Inflation and the labor shortage are real, but not why you think
I’ve been trying to come up with a new phrase, something to define a layman’s view of an issue. These are snarky comments or someone’s two cents on a political issue that has more nuances than they realize. The person read a headline or a talking point that made sense out of context and they’re bullheaded enough to share with everyone. The best name for this new colloquialism that I’ve come up with is “comments from the peanut gallery” or the “Facebook discussion board of life”. I don’t know, I’ll come up with something eventually.
If you were to Google “Most Important Problem” in America, several polling outlets will give you some data. As of 3/29/2022, the day of this writing, it’s widely accepted that most Americans aren’t a fan of the country’s economy. Despite record low unemployment, rising wages, and robust economic growth, the American people are upset with inflation which means prices are rising too quickly. Inflation can sometimes be a good thing when low because it reduces debt burdens, but when prices rise too quickly people get upset because stuff costs more. Prices rise when businesses have a lot of customers and they think they can raise prices without hurting their profits. Raising prices 2–8% is often unnoticeable to many customers and if people have the money they will pay for goods and services that they want. Inflation is why richer areas have higher prices. A craft beer might cost $12 in Washington DC, but only $6 in rural Montana. They also might need to raise prices because the supply of goods has decreased. Inflation can be an issue of supply, demand, or in today’s case, both.
Demand for goods and services is at an all time high because other aspects of the economy are doing well. The unemployment rate is low because COVID restrictions have largely receded and $5 trillion in federal stimulus spending has given workers more disposable income. These two factors are causing wages to increase because employers are competing for workers. Employers need workers so they are being forced to raise wages, offer benefits, and rethink their scheduling systems.
Since wages are rising, people are buying more stuff. Since people are buying more stuff, the supply of said stuff is lower. Since businesses are doing so well, they need to hire more workers to meet demand. They are then raising wages even further because so many other businesses also need workers. It’s a virtuous cycle that’s mostly good for low and middle income people who haven’t had decent wages in decades.
However, whether economic times are good or bad, one of the “comments from the peanut gallery” that I’ve been hearing my entire life is “people just don’t want to work anymore”.
When times are bad, the peanut gallery will say that workers should accept whatever the market will give them. They should feel lucky to have a job and a paycheck and some small business owners actually feel like they’re doing workers a favor by paying them.
Now that times are good, I continue to hear this awful comment, but for different reasons. I’ve always hated that comment because if the unemployment rate is low, then it’s an inherently false belief. Business owners and managers continue to argue that people still would prefer to sit on the couch, smoke weed, and play video games all day even when unemployment benefit claims are at record lows. There are many reasons for employee turnover, but I don’t think this is one of them. Are there people that want to game the system and live off the government? Absolutely! Is it the overwhelmingly prevalent view in today’s society? No.
Wages are one of the key issues for employee turnover in today’s economy. People are mostly rational creatures and if you read through the reasons for leaving a job, it’s mostly financial. If you take a job one day and then leave it the next for something better. Isn’t that a rational decision? If you’re working at one job for $16 an hour, but Target is paying $24 an hour. Why stay at a job where you’re disrespected, don’t get benefits, and lack have flexible hours? It’s not that people don’t want to work. They don’t want to be treated like dispensable robots.
While I think people are mostly rational actors, they’re not rational when it comes to politics. If you look at these issues, there are only two on that list that are problems the government can solve. The government could address people lacking child care through subsidies and increasing the supply of providers. It could also ban employers from requiring COVID vaccinations as a condition of employment. The rest are all cultural issues stemming from employers that don’t treat their employees as valued human beings. They also might not be able to compete with other employers to offer good jobs, in which case, are they worth supporting? For too long, workers have competed for jobs and the economic conversations in America have been employer-centric. For the first time in decades, workers have some power because employers have to compete for them.
There are other reasons as to why inflation is an issue right now. The Ukraine-Russian War is increasing energy prices and the price of energy is built into everything. Wages are rising and some of that will translate into higher prices. The COVID-19 pandemic (remember that?) caused semiconductor shortages because most of the companies that make them slowed down production and it’s apparently hard to ramp that back up. There’s one other reason that I’ve never heard anyone mention as to why there are supply issues in the economy:
A lot of people died.
When it comes to the labor shortage, I’ve heard a few people mention some folks that were near retirement decided to just call it quits and retire early. Teacher morale is at record lows due to the societal impacts of COVID so older teachers still eligible for defined benefit pensions likely said they were done. I think it’s probably true that some people in their early 60’s decided to retire early, but I’ve never heard one person mention that a lot of people died from COVID.
Taking a look at the data, we can assume a few things. Some of these deaths probably would have occurred anyway, especially those in the over 75 group. Most kids under the age of 18 were likely not working full-time jobs. A large majority of the people over the age of 65 were retired, though not all (see below):
If we do the math solely looking at prime age working adults, those aged 18–64, then the number of people who left the workforce due to death is 248,291. Add in the ~35% of people still working between 65–74 then the number climbs to ~326,673. Add in the 14% of seniors age 75+, then 401,839 have left the workforce. I’m going to throw out a random number to make my point, but let’s guess that a third of those people would have died anyway. That’s still 270,000 people that are no longer working or seeking employment. That is 27% of all COVID related deaths. I didn’t add the 17% of retirees in the 55–64 range because the math is getting tiresome and if you’re still reading this then you’re likely bored now. However, you probably understand my point.
Russian oil imports were recently banned in America. While we only imported 6% of our oil from Russia, it still made a huge impact on rising oil and gasoline prices. In the same notion, you can’t take hundreds of thousands of people out of the supply of workers and not see some worker shortages and higher prices.