Reallocation Friction

There’s no going back. Donald Trump was going to Make America Great Again but never specified when it had once been great. Perhaps he had 1953 in mind. Blacks knew their place, and Asians and Hispanics had chosen to be humble and unobtrusive. Homosexuals and those of indeterminate or fluid sexuality had, back then, the decency to stay in the closet. But mostly, back them, America was an economic powerhouse. We made things. We built things. We were the world’s success and no one messed with us. And we could be the envy of the world again – and then the coronavirus pandemic ruined everything. The only way to slow that was to slow and almost stop normal life. Stay home. And that ruined the economy, and Donald Trump. He wouldn’t have the chance to lead the nation back to 1953 or whatever glory year he imagined.

Joe Biden’s idea was to Build Back Better. We could be an economic powerhouse and the envy of the world once again, but we’d be inclusive this time. Blacks and Asians and Hispanics and everyone else would be a necessary part of this wonderful world to come. We’d be back! All of us this time!

Neither is going to happen. Too much has changed. There was new data that hinted there really is no going back:

The steady jobs recovery from Covid-19 slowed dramatically in April, stunning Wall Street analysts and raising questions about the strength of the pandemic comeback and the impact of generous unemployment benefits.

The government said Friday that the economy created 266,000 jobs in April – a strong number in ordinary times but sharply below the Wall Street consensus of nearly one million, driven by reopenings in the beaten-down leisure and hospitality sectors as vaccinations continue.

Good news in those sectors wasn’t enough. Expect a million new jobs, get a quarter of those, but don’t panic. Stay the course:

President Joe Biden used the report to argue that while the economy continues to recover, it’s critical to pass his American Jobs and American Families plans that would add another $4 trillion in federal spending over the next decade. The plans cover large infrastructure investments as well as enhanced benefits for child care and universal prekindergarten education.

“When we passed the American Rescue Plan it was designed to help us over the course of a year, not 60 days,” Biden told reporters, referring to the $1.9 trillion stimulus package he signed in March. “We never thought after 50 or 60 days everything would be fine. Today there is more evidence our economy is moving in the right direction, but it is clear we have a long way to go.”

But we’ll get there! Things will be normal one day, if not better than normal! Don’t give up now!

Not everyone agrees:

The figure for March was also revised down by 146,000 to 770,000. The soft April number embarrassed prognosticators and provided fuel for partisans and economists across the ideological spectrum to declare that their policy ideas were vindicated.

For conservatives, the report suggested that generous pandemic-era jobless benefits are discouraging workers from taking available positions. Several states including South Carolina and Montana are already trimming back benefits packages. Other states may soon follow.

The U.S. Chamber of Commerce used the weak number to call for an end to the $300 supplemental unemployment benefit included in Biden’s most recent stimulus package.

“The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market,” the business group said.

That’s a Ronald Reagan thing – “Unemployment insurance is a pre-paid vacation for freeloaders.” He did like to say that. But are we dealing with freeloaders? Maybe not:

For progressives, the report suggested that corporate America has to step up and offer higher wages and that more government intervention is needed, especially with increased child care benefits, to help workers take the millions of jobs that are open. The dismal number could also mean that workers remain hesitant to return to in-person jobs because of Covid-19 even amid the vaccination campaign.

Or this could mean nothing:

Monthly jobs numbers, especially coming out of deep recessions, can be highly volatile. And any single number can turn out to be an anomaly reversed in subsequent months. Most other data suggest both a strong recovery and a vibrant labor market. Job creation for May could wind up being far stronger and the April number could be revised higher. In August of 2011 for example, the economy created exactly zero jobs, raising fears of a double-dip recession that never materialized. Steady job growth continued the following month.

So economists suggested caution in drawing any firm conclusions from the April figure.

“There is nothing definitive here and we will know a lot more after the May numbers and we’ll find out whether something real is happening or this is just noise and problems with seasonal adjustments a year after Covid first hit,” said Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics. “People with big mouths can bang the table and say they know exactly what happened, but they don’t and we won’t know for a while.”

That didn’t stop the people with big mouths from banging the table:

Republicans across the country hammered away at the report as a reason to trim rather than add to current benefits.

“Turns out, paying millions of Americans to stay home leads to millions of Americans staying home,” Rep. Nancy Mace (R-S.C.) tweeted. “We have to get Americans back to work and off of unemployment.”

White House officials rejected the idea that enhanced benefits are keeping people from going back to work.

“Still don’t see strong evidence of that,” Council of Economic Advisers member Heather Boushey said on MSNBC. “We are not seeing that there are a lot of folks who are not searching because of unemployment benefits. Indeed as this report shows, there was an uptick in labor supply last month, and it still remains a difficult labor market for millions of workers.”

Which is it? It doesn’t matter. Cut off the benefits. They’ll have to go back to work:

Congress extended several emergency unemployment benefits programs through September as part of Biden’s massive March rescue plan, including Federal Pandemic Unemployment Compensation which provides jobless workers with an extra $300 a week. Some Republican governors have already chosen to cut off the programs to tackle what they call a labor shortage in their states, arguing that the additional aid and the fact that the program doesn’t end until September are keeping workers on the sidelines.

“This labor shortage is being created in large part by the supplemental unemployment payments that the federal government provides claimants on top of their state unemployment benefits,” South Carolina Gov. Henry McMaster said this week. “What was intended to be a short-term financial assistance for the vulnerable and displaced during the height of the pandemic has turned into a dangerous federal entitlement.”

McMaster, following Montana’s Governor Greg Gianforte, announced this week that his state would no longer participate in the pandemic unemployment programs. Georgia and Wyoming officials are also weighing whether to drop out…

Offer no help. Toss them in the deep end of the pool. They’ll learn to swim, real fast. But nothing is that easy, or that bad:

The leisure and hospitality sectors, industries that have complained of a job shortage in recent weeks, saw exceptionally strong job growth in April. Workers also saw more hours. According to the Bureau of Labor Statistics, the number of people working part time due to economic reasons fell by 583,000 last month.

Administration officials also tried to focus on the longer-term trend. “If you look over the last three months, though, we’ve added 500,000 jobs per month,” Labor Secretary Marty Walsh said on Fox News. “So the last three months we’ve added 1.5 million jobs to the economy, as compared to the previous three. So, but we still have a way to go. There’s no question about it. There were some definitely bright sides in this report.”

And there are lots of things to think about:

Sen. Elizabeth Warren (D-Mass.) called the report “a stark reminder of what American families know all too well: Child care is infrastructure. If we want moms and dads to go back to work as this pandemic subsides, we need to provide them with the child care they need.”

The April numbers were particularly worrisome for women’s groups concerned that recent gains are getting reversed. “After 2 months of gains in women’s labor force participation, that trend reversed in April,” The National Women’s Law Center said in a statement. “165,000 women ages 20 and over dropped out of the labor force, meaning they are neither working nor looking for work. Meanwhile, 355,000 men ages 20 and over returned to the labor force last month. This means for every woman who dropped out last month, nearly 2.2 men returned.”

Something is definitely going on there, and Kevin Drum adds this:

Back in 2017, the fact that companies wanted to hire more people than they could find was a good thing. It meant the labor market was tight and workers would get paid more. Today, it means… what?

The labor market is tight because there are lots of people who are afraid to go back to work while COVID-19 is still loose.

The labor market is tight because many women with children can’t find childcare and are staying out of the labor force.

The labor market is tight because workers are figuring they’ll use up their unemployment benefits before they bother getting a job.

The labor market is tight because employers are being stingy about pay and benefits. In April, average hourly earnings actually went down compared to a year ago.

All four of these are plausible reasons. In fact, all four of them could be true at the same time. We just don’t know.

And the New York Times notes more possibilities:

Administration officials expressed optimism that the pace of job gains would accelerate in the months ahead. Substantial portions of the relief money that was approved in March have yet to flow into the economy. That includes the $350 billion that was allocated for states and municipalities, which have 1.3 million fewer jobs than their pre-pandemic peak.

States and cities are awaiting guidance on exactly how the money can be spent and what strings are attached. Republican-led states have filed a lawsuit against the Biden administration over its position that states cannot use relief money to subsidize tax cuts, which could further slow the rollout.

Mr. Biden said at the White House that the administration would begin releasing the first batch of money to state and local governments this month. He said the money would not restore all of the lost jobs in one month, “but you’re going to start seeing those jobs in state and local workers coming back.”

The administration also took steps on Friday to get money out the door more quickly, saying the Treasury Department would release $21.6 billion of rental assistance that was included in the pandemic relief legislation to provide additional support to millions of people who could be facing eviction in the coming months.

That might help, as might this:

Officials said they expected increased vaccination rates to ease some lingering fears about returning to jobs in the pandemic. The number of Americans 18 to 64 who are fully vaccinated grew by 22 million from mid-April, when the survey for the jobs report was conducted, to Friday. That was an acceleration from the previous month. Some White House officials said the administration’s push to further increase the ranks of the vaccinated could be the most important policy variable for the economy this summer.

But nothing is easy:

Treasury Secretary Janet L. Yellen, speaking at the White House, said that a lack of child care related to irregular school schedules was making it a challenge to get the labor market back to full strength. She also said that health concerns about the pandemic were holding back some workers who might return to the market.

“I don’t think that the addition to unemployment compensation is really the factor that’s making the difference,” Ms. Yellen said.

And there’s this:

Other key economic officials treated the report as a sign that the labor recovery ahead is likely to prove wildly unpredictable. Robert S. Kaplan, the president at the Federal Reserve Bank of Dallas, said in an interview that his economic team had warned him that the April report might show a significant slowdown as shortages of materials — including lumber and computer chips – and labor bit into employment growth.

He said he was hoping to see those supply bottlenecks cleared up, but he was watching carefully in case they did not resolve quickly.

More microchips available for automobile manufacturing might help. Car and truck assembly lines everywhere have been shut down until more of those are available. No one expected that they’d be needed so quickly, and it’s the same with lumber – not enough right now to build much of anything. There’s a lot of catching up to do. These things take time. There is none.

None of this was going to be easy, but all of it may be beside the point. Things have changed. There’s no going back to normal. The Washington Post’s Heather Long considers that:

One way to make sense of this weak jobs report is to do what Wall Street did and shrug it off as an anomaly. Stocks still rose Friday as investors saw this as a blip. They think there is just a lag in hiring and more people will return to work as they get vaccinated. And they point out oddball months have occurred before, especially with some weird quirks in the Labor Department’s seasonal adjustments.

“With the U.S. economy rapidly reopening, and news of pockets of labor shortages emerging, the markets should treat today’s number as an anomaly in a generally positive upward trend,” wrote Seema Shah, chief strategist at Principal Global Investors, to clients.

Really? Don’t count on it:

At the most basic level, people are still hesitant to return to work until they are fully vaccinated and their children are back in school and day care full time. For example, all the job gains in April went to men. The number of women employed or looking for work fell by 64,000, a reminder that child-care issues are still in play.

But there is also growing evidence – both anecdotal and in surveys – that a lot of people want to do something different with their lives than they did before the pandemic. The coronavirus outbreak has had a dramatic psychological effect on workers, and people are reassessing what they want to do and how they want to work, whether in an office, at home or some hybrid combination.

A brush with death does tend to add a bit of perspective to anyone’s life:

A Pew Research Center survey this year found that 66 percent of the unemployed had “seriously considered” changing their field of work, a far greater percentage than during the Great Recession. People who used to work in restaurants or travel are finding higher-paying jobs in warehouses or real estate, for example. Or they want to a job that is more stable and less likely to be exposed to the coronavirus – or any other deadly virus down the road. Consider that grocery stores shed over 49,000 workers in April and nursing care facilities lost nearly 20,000.

The pandemic seems to have changed more than anyone imagined. Remember Samuel Johnson – “Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”

In short, life is short. What do you want to do with yours? And of course there’s a name for this:

Economists describe this phenomenon as reallocation friction, the idea that the types of jobs in the economy are changing and workers are taking a while to figure out what new jobs they want – or what skills they need for different roles.

“Clearly, there are industries in both manufacturing and services that are eager to beef up staff as the pace of economic activity accelerates. But those efforts are being frustrated. In some cases, the problem is a mismatch in skills. You can’t train a one-time courier on a bike to become an IT specialist overnight,” said Bernard Baumohl, chief global economist at the Economic Outlook Group.

But that will not stop anyone now:

Tim and Sara Wojtala are a young couple completely rethinking their careers due to the pandemic. Tim worked for years as a manager at major retailer. Last year, he was frustrated by what he felt were lax safety conditions at work and having to deal with irate customers who didn’t want to wear masks. He quit in the fall as the virus surged again. Now he’s going to school to become a wind turbine technician through a program backed by the government. Sara also spent many years in retail and wants to do something more meaningful now.

“The problem is we are not making enough money to make it worth it to go back to these jobs that are difficult and dirty and usually thankless. You’re getting yelled at and disrespected all day. It’s hell,” said Sara, who is 31. She added that with two young kids, finding child care has also been a huge issue lately.

The couple have decided to sell their suburban Detroit home and buy a camper van to travel the country. They hope to home-school their kids and spend more time as a family.

Boomers will recognize this from the sixties, a new version of “turn on, tune in, drop out” – Timothy Leary – the Human Be-In in Golden Gate Park in San Francisco – all that sort of thing. Get in touch with your inner self. Decide who your really are and what you really want. Live an authentic life. And stop working for the Man! And this couple’s camper van is Ken Kesey’s Magic Bus.

Well, maybe not, as all of this might be just about money:

Wage data from April is also telling. When companies, especially fast-food restaurants, complain they can’t find workers, the common retort is, “Why don’t these companies raise pay?” In fact, there is evidence that restaurants are raising pay. The average hourly rate in the hospitality sector is up roughly $1 compared to the pre-pandemic going rate. But the bigger issue appears to be that warehouses have hiked wages by more than a dollar and now pay $26 an hour on average – far more than the roughly $18 average in hospitality.

Where have all the workers gone? To better-paying jobs. But that doesn’t explain everything:

Even among those who have jobs, people are rethinking their options. Front-line workers are reporting high levels of burnout, causing some to seek a new career path. There’s also been a wave of retirements as workers over 50 quit because they don’t want to return to teaching, home health care or other front-line jobs. More affluent Americans say they are retiring early because their retirement portfolios have surged in the past year and the pandemic has taught them that life is short. They don’t want to spend as much time at a desk, even if it is safe.

Again, life is short. What are you going to do with it? But really, there’s no going back. All the usual options are closing:

Companies are also doing a reassessment of how many workers they need and in what capacities. Economists have been warning for months that some jobs won’t come back, especially jobs like hotel check in desk workers, valets, toll booth collectors and some serving jobs that can be automated. There’s also an ongoing decline in employment of administrative support staff. Temporary office help declined by 115,000 in April.

Two supposedly hot areas of the economy – manufacturing and construction – also had surprisingly weak hiring, with manufacturing shedding 18,000 jobs and construction flat. Supply chain holdups are forcing factories and construction sites to slow down or even shut down for a while. But it’s notable that the manufacturing sector has bounced back strongly, yet the industry has only added back about 60 percent of the jobs lost. This suggests many factories are ramping up automation in a way that allows them to do more with fewer workers.

It will never be 1953 again. It will never be 2019 again either. Heather Long is arguing that the past year has fundamentally changed the economy and what many Americans want in their working life – and in their life in general. People woke up. Life is short. And there’s only one thing to do now. Embarrass the economists and the politicians. Do what you want.

About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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