By Kevin D. Williamson
Monday, March 11, 2024
Our
friends at the U.S. Chamber of Commerce occasionally publish reports arguing
that the U.S. economy is being held back by a “labor shortage.” They just came out
with one in February, in fact.
But
there isn’t any labor shortage. The Chamber of Commerce does a lot of very good
work as an advocate for U.S. businesses, but its views on labor tend to be
distorted—for entirely understandable reasons—by self-interest. What we need
isn’t more workers willing to take low-wage jobs—what we need is better wages
for those jobs.
As
the Chamber’s own findings confirm, healthy industries offering high-paying
jobs do not have much trouble getting workers off the sidelines and into the
game. Whether measured by the “quit rate” (the share of workers leaving their
jobs) or by the industry-specific unemployment rate, the issue of relatively
intense labor scarcity is concentrated—this will not surprise you—in largely
low-paying hospitality and retail jobs. There’s no urgent labor shortage on
Wall Street, in Silicon Valley, in Hollywood, in Big Law, or in manufacturing.
In the Chamber’s report, we read that the quit rate in hospitality (4.3
percent) is more than three times what it is in
manufacturing (1.3 percent). The Chamber of Commerce’s analysis reflects
these facts: “Workers in traditionally lower paying industries, including
leisure and hospitality and retail, have been most likely to quit their jobs.
Meanwhile, in more stable, higher paying industries, the number of employees
quitting has been lower.” While the workforce participation rate has declined,
there are still workers out there: The unemployment rate in hospitality (4.8
percent) is two-thirds more than it is in financial services (2.9 percent) and
more than twice what it is in manufacturing (2.1 percent). That means there are
many workers looking for jobs in those industries but not taking the jobs on
offer.
Conclusion:
Put that filthy lucre on the table and watch those supply curves slope upward
like that’s what they were born to do, because they were.
But
that obvious conclusion seems to have escaped our friends at the Chamber of
Commerce. While they recognize that much of the problem is driven by organic
trends such as the aging of the U.S. population, their proposed
solutions—increasing the labor supply through immigration and child-care
subsidies designed to attract more women into the workforce—are mainly
exercises in cost-shifting and market-distorting. That’s pretty unimaginative,
but, in fact, we don’t need an imaginative solution. There are two sides to the
employment negotiating table, and rather than use subsidies and immigration
(which can act as a form of subsidy to certain firms) to stack the policy deck
in favor of employers, business owners should probably make peace with the fact
that businesses are going to have to pay more to ordinary workers in humble
jobs if they want to get good people—or any people.
The
real lesson is this: Hotel maids don’t make enough money. Shop clerks don’t
make enough money. Restaurant managers don’t make enough money. That’s what the
markets are telling us. Sometimes, the market tells you things you don’t want
to hear. (Ask me about my Journal Register Co. stock options.) The solution to
that problem is not painless, but there is a solution: higher wages.
That’s
not an easy fix, but it is a relatively straightforward one.
I’m
not exactly what you’d call a raging populist. (“We noticed!”) I just want
Starbucks to get my order right and not to have to wait in line for an hour at
Hertz. If you aren’t going to automate those roles, then pay the people what it
costs to fill the damned jobs and get on with it.
Some
companies get this. From time to time, I like to check in on the job openings
at Buc-ee’s, the convenience store/cult whose billboards promising
squeaky-clean toilets are a fixture on Texas roadways. Buc-ee’s has high
standards for its employees. It is, by reputation, not an easy place to work,
but a surprisingly demanding one—not what most people think it will be like
when they go to work for a gigantic gas station. But the company’s management
understands that anybody can sell diesel and Monster energy drinks and
kolaches. Buc-ee’s real value proposition is basically one of customer
experience, which depends on having the right kind of people. This is why they
will pay $125,000
a year to their next car wash manager in Ennis, Texas, $33
an hour to assistant deli managers at the same location, and $125,000
a year to an assistant general manager in Smiths Grove, Kentucky. The
assistant gift counter manager in Madisonville, Texas, will earn $50,000
a year, plus medical, dental, vision, three weeks paid time off, and a 100
percent 401(k) match up to 6 percent of income. That’s not Silicon Valley
money, but it’s pretty good for assistant-managing the gift counter at a gas
station.
By
way of comparison, I spent some time looking at the job openings for some of
the biggest hotel brands. In most cases, they don’t even advertise what a job
pays—as though workers are supposed to go through the process of applying for a
position at Hilton or Hyatt with no clue about the one variable that matters
most to them. That kind of non-transparency does not suggest that the companies
think that the wages they offer will be a big draw to the best candidates. It
reminds me of those car lots where they don’t put prices on used cars: “Golly,
one thing I have noticed is that people who intentionally withhold information
from me always have my best interests at heart and are totally aboveboard
and honorable in their dealings!” The implicit contempt for potential customers
or employees demonstrated by being so blatant in the hide-and-seek game makes
it even worse. If your management philosophy is that you are doing potential workers
a favor by offering them a job and that they should be grateful when they learn
that whatever it is you are offering them isn’t even more disappointing than
they might have expected it to be—yeah, you’re going to experience a “labor
shortage.” Because you’re a terrible employer.
“Why
work for Hyatt?” one
ad asks. The first reason offered—the first reason!—is
“free room nights.” Because that’s why you’re going to work for Hyatt—you just
want to spend more time in hotels.
(I
did see one Hyatt ad with a wage listed: $20/hour
for the sales system administrator at the Driskill Hotel in Austin.
The Buc-ee’s car-wash guy in Ennis probably will end up paying more in income
and payroll taxes than the Driskill guy’s take-home pay in Austin.)
Higher
wages would eat into some corporate profits, to be sure. Have you had a look at
the corporate profit chart lately? It looks like my blood
pressure graph after two Red Bulls. Corporate profits at last reading were more
than 40 percent higher than their pre-COVID peak. I don’t want to be
simple-minded about this—a lot of those profits are being driven by the
businesses that aren’t complaining about a labor shortage, while many of the
firms struggling to attract workers are not hugely profitable—but there’s an
awful lot of money sloshing around in the profit bucket, and we have many
examples of highly profitable high-growth businesses paying considerable wages
for jobs that aren’t reserved for STEM graduates and artificial intelligence
specialists and the like. Every C-suite dork walking the face of God’s green
Earth says something like, “Our people are our most important asset,” but a
little bit of scrutiny shows that to be, in a lot of cases, pure unadulterated
corporate-speak bulls—t.
(I’m
a libertarian, let-markets-work kind of guy, and some of my lefty or populist
friends sometimes act like they’ve pulled a dispositive rabbit out of the
rhetorical hat when they point out that there exist—angels and ministers of
grace, defend us!—badly run businesses, dysfunctional markets, dishonest
businessmen, etc. They don’t seem to understand that the choice is between
stupid, greedy men and stupid, greedy men with an army and a police force. One
of these groups of stupid, greedy men has to compete for your business, and you
can say “no” to them; the other kind doesn’t have to take “no” for an answer.
That’s the whole enchilada, really: I want more decisions affecting my life
made in the context of negotiations I can walk away from and fewer of them made
at the point of a bayonet.)
So,
put yourself in the position of Hospitality Executive X. You have low-skilled
jobs you need to fill and shareholders demanding returns, and the bottom line
is that these demands are rivalrous if not entirely incompatible. So, what do
you do? Do you raise wages and explain to your shareholders that their
diminished profits are going to be a lot more diminished if the hotel rooms
don’t get cleaned and the food doesn’t get cooked, or do you admit that you
have painted yourself into the corner of an economically nonviable business
model? Yes, some employers have to bid against the welfare state for the time
of potential workers. Everybody is super sympathetic to your complaint that you
can’t get workers for wages that give them a lower standard of living than
welfare provides. I’m weeping tears of blood over here.
So,
do you raise wages? Seek savings elsewhere? Or do you insist that there is a
national crisis in the form of a “labor shortage”?
Groups
such as the Chamber of Commerce are pretty consistently in favor of alleviating
the so-called labor shortage by means of immigration, flooding the market with
low-wage/low-skill workers willing to do—all together now!—“jobs Americans just
won’t do [sotto voce] at the wages we are offering.” Again, I don’t want
to sound like a raging populist (“You don’t!”) or, conversely, a cynical
Machiavellian amoralist (“…”). Still, when it comes to immigration, I keep
coming back to one thing: We have enough poor people in our country, and we
don’t need to import more of them. There’s a lot more to citizenship than
economic calculation, but if it’s just green cards or the equivalent we’re
talking about, then I’m all for opening the national door to people who have
offers for jobs at, say, $200,000 a year, or people with seven-to-10-figure
sums to invest in businesses and projects. But unskilled and low-wage workers?
We have plenty. And if I have to pay more for an avocado to get control of our
runaway illegal (literally illegal,
Mr. President—literally) immigration problem—fine. Everything involves
trade-offs, including law and order. Although, for the record, we wildly
overstate how much agriculture relies on the labor of illegal immigrants. If
you’ll forgive my
quoting myself:
Most illegals do not work in agriculture—only
about 4 percent of the illegal-immigrant
population is employed in farming. In no state is farming the predominant
occupation of illegal immigrants; even in places such as California, where
labor-intensive fruit-and-vegetable farming attracts a relatively large illegal
work force, the main occupations of illegals are in hospitality (restaurants
and hotels), services, and transportation.
Likewise, most of the people working in
agriculture are not illegals: The great majority of the farming work force is
composed of legal workers, with illegals constituting about one-fourth of the
total. Illegals make up a larger share of the farm work force than they do any
other labor pool, but they remain a small though not inconsequential minority
of workers.
So,
that’s illegal immigrants. But lawfully flooding the labor
market with unskilled low-end labor is a terrible idea, too.
Immigration
is a nice fix politically for Chamber of Commerce types (that may read as
though it were written with a sneer, but it isn’t—I like these guys and am, in
some senses, one of them; I agree with them on about 94 percent of the big
issues) because nobody believes that anybody is actually going to fix the
schools (and, even if you did, it would be years and years before those new
workers were in the market). Nobody wants to say out loud that the only
reliable cure for the low workforce participation rate is cutting public
benefits enough to force malingering working-age men into the workforce when
they’d rather be playing video games, watching porn, and smoking weed.
Again,
the Chamber’s findings back this up. In its February
report, the Chamber found that two-thirds of those who lost full-time jobs
during COVID are not really looking for work, that half of them won’t take a
job that isn’t remote, and that 1 in 4 say they don’t think it is necessary for
them ever to go back to work. How did that happen? One in 5 became full-time
homemakers, but a larger number—1 in 4—say that government aid packages have
disincentivized them from looking for work.
So,
there’s a potentially harsh and thoroughly unpopulist policy lingering in
there: Turn back those huddled masses at the border and starve the welfare
cases into going back to work. I do not endorse the harsh policy or harshness
per se—what I endorse is letting labor markets work. Yes, there is room for
policy reform regarding low-wage immigration and work-disincentivizing
government benefits. But there are a lot of businesses out there that just
probably need to be putting more money on the table if they actually want to
fill those jobs. Those workers aren’t going to feed their families with Chamber
of Commerce publications or corporate
platitudes about how people are our greatest asset. The disruptions of
the supply chain associated with COVID-19 showed a lot of business managers
just how acutely they depend on ready labor from workers doing fairly ordinary
but—as we were all saying there for a minute—essential work:
operating warehouses, stocking shelves, driving trucks, unloading containers,
delivering packages.
Pay
up. Or don’t, and then figure out how to get that work done without workers.
But don’t tell me it’s a national crisis that being on food stamps pays better
than your company does.
And
Furthermore …
Not
that everything looks rosy in the job market. Far from it. President Joe Biden,
in his recent State
of the Union address (really, for the love of all that’s still good
and decent in this ailing republic—rid us of this hideous
imperial spectacle and go back to sending a letter to Congress),
insisted that things are super-shiny for U.S. workers, and media cheerleaders
at outlets such as the New York Times are eager to reinforce
the official line. But there are wrinkles in the story.
Let’s
unwrinkle a few of them.
As the Times reports,
the U.S. economy added about 275,000 jobs last month. Hooray for that. But what
kind of jobs? Some 52,000 were in government, and another 85,000 were in
education and health care—which is to say, in government or almost-government
and practically government in many cases. Outside those
sectors, the biggest growth was in leisure and hospitality, i.e.,
in the fields that Democrats (especially the ones who do their
campaign work at the Washington Post) like to sneer at as “McJobs”
when a Republican president boasts about job growth. I’m against sneering at
any kind of honest work, but for the record—that’s where the growth has
been. Construction jobs? Those grew at about half the rate of government
jobs. Business services? An anemic 9,000 new jobs. Manufacturing? Down some
4,000 positions. Joe Biden may like to pretend to be blue-collar Joe from
Scranton and is a practitioner of old-fashioned union-hall politics,
but—with the
usual caveat that the president, in reality, has
basically nothing to do with any of this!—according to the current data,
he’s presiding over an economy that is adding vice principals and deans of
students and shedding factory workers. Which is probably not what he’d prefer
and—more to the point—not what he wants you to think is happening.
The
political story is always better—and always worse—than the real story. “I
inherited an economy that was on the brink,” Biden claimed.
“Now, our economy is literally the envy of the world.” Horsepucky. Our economy
is pretty much always the envy of the world. Quoting
myself again:
Consider our big political competitors on the
world stage, who also are economic competitors. China and Russia both have
GDP/capita figures in the same range as such economic peers as Bulgaria and
Mexico. At $15,400 per capita, Russia (the slightly wealthier of the two, with
China at $12,600) is a lot closer to Kazakhstan ($11,400) than it is to, say,
Panama ($17,400) or Guyana ($19,000). China would have to move up a few places
to equal Costa Rica or perennial basket-case Argentina. China and Russia are a lot
closer to Cuba ($10,400) than to Malta or the Bahamas, each with a GDP/capita
more than twice China’s or Russia’s. Troubled Puerto Rico is nearly
two-and-a-half times as prosperous as Russia—and nearly three times as
prosperous as China.
Now, move up the list and compare the United
States ($75,300) to some top-tier countries and you’ll find GDP/capita that is
35 percent higher than Canada’s, 54 percent higher than Germany’s, 65 percent
higher than that of the United Kingdom, twice the European Union average,
two-and-a-half times that of Spain or Saudi Arabia, about five times that of
Russia and six times that of China. The only countries even notionally within
striking distance are very small, very wealthy countries such as Iceland (GDP/capita
about 99 percent of the U.S., fewer people than Wichita, Kansas) and Denmark
(89 percent of U.S. GDP/capita, population of Cook County, Illinois.) The
nearest big country is Australia, with 85 percent of U.S. GDP/capita and fewer
people than Texas.
The United States has 330 million people
putting out economic value per person that is, on average, a lot higher than in
high-performing countries such as Germany and Sweden. Our current unemployment
rate is under 4 percent, lower than it was on Donald Trump’s last day in office
or Barack Obama’s or Ronald Reagan’s. Inflation remains troublingly high by
recent standards, but not much different from what it was during the
Reagan years. U.S. oil-and-gas production are at
or near record levels. Among the world’s 30 most valuable companies, two are
Chinese, one is Swiss, one Dutch, one Saudi, one Danish, one Taiwanese—and 21
are American. France’s most valuable
company makes expensive luggage. The largest U.S. firm is, depending
on the day, Microsoft or Apple, each worth nearly eight times the value of
LVMH and six times the value of Novo Nordisk, Europe’s largest publicly-traded
firm. Prosperous as Norway is, its annual GDP is less than Walmart’s annual
revenue. U.S. firms dominate technology, led by the world’s most valuable
makers of consumer electronics (Apple), of graphic processing units (Nvidia),
of software (Microsoft), of automobiles (Tesla), of pharmaceuticals (Eli
Lilly), along with Alphabet, Meta, Amazon, etc. Culture, media, finance,
design, engineering, energy, robotics—U.S.-based firms are dominant in every
sector.
Economic
growth and long-term prosperity basically come from one place: investment. Yes,
you need the rule of law and the necessary public goods and all that
stuff—stipulated, Sen. Warren—but, assuming we aren’t talking about Haiti or
Pakistan or some such place, it’s investment. Which means: savings. The more
corn you save for seed this season, the bigger next year’s crop is. The United
States is, and traditionally has been, a good place to invest. But investors
looking at the U.S. economy in Anno Domini 2024 have to think a little harder
about some risks that hadn’t been at the top of the list in some time.
Inflation implies both interest-rate and foreign-exchange risks, and galloping
toward fiscal Armageddon, as Washington seems intent on doing, raises all sorts
of risks. The fact that Donald Trump & Co. ended a centuries-long tradition
of peaceful transfers of power highlights a new set of political risks in what
had once been assumed to be the safest and most stable regime in the world. The
steady move away from constitutional government under legislation passed by
Congress to populist-autocratic government by presidential fiat, with policies
enacted willy-nilly by one administration only to be rescinded by the next,
creates critical uncertainties in areas such as trade, energy, and labor
policy. Businesses and institutions don’t have to stop investing in the United
States for those factors to damage the economy; all that is needed is for
businesses and institutions to recalculate the risk in a sufficiently adverse
way. It already costs the U.S. government significantly more to borrow money
than it costs, e.g., the Canadian government. That has knock-on
effects for business borrowers, whose bankers and financiers right now can get
5 percent back by just putting their money in Treasuries and forgetting about
it.
In
the long term, if you want a higher standard of living—better jobs, better
wages, better prices—then you want lots of investment, which means that you
want a stable policy environment and a national government that is a few
decades past its most recent autogolpe by a sitting
president.
Words
About Words
I
suppose that if Economics for English Majors can be rendered E4EM, then
Economics for English Minors should be E4Em. On that score, I’ve been trying to
figure out exactly why, in music, we talk about major/minor
scales/chords/intervals/etc., but the texts are pretty vague and opaque.
There’s an obvious “lesser” or “inferior” sense there, of course, in that the
minor intervals are a half-step smaller than their major equivalents. (If you
don’t know music stuff: The difference between a C major scale and a C minor
scale is that the third, sixth, and seventh notes of the minor scale are a
half-step down from their major equivalents. A half-step is the musical
distance between one of the black keys on a piano and the white key immediately
before or after it, the smallest interval we usually see in Western music.) I
am not very well versed in musical nomenclature and have only a very
rudimentary understanding of music theory, but to the extent that I do
understand these, musical conventions usually seem to me reasonably
straightforward. For example, the ubiquitous I–V–vi–IV
progression is written with lowercase “vi” to show that the sixth
chord is minor while the others are major; lowercase letters generally are
associated with minor chords, so that E-major is just “E” whereas E-minor is
“Em.”
Again,
this isn’t stuff I know very well—I’m just thinking out loud in virtual print
here. If you know of a good explanation of the major/minor terminology, let me
know.
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