MOBILE, Ala. (WALA) – Pay is up and expanded unemployment payments have ended, yet many workers remain on the sidelines as the economy continues to struggle with a labor shortage along the Gulf Coast and across the country.
Government statistics paint a clear picture of that shortage but offer precious little in the way of explanation.
“You have excellent questions, which everybody’s asking,” retired University of South Alabama economics professor Don Epley told FOX10 News. “Unfortunately, we can’t give you data with numbers. We just don’t have it.”
The U.S. Labor Department reported Tuesday that there were more than 10 million job openings in the United States in August. That was down somewhat from July but still near an all-time high. During the month, there continued to be more jobs available than people looking for them. Nearly 3 percent of the workforce quit in August – the highest rate since the Labor Department report began in 2000.
“When this all started, we identified there has to be a new way of hiring people, actually,” said Nick Dimario, operating partner of PP Hospitality Group, which owns four Mobile-area restaurants and a barbershop. “And the old just putting a ‘now-hiring’ sign outside doesn’t work.”
The national unemployment rate in September was 4.8 percent. That is somewhat elevated from the 3.5 percent rate two years earlier, but economists said the unemployment statistic does little to shed light on how the labor market has been upended by the COVID-19 pandemic.
The bigger issue, said economist Keivan Deravi, is that millions of people idled by the pandemic are not even looking for jobs.
“A lot of people have decided to basically drop out of the labor market. … That basically means that the size of the labor force has shrunk,” said Deravi, who owns the Montgomery-based Economic Research Service.
Labor force shrinks
In September, 61.6 percent of adults were employed or looking for work. That’s up from the low point last year but still nearly 2 percentage points below the pre-COVID mark.
“That’s a very big drop,” Deravi said.
When businesses reported difficulties hiring workers coming out of the first two waves of the pandemic last year and early this year, many blamed the generous unemployment benefits that Congress authorized and then continued. And there is some evidence that this played a role. Dimario said applications to his company jumped from about 10 to 50 per day after Alabama stopped the payments in June.
But months later, hiring remains tough. Epley said some of the government surveys that provide a window into the economy have been suspended because of the pandemic. Other data lag, he added.
“Answering the questions at a local level has become much more difficult,” he said.
Epley and Deravi both said a variety of factors likely are contributing to the labor shortage.
“There are just so many factors that you have to get your hands around and then put together to make some sense,” Epley said.
There are a number of theories, however. Dervai said he suspects the pandemic prompted a higher-than normal number of people to take early retirement.
Other workers may be afraid to work because of the threat of contracting COVID, Deravi said. He added that another possible explanation is that mothers have decided they would rather stay at home with their kids or are delaying a return to work because of uncertainty over whether the school year won’t be disrupted by an outbreak.
“They don’t want to sort of, you know, 100 percent commit until they can learn from the school system how it goes,” he said.
Deravi says the labor market has not behaved as classic economics theory would suggest. He said employers have responded with higher pay.
“Still, the labor force is not responding,” he said. “So, the whole idea is a lot of people are sitting on the sideline. … It doesn’t mean that they’re not gonna come back. It just means at this point in time, they’re sitting on the sideline.”
Labor crunch, rising costs
Dimario said the labor crunch has come at a time when restaurants have been pinched by rising costs on everything from food to supplies. He said paper products and chemicals have doubled in price. Hamburger meat, he added, has jumped from $2.85 a pound to $3.85.
“I’ll tell you what hasn’t been adjusting is the people wanting to come out and eat,” he said.
While expanded unemployment benefits may have played a large role in the labor shortage, Deravi said broader public spending programs likely have. In addition to the unemployment money, he noted that the federal government spent trillions of dollars on so-called stimulus payments, which he added led to a massive increase in the savings rate.
“A lot of people saved a lot of money,” he said. “So there is a lot of, you know, kind of discretionary money out there. … We injected close to about $2½ trillion in a short period of time. That money must have gone somewhere.”
Deravi said the extra savings have given people more flexibility to delay re-entry into the jobs market.
Epley said he has seen that on the local level through a statistic he calls Money Available to Spend, or MATS, which measures disposable income. He said that figure in May was up 60 percent over May 2019.
“The comeback in this area has been very fast,” he said.
As for Dimario, he said the tight labor market has forced PP Hospitality to become more aggressive about hiring.
“We literally took a 10-year manager in our company and said, ‘Your job is nothing but recruiting’ and that is, as soon as someone hits Facebook and goes, “I’m interested,’ we need to be instantaneously, calling them back for an interview or at least doing a phone interview,” he said.