Why Biden’s Got a Jobs Problem
Dear Rich Lifer,
The April jobs report shocked experts and investors. U.S. employers only added 266,000 jobs, a tremendous blow considering economists had forecast the creation of one million jobs last month.
The unemployment rate also increased slightly from 6% to 6.1%.
Meanwhile, job openings reached a record level of 8.1 million at the end of March. Job posting continued to rise in April, ending the month 24% higher than February 2020’s pre-pandemic level, according to Indeed.com.
With so many openings, what’s with the lackluster jobs number?
There are still more unemployed Americans (9.7 million in March) than open jobs, but the conflicting numbers have sparked a debate among analysts.
Today we’ll explore the possible explanations, and what that means for the economy and financial markets.
Supply Vs. Demand
While the reasons for workers refraining from taking open jobs remains hotly debated, one thing experts can agree on is that this is clearly a supply problem, not a demand problem.
There is no shortage of reports showing a huge demand for labor. The National Federation of Independent Business said 44% of small business owners — a record number — had job openings in April. The Bureau of Labor Statistics, which publishes the official monthly payrolls report, recently said job openings were at a two-year high.
Pantheon Macroeconomics’ Ian Shepherdson stated, “We know from endless surveys that labor demand is very strong, but we also know from both surveys and media-reported anecdotes that firms are finding it hard to recruit people, despite a 6.1% unemployment.”
Jason Furman, an economist at Harvard University and a former Obama administration advisor noted that “there were about 1.1 unemployed workers for every job opening. So there are a lot of jobs out there, there is just still not a lot of labor supply.”
So where are these open jobs that no one wants?
The Labor Department reported the rate of openings, or available jobs as a share of all filled and unfilled positions, was a record at 5.3% in March.
The highest rate of open jobs was in the South (at 5.5%), where there have generally been less restrictions and more reopening, compared with the rest of the country. The openings rate in the Northeast rose to 5.4% in March from 4.7% the prior month. The West had the lowest openings rate, 5.1%.
Government and private data show the largest increase of openings in the construction, manufacturing and hospitality sectors.
Nick Bunker, an economist at Indeed, argues that “temporary factors are making people a little hesitant to take jobs.”
It seems like these “temporary factors” are getting the most attention in the debate over the current job market…
Where Are the Workers?
There are a plethora of factors economists point to for why workers aren’t taking available positions. Here are a few: fear of contracting Covid-19, expanded unemployment benefits, lack of childcare and waiting out furloughs.
Many Republicans are pointing the finger at increased unemployment benefits, which they believe are discouraging workers from taking open jobs, especially low-wage positions where wages may be less than the current aid being provided.
Under relief bills passed by Congress, those receiving jobless benefits get an additional $300 (only until September) a week on top of regular state benefits, which average $318 a week, according to the Labor Department. That means the average unemployment recipient earns $18 more than the equivalent of working full time at $15 an hour.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, remarked, “There is some truth to the unemployment benefits, maybe, being a disincentive. I see that in the data and I see that in anecdotes as we talk to people.”
The Biden administration and many Democrats say the other facts, such as lack of childcare, are to blame for the lack of job growth. Mr. Kashkari says that could be a factor as well, noting that child-care shortages, schools with limited capacity and fear of the virus, even among those who are vaccinated, also weigh on people seeking jobs.
Overall, Mr. Kashkari expects stronger job growth in the second half of the year, when virus fears subside, schools fully open and extended unemployment benefits are scheduled to expire.
Commerce Secretary Gina Raimondo said the Biden administration is monitoring the effect unemployment benefits are having on Americans’ willingness to work, but added, “There’s nothing in the data which would suggest that that’s the reason people are out of work.”
In a CBS interview, Mr. Raimondo added, “The No. 1 reason now that people aren’t going back to work is… fear.”
In comments on Monday, President Joe Biden defended his economic stimulus policies and made it clear that people should not turn down jobs and continue to collect benefits, unless they have specific circumstances, such as because they have children who can’t go to school because of the pandemic.
Biden explained, “We’ll insist that the law is followed with respect to benefits, but we’re not going to turn our backs on our fellow Americans.”
Mr. Biden said he is directing Labor Secretary Marty Walsh to work with states on reinstating job-search requirements for benefit recipients. Many of these requirements were eased over the past year due to the pandemic.
At the White House, President Biden commented, “I never said and no serious analyst ever suggested that climbing out of the deep, deep hole our economy was in would be simple, easy, immediate or perfectly steady.”
Instead of focusing on the unemployment benefits, the White House is working on other steps to expand hiring, including distributing aid for child care centers, restaurants, bars, and state and local governments that was provided by the March $1.9 trillion Covid-19 relief package.
Mr. Biden hopes that companies will be able to offer adequate pay for their employees once they receive their portions of the $350 billion relief pool included in the $1.9 trillion package.
“My expectation is that as our economy comes back, these companies will provide fair wages and safe work environments,” Biden added. “And if they do, they’ll find plenty of workers.”
The White House also pointed out existing measures that could be used to increase employment such as a tax credit for employers that rehire laid-off workers and a program allowing some employees to return to work part-time and still collect a portion of their jobless benefits.
Ultimately, no one knows for sure when employment will return to pre-pandemic levels, and these debates will likely continue. For now, Biden stresses that the employment report provides a one-week snapshot of the labor market from the middle of April. A lot has happened since then, and a lot will continue to change…
To a Richer Life (and Retirement),
The Rich Life Roadmap Team