher level than anything experienced between 1994 and 2008. It’s not exactly a “low” rate, and it’s nearly double the unemployment rate of April 2019 (3.3 percent). The narrative of an employment boom is so sketchy that even Fed personnel—i.e., Minneapolis Fed president Neel Kashkari—admits the unemployment rate is more like 9.5 percent.

And then there’s the unconvincing overall narrative of economic growth. As noted last week by Daniel Lacalle, one should naturally expect big increases in GDP when massive amounts of monetary stimulus have been pumped into the economy. GDP is based largely on spending, and spending goes up as trillions of new dollars are printed. Lacalle writes:

There is an overly optimistic consensus view about the speed and strength of the United States’ recovery that is contradicted by facts. It is true that the United States recovery is stronger than the European or Japanese one, but the macrodata shows that the euphoric messages about aggregate GDP growth are wildly exaggerated.

Of course gross domestic product is going to rise fast, with estimates of 6 percent for 2021. It would be alarming if it did not after a massive chain of stimuli of more than 12 percent of GDP in fiscal spending and $7 trillion in Federal Reserve balance sheet expansion. This is a combined stimulus that is almost three times larger than the 2008 crisis one, according to McKinsey. The question is, What is the quality of this recovery?

The answer is: extremely poor. The United States real growth excluding the increase in debt will continue to be exceedingly small. No one can talk about a strong recovery when industry capacity utilization is at 74 percent, massively below the level of 80 percent at which it was before the pandemic. Furthermore, labor force participation rate stands at 61.5 percent, significantly below the precovid level and stalling after bouncing to 62 percent in September. Unemployment may be at 6 percent, but it is still almost twice as large as it was before the pandemic. Continuing jobless claims remain above 3.7 million in April. Weekly jobless claims remain above 500,000 and the total number of people claiming benefits in all programs—state and federal combined—for the week ending March 27 decreased by 1.2 million to 16.9 million.

These figures must be put in the context of the unprecedented spending spree and the monetary stimulus. Yes, the recovery is better than the eurozone’s thanks to a fast and efficient vaccination rollout and the dynamism of the United States business fabric, but the figures show that a relevant amount of the subsequent stimulus plans have simply perpetuated overcapacity, kept zombie firms that had financial issues before covid-19 alive, and bloated the government structural deficit and mandatory spending.

A Temporary Labor Bubble

So why the labor shortage?

See the rest here


Contact Ryan McMaken

Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power&Market, but read article guidelines first. Ryan has degrees in economics and political science from the University of Colorado and was a housing economist for the State of Colorado. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

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