In case you missed it, the Bureau of Labor Statistics released its April jobs report last week. For today’s Closer Look, we’d like to highlight both the good news and the bad news from the report and offer our take as to what can be done about the bad news.
The good news is that the economy continues to rebound from the pandemic. Last month, no fewer than 428,000 new jobs were added across all major industries, which means that the US has regained roughly 95% of the 22 million jobs which were lost at the start of the pandemic. President Biden and the White House wasted no time in promoting this, citing it as proof that Biden’s economy is the “strongest job creation economy in modern times.”
The report also found that unemployment is very low, with just 3.6% of Americans filing jobless claims last month. This brings unemployment back in line with the historically low levels that we experienced before the pandemic. Finally, the last bit of good news coming out of the report is that wages are on the rise, with average hourly earnings 5.5% higher than they were this time last year.
Now for the bad news. Unfortunately, low unemployment numbers don’t actually mean that more Americans are working. If you look closer at the numbers, you’ll see that the labor force, or the collection of people either working or looking for work, actually fell by 363,000 last month. This is particularly problematic in light of the fact that there are now more job openings – a record 11.5 million – than there are people actively looking for work.
The other bad news is in regard to wage growth. The 5.5% average increase in wages over the past year may seem like a significant number, but it has been more than wiped out by a simultaneous 6.6% rise in inflation. We certainly celebrate bigger paychecks for American workers, but what’s it worth if they’re not big enough to cover the ever-rising prices of rent, food, and gas? It’s no wonder then that most Americans have little faith in the state of the economy and believe it is only getting worse.
So what can be done about rising inflation and unfilled job openings? How can we get people back in the workforce to fill the record number of job openings and help Americans weather the seemingly never-ending inflation storm? The answer is simple: pay workers more.
In a recent report, consulting firm McKinsey & Company estimated that the “untapped labor pool” (those who are not currently in the workforce but who could enter/return) may be as large as 23 million people. This pool could more than fill the 11.5 million job gap that our country is experiencing, but they will only enter/return if the conditions are right. Bigger paychecks large enough to stave off inflation would certainly be a start in making those conditions acceptable.
Unfortunately, some mainstream economists, particularly those at the Federal Reserve, won’t like this idea because they believe that rising wages and the “red-hot labor market” are the driving forces behind inflation. They argue that raising wages further than employers already have may create a wage-price spiral, which would make a bad situation worse when it comes to inflation.
But here’s another piece of good news for you: those economists are wrong. According to a recent report from the Economic Policy Institute (EPI), less than 8% of the rise in consumer prices can be attributed to higher labor costs. In other words, workers asking for more on payday are in no way, shape, or form responsible for the higher price tags that we’re seeing at grocery stores and gas pumps around the country.
Instead, if you’re looking for the real culprit of inflation, look no further than corporate greed. Forgive us for beating this same drum week after week, but the extent to which corporate greed is responsible for our current economic troubles cannot be overstated. The EPI report found that over half – 53.9% to be exact – of the increase in prices can be explained by fatter corporate profits. Corporations are so incredibly profitable that they could afford to pay their workers more and respect their consumers without even feeling so much as a bump to their profit margins. Unfortunately, their short-term thinking and quarterly-profit seeking won’t let them make the right long-term decision not just for their workers, but also for their bottom lines. They may pay their workers more, but they won’t raise their pay enough to offset inflation, and they definitely won’t do it without pulling a fast one on consumers by passing higher labor costs onto them in the form of higher prices.
The common refrain that we hear from employers and pundits in the media nowadays is “Nobody wants to work anymore.” If they mean that nobody wants to work for starvation wages or wages that don’t cover the rising cost of living, then they’re absolutely right. American workers are fed up and fighting back for their fair share of the economic pie. For what it’s worth, they’re also no longer buying the idea that their demands are what is driving up inflation as they instead rightfully point the finger at corporate greed.
In short, if we don’t want a repeat of bad news in the Labor Department’s next monthly job report, the solution is simple: pay workers more.