It’s not a labor shortage, it’s a wage shortage (with Heidi Shierholz)

Episode Summary

Executive Summary: The episode argues that the current U.S. “labor shortage” narrative is mostly a “wage shortage”: in a narrow set of low-wage sectors, especially leisure and hospitality, employers are finding workers only after raising pay. Heidi Shierholz explains that unemployment benefits are unlikely to be the main cause of hiring trouble, while weak demand, caregiving burdens, and health concerns remain bigger labor-market constraints.

Main Topics: Labor shortage vs. wage shortage (Priority: 5/5): The hosts challenge the popular claim that workers simply do not want jobs, arguing that employers often mean they cannot hire at the wages they want to pay. Leisure and hospitality as the main tight sector (Priority: 5/5): Shierholz says evidence of labor shortages is concentrated mainly in leisure and hospitality, the lowest-wage major sector, where wage growth has accelerated. Wage acceleration as the labor-shortage signal (Priority: 4/5): The discussion explains that a real labor shortage shows up as rising wages, because employers bid against one another to attract and retain workers. Unemployment insurance is not the main driver (Priority: 5/5): The guests argue that pandemic UI benefits are not broadly suppressing labor supply, citing sector patterns and alternative barriers like care responsibilities and health risk. Employer power and labor-market imbalance (Priority: 4/5): The episode emphasizes that U.S. labor markets have long been tilted toward employers, allowing wage suppression and making current wage increases feel unusual to businesses. Broader economic recovery still incomplete (Priority: 4/5): Despite job gains, the labor market still has a large employment gap versus pre-recession levels, so cutting benefits is portrayed as cruel and economically harmful. Potential longer-term changes after COVID (Priority: 2/5): Shierholz expects some lasting telework-related shifts, but not a wholesale restructuring of the labor market similar to the immediate post-pandemic rhetoric.

Key Arguments: Employers saying they “can’t find workers” should be understood as meaning they cannot find workers at the wages they want to pay. A genuine labor shortage is identified by accelerating wage growth, and the strongest evidence is currently limited to leisure and hospitality. Wages in leisure and hospitality had collapsed early in the pandemic and have only recently returned to their pre-COVID trend, so they are not unusually high. Job growth in April was disproportionately concentrated in leisure and hospitality, showing that higher wages are attracting workers rather than stopping hiring. Broad claims that unemployment insurance is keeping people out of work are not supported by the data; low-wage sectors are recovering fastest, not slowest. Caregiving responsibilities, school closures, and ongoing health fears are more plausible explanations for labor-force withdrawals than UI benefits. Cutting unemployment benefits while demand remains weak is both economically damaging and morally cruel because it reduces consumer spending and increases hardship. Higher wages in face-to-face service work are appropriate because those jobs have become harder and more dangerous after COVID. Long-standing employer power has suppressed wages for decades, so current wage gains reflect a healthier labor market rather than a crisis.

Data Points: Jobs added in April: 266,000 - Overall U.S. job growth in April mentioned by Shierholz and the hosts. Jobs added in leisure and hospitality in April: 331,000 - April employment gains in the one sector showing expected labor-market tightening. Pandemic UI supplement: $300 per week - Additional weekly unemployment benefit discussed as part of pandemic unemployment insurance. Federal minimum wage: $7.25 an hour - Cited in the example of the Pittsburgh ice cream parlor raising wages to attract workers. New starting wage at Clavin's ice cream parlor: $15 an hour - The business doubled starting pay and received thousands of applications. Pennsylvania unemployment insurance decisions: Over 20 states - States said they were likely or were considering turning down federal UI benefits. Working poor full-time year-round: More than 13 million workers - Referenced as workers earning less than 200% of the poverty rate even before COVID. Schools still closed: Over a quarter - Used to explain why care responsibilities may be keeping people out of the labor force. Consumption share of the economy: 70 percent - Used to argue that unemployment benefits support demand and overall economic activity.

Pivotal Quotes: "when they hear an employer say, I can't find the workers that I need, always add the phrase, at the wage I want to pay." — Nick Hanauer: Opening framing of the episode’s central thesis about labor shortages. "It would be easier for corporations to exploit people." — David Goldstein: Explanation of the underlying message behind the anti-worker shortage narrative. "It's a wage shortage." — Nick Hanauer: Closing summary of the episode after discussing the Pittsburgh ice cream shop example.

Implications: Listeners are urged to treat “labor shortage” claims skeptically and focus on wages, job quality, and worker bargaining power. If employers want labor, raising pay works; cutting benefits mainly deepens hardship and weakens demand.