Companies are now encountering difficulties with finding workers as the pandemic wanes, and some economists think the hefty federal unemployment expansion may be a big part of the problem.
Salvador Khadra is the director of operations for Pizza Boli’s, a Maryland-based franchise company that dishes out pizza, pasta, subs, and wings at its dozens of locations in Virginia, Maryland, New Jersey, Delaware, and Washington, D.C. Khadra said that the labor shortages have been so difficult that some stores now depend on third-party delivery companies to distribute their food.
“They’re relying on some of these external delivery drivers to come in and help them, but that just took a big hit because they take 30% out of your cost itself,” Khadra told the Washington Examiner.
He said that while the company has had issues with driver shortages in the years after third-party delivery companies such as DoorDash, Postmates, and Uber Eats came to the fore, since the pandemic, labor shortages have worsened. Khadra said that “across the board,” Pizza Boli’s has taken a hit, with shortages not just of drivers but also order-takers and cooks.
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He said that when the pandemic first began, there was difficulty finding workers as they stayed at home to avoid the virus, “and then all of the stimulus came in, unemployment benefits from the federal government,” he said of the labor-shortage situation now. “Our labor force is weak.”
Currently, the federal government’s supplemental pandemic unemployment program provides the unemployed $300 per week in federal payments in addition to whatever amount they are receiving in state unemployment. The national average of statewide unemployment insurance prior to the pandemic was $387 per week, meaning that unemployed people in America are now netting $687 on average.
When compared to a job with a 40-hour workweek, the $687-per-week income equates to a $17.17 hourly wage, more than double that of the federal minimum wage. While the expanded federal benefits sunset on Sept. 6, some employers are worried about the months ahead.
“The government is actually hurting more than it’s helping in this area of getting people back to work because they’ve had [this] extended unemployment insurance a bonus, $300 per week,” said Rachel Greszler, an economics research fellow with the Heritage Foundation, a conservative think tank.
“We’re hearing from employers across the country that their biggest problem is just getting the workers that they need to ramp their businesses back up,” she added.
While businesses continue to reopen and more vaccines go into arms, job applications are trailing behind. The number of job openings hit the highest level on record in March, 8.1 million, the Bureau of Labor Statistics reported, up 40% on the year. Hires, though, were up only 17%.
Greszler said that while the retail and hospitality industries have been hit the hardest by the labor shortage, she said that the Heritage Foundation has been hearing about difficulties with the labor force in several sectors. Greszler recently talked to a dairy farmer offering workers $22 for a job that doesn’t require any advanced education and said that the farmer told her that prospective workers are citing unemployment benefits when turning down jobs.
Khadra said he thinks the pandemic has “created a habit of laziness” and said that after the worst of the pandemic, some people have just decided to stay in and collect the expanded unemployment insurance. He said that some are thinking, “‘Oh man, I can make more money sitting at home and being safe and not going out,’ and it became a habit for them.”
Still, while some economists have raised concerns about the unemployment expansion hurting the labor supply, others have pushed back on that notion. Some have pointed fingers at still-lingering fears about working during the pandemic and child care responsibilities as other drivers.
There has still been growth in sectors such as the leisure and hospitality industries, which typically have lower wages, and Treasury Secretary Janet Yellen has made the argument that if unemployment insurance was driving away workers, the data would show less job growth in those sectors.
The labor shortage at Pizza Boli’s has resulted in damage to the company’s bottom line because, in order to attract the workers needed at the stores, some franchisees have been forced to increase wages in order to attract employees, a trend Khadra said has particularly affected stores in Washington and Baltimore.
“They give them an extra dollar, $2, or sometimes $3 per delivery, and that definitely hit[s] the bottom line,” he said of some Pizza Boli’s locations.
Khadra additionally pointed to the manufacturers that his company buys from and said that those manufacturers are also dealing with soaring work shortages, which in turn have hiked the cost of raw goods and made it even more difficult for the pizza chain’s revenue stream. He said prices of some of the products have increased by 10% to 15%.
“Pizza shops like us, our profit margin is so low, and adding this labor cost to it, adding the higher costs of food to buy product, it just put a big dent in it,” he said.
Building on the concern about the shortage of workers, April’s jobs report was a major disappointment, with the economy adding just 266,000 jobs — far short of forecasters’ predictions of nearly 1 million jobs.
The unemployment rate also rose slightly to 6.1%, according to the Bureau of Labor Statistics. Greszler said that from what she is hearing from employers, she wouldn’t be surprised to see some more lackluster jobs reports in the coming months.
With low labor-force participation also comes inflationary concerns. Greszler said that as companies continue being forced to pay employees more out of pocket, they might have to increase the cost for consumers to recoup the losses.
Companies are already beginning to offer higher wages and signing bonuses in response to the shortage. Amazon announced that it will offer $1,000 signing bonuses in select locations and hopes to hire 75,000 workers at average salaries of $17 per hour, which is more than the company’s $15 minimum wage. Jimmy John’s will be giving out signing bonuses in some places and so will Wawa, according to Forbes. Sheetz and Chipotle are also raising wages.
Federal Reserve Vice Chairman Richard Clarida said last week that as the economy reopens, “we could have more persistent imbalances between aggregate demand and supply that would put more persistent upward pressure on inflation than we and outside forecasts expect.” He said, though, that he still thinks the price hikes will be temporary.
Consumer prices rose 4.2% for the year ending April, with the costs of goods rising across the board, the Department of Labor announced last week. The rise, which was the sharpest since 2008, defied the expectations of economists who predicted only a 3.6% increase. The Federal Reserve has controversially held steady with its near-zero interest rate target, even as some economists sound the alarm about too-high inflation.
Larry Summers, who served as treasury secretary under President Bill Clinton and director of the National Economic Council under President Barack Obama, said on Friday that inflation is rising even quicker than he could have predicted. Despite working in the Democratic administrations, he has pushed back on the Biden administration’s spending and proposed spending as overkill that could backfire.
“I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted,” Summers wrote. “That has to make us nervous going forward.”
In order to combat hiring lags and inflation, some states have announced plans to opt out of the expanded federal unemployment payment program early. Sen. Ben Sasse has also introduced legislation that would reallocate pandemic unemployment benefits into a signing bonus for those who get a job in an attempt to encourage workers back into the jobs market.
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“We’ve been warning about this predictable crisis for a year now: Americans want to work, but the federal government is paying more for unemployment than for work,” the Nebraska Republican said last week.
