Economics Weekly: Is There Now a Major Labor Shortage?

It is very difficult to find employees to handle the significantly increased demand. We have never had this problem before in our 44-year history. Our human resources department reports that even at a starting pay for non-skilled-level workers of $14 per hour, we cannot fill our 20-plus open positions. People don’t want to go to work when they can stay home and collect $400 or more per week in unemployment.

— Nonmetallic Mineral Product Manufacturing respondent’s comments in the April Texas Manufacturing Outlook Survey from the Dallas Fed

Consistent with the past year, labor continues to be the biggest issue we are facing. Finding and retaining labor—skilled and unskilled—is highly challenging and frustrating. As the challenges continue, we are not accepting all the work that we could if we had the labor.

— Construction Industry respondent’s comments in the ISM Services, April 2021

Restaurant capacity is increasing quickly as restrictions are removed. Consumers have pent-up demand; sales are increasing, and the labor pool is tight. Supply chain is challenged at every level as businesses across the U.S. ramp up.

— Accommodation & Food Services respondent’s comments in the ISM Services, April 2021

In last week’s Economics Weekly, we examined the current supply-chain disruptions that are causing headaches across a multitude of industries. This week we have heard a growing number of complaints of labor supply shortages, which are being reported in earnings calls and corporate sector surveys. Such reports have started to unnerve some investors, fearing the possibility that the Fed may need to step in earlier than currently anticipated. This fear was also fanned by remarks from Treasury Secretary Janet Yellen this week—remarks that were subsequently recanted but caused a brief dip in many of the longer-duration stocks on Tuesday. In order to assess this situation, in this Economics Weekly, we examine the price of labor using a number of wage inflation gauges; we discuss what they are currently telling us about the labor market and which measure is the most useful at this point in the economic recovery.

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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.