Despite a large reopening after the pandemic scares, the labor market has lagged heavily. If you’ve been going to stores and restaurants, you have seen a lot of help wanted signs. This seems like an easy problem to fix —- raise wages. On the surface, this is the answer, but when you dig deep, its not so easy. When you combine low wages with baby boomers leaving the workforce, you have the 2021 labor market. Today I will discuss why this is a problem and how it can be solved.
Boomers are Done
When the pandemic first hit almost everyone was out of work. This time period left everyone a lot of time to reflect, and many people changed their outlook on work. Yahoo Finance reports the number of people age 55 or older in the labor force is down since last fall, while other age groups have seen a rise. Many older people lost their jobs and figured they were better off retiring now than trying to find better work. God bless them, but this has caused turmoil to the labor market, and eventually to the economy.
Due to pandemic aid and unemployment benefits, Social Security claims have been low. But with so many early retirees, Social Security will not be ready for this many potential claims with less payments in the system. Triggers like this can potentially lower the value of financial assets, as the value of this fund is heavily sought after.
We need boomers working. In their later years they are willing to take on low intensity jobs before they hit retirement. With them hitting the boot early, combined with the following factors. We are left with the massive labor shortage we have today.
The hiked unemployment benefits people experienced over the past year due to the pandemic was a major reason for this labor shortage. The weekly dollar amount varies by state, but overall, the majority of people were receiving more money than they ever would working at a job. Personally, I can’t blame them, why work when you can make more money doing nothing? Although people ignore the potential tax stipulations of unemployment, but that’s a problem for another day.
But with this many people out of the force, companies have struggled to fill job openings. Restaurants that managed to survive a pandemic may lose out because no one wants to work. With low production some smaller stores simply cannot be open for their normal hours. When stores are closed, people have less opportunity to spend. If people aren’t spending the economy lags. When these benefits get slashed, people will spend much less at stores that are open for much less time. Do you see the potential snowball effect?
Is Raising Wages a Solution?
If wages were raised one month ago, this problem could’ve been fixed very easily. But they were not and the process has been sped up. Slashed unemployment will lead to people searching for work. It’s been proven that minimum wage really isn’t enough if you are renting. Workers now will be at a struggle with less money to spend. Businesses will be at a bind because if they raise wages, profit margins are affected. In turn, they will hire less people despite needing more, in order to protect profits.
If they opt to keep wages the same, those forced to work will work, but will not be as productive, making their role marginal. When something is marginal in the business world, it is basically just the bare minimum in terms of production. Had wages been raised earlier, the snowball could’ve been stopped, or given the business community more time to adjust to the inevitable employment shifts.
Now what we have for the labor market is a very scary future. Personally, I see a lot of ways it could play out poorly, and a few ways everything works out okay. Simply it all depends on the time things enact and if they do. As business cycles work, some companies will figure it out and some will falter.