JOHN HOOD COLUMN: Worker shortage won’t end soon

Published 11:07 am Friday, January 7, 2022

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On a recent road trip through Western North Carolina and North Georgia, I had occasion to stop at service stations, restaurants, hotels and small businesses. Each establishment had a sign on the door conveying the same message: help needed.

Not help wanted. Help needed.

John Hood

Although the worker shortage appears to be most acute in service industries, many different kinds of businesses find themselves short-staffed. They’re struggling to serve their customers. And as demand pressures overwhelm supply, prices are soaring.

The problem began during the first few months of the COVID-19 crisis, but even gobs of (borrowed) federal money and the easing of pandemic restrictions have failed to rectify it. North Carolina’s labor-force participation rate was 59.3 percent in November. Two years ago, in November 2019, that rate was 61.5 percent.

That seemingly small difference translates into approximately 70,000 North Carolinians who under normal circumstances would be either employed or actively looking for work but are instead on the sidelines. Their reasons vary. Some are young, live with their parents and lack motivation. Some in their 50s and early 60s, lost jobs during the COVID lockdowns, despaired of finding comparable positions and decided to retire early. Others are still too busy taking care of family members to seek employment, or too afraid of the virus to risk reentering a workplace.

In retrospect, it was a mistake to close down schools. The transmission risk was low. The economic and educational toll from closure was, alas, huge. And it was a mistake to expand and extend unemployment-insurance benefits in ways that delayed reentry into the workforce.

These effects are, however, increasingly visible only in the rear-view mirror. They can’t fully explain our current predicament. Nor can wage rates. Some jobs that pay $15 an hour or more are going unfilled.

Progressives prescribe another round of massive federal spending. They argue, for example, that expanding child-care subsidies will coax workers back. That might help in some cases, but proposals such as the now-stalled Build Back Better bill could make the problem worse, since they essentially mandate an increase in child-care costs for many households (in part by excluding lower-cost church providers from participation).

It would be better for policymakers to focus first on removing the structural barriers that separate prospective workers from productive employment. For example, some folks decided during COVID to leave jobs they felt were under-compensated and unfulfilling. They want to change careers, perhaps even start their own businesses. But our state’s archaic regime of occupational licensing stands in their way. We should make it easier for workers to enter new careers, allowing employers and consumers to sort out the mix of education and training required rather than imposing it through regulations and licensing boards.

Similarly, some North Carolinians aren’t working right now because technological innovation has eliminated their jobs and created a mismatch between what they know how to do and what today’s employers need done. Although community colleges, private firms, and other providers may well be in a position to retrain them quickly and inexpensively, displaced workers often aren’t aware of such opportunities. We need a robust effort by public and private institutions to fill that information gap.

For recent early retirees or those considering the idea, we ought to change the tax treatment of Social Security so older workers aren’t punished if they choose to continue to work part-time while receiving benefits.

Some policymakers think North Carolina and the rest of the country will have to get used to far-lower workforce participation. “We’re not going back to the same economy we had in February of 2020,” said Fed Chairman Jerome Powell. “The post-pandemic labor market and economy in general, and the maximum level of employment that’s consistent with price stability, evolve over time.”

Perhaps. But if North Carolina’s participation rate has been permanently reduced by more than two percentage points, the economic consequences will be severe. We can only hope that reducing labor-market frictions can close a good chunk of the gap.

John Hood is a John Locke Foundation board member and author.