The word on the street is there’s a “labour shortage”. If we look at the data, however, it tells a different story. I’ve heard theories about people retiring, or too many COVID excess deaths, or people being flush with cash because the government gave everyone a coulpe thousand bucks (which is about one month’s rent), but looking at the data I’m not seeing numbers that reflect most of those theories.
People often become fixated on explaining everything with a Grand Unified Theory, but reality is a very complex equation with infinite variables. Simple explanations to why McDonald’s can’t find and retain talent are unlikely to be true, but in any case I doubt the problem is a lack of workers.
Let’s look at the unemployment rate:
What’s notable here? Well, it turns out that unemployment is actually still above pre-COVID levels (3.7 vs 3.5). It’s slight, but not insignificant. What’s more interesting is the labour participation rate:
Interesting. The pre-COVID participation rate was 63.4 versus 62.4 today, that’s a 1% difference which equals about 3.3 million people out of the workforce, assuming a population of 330 million. How does that square with unemployment? Let’s check the numbers by looking at the labour force level (which is the number of people x1000 in the labour force):
The pre-COVID peak was 164.6 million, and currently it’s 164.7 million. Interesting! There are actually more people in the labour market now. The absolute difference is about 113,000 more labour participants now than pre-COVID.
So why is the participation rate lower? And how can unemployment be higher? Can the difference be accounted for by population growth? This is what the population looks like:
Pre-COVID population was about 331.5 million, versus 333.1 today. That’s a difference of about 1.612 million.
Let’s sum this up: the population is up, labour participation is down, and unemployment is about the same as before COVID.
If we break the numbers out by age, we can see some difference:
Notably, for the over 55 cohort, there’s a slight drop in participation (from 40.3 to 38.6) which sort of lines up with the “old people are retiring or dying of COVID” narrative. Looking at the 10 year trend, however, it seems insignificant (or rather, not a trend). What is the overall magnitude of the difference?
Well shucks! That doesn’t match the narrative either. There are 38.2 million people over 55 in the labour force now versus 38.7 pre-COVID. That’s a difference of about 560,000 fewer people over 55 in the labour market, the lower aged cohorts make up the difference and more.
Do people have too much money? Let’s look at the personal savings rate:
That can’t be it, savings are down below their pre-COVID levels. The pre-COVID peak was 8.3, and today we’re at 5, which is 40% less!
Okay, now what about the “wages are too damn high” narrative? Let’s take a look at real wages:
What! Real wages are actually down! But everyone keeps saying wages have gone up. There’s some truth to that, we did see a spike during COVID but wages have now settled below their pre-COVID peak. What could explain this? Probably a combination of inflation, stagnant wages (relative to cost of living), and the fact that when companies do layoffs they tend to lay off the lowest wage workers first. They don’t lay the CEOs off before they lay off the cleaning staff.
In other words, the spike we see in real wages immediately after COVID can be explained by the lower wage workers being sacrificed, which drives up the averages.
Let’s look at one more interesting piece of data, corporate profits:
Fascinating! Profits are up, so why can’t the companies afford to hire more people? Is there some basic confusing in the C suites on how numbers work?
Here’s a summary of what we can infer from the data:
- Corporate profits are up about 50% over pre-COVID levels
- Personal savings are about 40% lower than pre-COVID levels
- More people are in the labour market, especially younger people
- Real wages have declined since their pre-COVID peak
- Unemployment is low, but not quite as low as before COVID
- Overall labour participation is down, meaning there are more people who either can’t get a job or can’t find one that has adequate wages
- The overall population has increased
Just to be clear, I’m not suggesting there’s a conspiracy here, but I just don’t see any evidence to support many of the claims thought leaders have been making about how labour is in short supply. There’s also plenty of labour on the sidelines, but companies aren’t offering wages at market rates, which is why they cannot bring those people back into the labour market.
There’s no shortage of labour, but instead there’s a glut of companies unwilling to offer wages at market levels. If you think your employees should subsidize your company by accepting wages that don’t even cover their basic cost of living, then I have bad news for you because you’re going to have a very hard time hiring anyone. If it’s better to live cheaply than take a job that actually costs you more than being unemployed, people aren’t going to jump at that opportunity.
What does this mean for ThE EcOnOmY? I think for the most part, it doesn’t mean much, but as interest rates rise more people will find themselves over leveraged (especially if they decided to buy a 2nd or 3rd vacation home) and we’ll likely see wages fall even farther. Meanwhile, inflation will likely continue especially as companies raise prices to try and protect themselves from the near-term economic scariness. Prices tend to ratchet up, but they don’t often fall. The trend of computer gadgets getting cheaper over time is likely to end as raw materials and cheap manufacturing capacity becomes more scarce.
Naturally the folks at the top of the pyramid will probably be fine, as they have hoarded enough assets and have the income to weather the storm. Those at the bottom will see their real wages continue to fall, with less upward mobility.
Now mix in the ongoing climate crisis, inevitable food shortages, future climate catastrophes, and growing global unrest. What does that spell for the future? My guess is more war, more authoritarianism, more zombie companies, bigger profits, and eventually upheval. If you’ve got the money, then I hope you have somewhere to escape to as the escalating crises unfold.