What labor shortage? (with Heidi Shierholz)

Episode Summary

Executive Summary: The episode argues that the much-publicized U.S. “labor shortage” is mostly a wage shortage, not a lack of willing workers. Economist Heidi Shierholz explains that only a narrow sector—especially leisure and hospitality—showed evidence of tightening labor markets, visible through wage acceleration. The hosts argue higher wages and unemployment benefits are helping rebalance a labor market historically tilted toward employers.

Main Topics: The labor shortage narrative (Priority: 5/5): The hosts and Heidi Shierholz challenge the idea that workers are refusing jobs, arguing the media narrative exaggerates the scale of the problem and ignores wage dynamics. How economists identify labor shortages (Priority: 5/5): Shierholz explains that accelerating wage growth is the key signal of a genuine labor shortage, because employers must raise pay to attract and retain workers. Leisure and hospitality as the main affected sector (Priority: 4/5): The discussion identifies leisure and hospitality, especially restaurants, as the only major sector showing notable tightening, with wages recovering after pandemic-era declines. Wages, bargaining power, and employer behavior (Priority: 5/5): The episode emphasizes that employers have long suppressed wages and are now forced to respond when labor demand rises; when wages rise for new hires, existing workers expect raises too. Unemployment insurance and labor force participation (Priority: 4/5): The guests argue pandemic UI benefits are unlikely to be the main cause of labor shortages; care responsibilities, health concerns, and safer conditions matter more. Broader labor-market weakness and policy implications (Priority: 5/5): They note the broader labor market still suffers from weak demand and insufficient job recovery, making cuts to unemployment benefits both cruel and economically counterproductive.

Key Arguments: A real labor shortage shows up as accelerating wage growth; absent wage increases, claims of shortages are misleading. The strongest evidence of labor-market tightening is concentrated in leisure and hospitality, not across the whole economy. Wages in restaurants and hospitality were crushed early in the pandemic and later only returned to roughly their pre-COVID trend. What employers call a labor shortage is often a refusal to pay the wage required to hire workers. Raising wages can quickly solve hiring problems, as illustrated by the Pittsburgh ice cream parlor that doubled pay and received thousands of applications. Cutting unemployment benefits is harmful because it reduces household income, weakens demand, and increases hardship. Pandemic unemployment insurance may slightly improve labor-market efficiency by reducing desperation and giving workers more bargaining power. Longer-term, many low-wage jobs need substantially higher pay to support a decent standard of living. The broader economy still has a demand shortfall, so the main issue is not too few workers but too little demand for labor.

Data Points: April overall job growth: 266,000 jobs - The hosts cite this as disappointing overall employment growth during the period discussed. April job growth in leisure and hospitality: 331,000 jobs - Shierholz notes that this sector alone added more jobs than the entire economy added net, indicating the sector was hiring normally despite shortage talk. Minimum wage in Pennsylvania: $7.25/hour - Used as the starting wage before the Pittsburgh ice cream parlor doubled pay. New starting wage at Clavin's ice cream parlor: $15/hour - The business doubled its starting wage to attract workers. Response to wage increase: Thousands of applications overnight - Illustrates how higher wages can eliminate hiring problems immediately. Low-wage workers' unemployment insurance supplement: $300/week - The pandemic UI top-up discussed as potentially more meaningful for low-wage workers. Share of economy from consumption: 70% - Used to argue unemployment benefits support demand and therefore the broader economy. Working poor statistic: More than 13 million full-time, year-round workers - Cited to show how many workers still earn near-poverty wages. Income threshold: Less than 200% of the poverty rate - Definition used in the discussion of the working poor. States turning down or considering turning down federal UI benefits: Over 20 states - Referenced as a policy backlash driven by the labor-shortage narrative.

Pivotal Quotes: "When you hear an employer say, I can't find the workers that I need, always add the phrase, at the wage I want to pay." — Heidi Shierholz: Core framing for interpreting labor-shortage claims as wage problems. "If a job is harder, if it's more dangerous, then we should see that be addressed in a well-functioning labor market by higher wages." — Heidi Shierholz: Explains why wages should rise in riskier, more stressful jobs after COVID. "It was instant. Overnight, we got thousands of applications that poured in." — Clavin's ice cream parlor owner (quoted by hosts): Example showing how quickly a wage increase resolved hiring difficulty.

Implications: The episode suggests employers should respond to hiring problems by raising pay, not blaming workers or cutting benefits. For workers, the moment creates rare bargaining leverage; for policymakers, it argues for preserving support programs while the labor market still has weak demand.