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When the U.S. Department of Labour posted their job gains data for the month of April, it sent a shock wave throughout the financial industry. As the pandemic recedes and the US economy reopens, economists at Bloomberg were widely expecting a hiring spree of around 1,000,000 jobs. Instead, they got about a quarter of that, or 266,000 full-time jobs added to the payroll.
Normally, this wouldn’t be that interesting of a story. Financial eggheads get their math wrong, whoop-de-freakin-doo. But the real interesting bit is in the underlying details. Why did hiring miss targets so badly?
Because this time, it wasn’t because economists underestimated the pandemic, or the pace of vaccinations, or even employers expanding their workforce. Instead, this jobs miss was caused by employers trying to hire people and being unable to.
So now the recession has shifted into a new, strange phase. No longer are people clamouring for work that’s not there. Instead, there is now a simultaneous high unemployment rate, yet a hiring gap of unfilled positions. So what the heck is happening here? Are people simply refusing to work?
Are Unemployment Benefits to Blame?
A prevailing theory has been circulating on the mainstream media is that Americans are refusing to work because the government is simply paying people too much money.
The theory goes that the federal government’s multi-trillion dollar expansion of the unemployment system has created a Socialist welfare state that disincentivizes people from working. After all, why work hard when the government is willing to pay you to sit on your ass and do nothing?
The idea is not completely out of left field, and is why it’s so tricky to design income support programs. Pay too little and you leave too many people in poverty, but pay too much and you get Denmark, where people sit around and just “be happy.”
Here’s the problem with that argument. The expanded federal unemployment program that created an enhanced $600 weekly benefit was started by…President Trump. Enacted in March 2020, the Coronavirus Aid, Relief, and Economic Security Act was passed unanimously by both parties and signed into law by Trump. The more recent stimulus bill, the American Rescue Plan Act, was passed in March 2021 and extends the existing unemployment benefit at a much more modest $300 a week.
So now, a $600 weekly benefit that both parties were, again, totally fine with back when Trump was president is now being accused of being a socialist/communist government takeover now that Biden is president, and somehow the Worst Thing Ever. Classic.
The second problem with depicting federal unemployment benefits as a socialist free money giveaway is that it’s not actually free money. A Universal Basic Income (UBI) program which gives money to everyone universally would be free money, and if ever implemented, would need to be designed very carefully to make sure it doesn’t incentivize people to not work.
The enhanced federal unemployment benefits, on the other hand, layers on top of the existing unemployment benefits program. That means that the normal rules of each state’s unemployment program still applies. You had to have been employed before the pandemic, your job had to be eliminated for pandemic-related reasons, and if you’re offered your job back you have to take it or you lose out on further unemployment payments.
Remember, unemployment benefits are funded by an employees’ previous payroll contributions, so these benefits are less “lazy people being subsidized by hard working taxpayers” and more “people getting their own contributions back.” The program is structured similarly to Social Security, and nobody ever yells at Boomers for taking government benefits when they cash in their SSA checks.
And you can argue that the unemployment system is vulnerable to fraud, but that’s true of literally any other government program, including Social Security. If the actual problem is that people are defrauding the system, then the solution is to step up enforcement to catch people who are acting in bad faith, or to close the loopholes that allow people to exploit the system in the first place.
That’s not what Republicans are proposing, however. Instead, 17 Republican governors have announced that they will unilaterally block federal funds from their constituents starting today, March 17. That’s an…interesting way to govern.
So while unemployment benefits are an easy bogeyman to blame for this inability to hire, it seems that politicians are going after the easy target rather than the actual problem.
Another more interesting explanation for the hiring gap is something called the “Shecession.” Basically, the shecession is the phenomenon that unlike previous recessions, the pandemic has impacted women in the workforce way harder than men.
It’s hard to pinpoint the cause on exactly one thing to blame, because it’s a strange combination of factors that made this happen. First, the sectors most badly hit just happened to be ones mostly dominated by women, like retail, tourism, and food services. Secondly, the jobs in those sectors that tended to be more customer facing and therefore the first to be let go tended to be staffed by women, like waitresses, flight attendants, and customer service. In retail alone, almost 95% of the job losses since February 2020 were suffered by women.
And finally, schools have been shut down and moved to virtual learning, and because childcare responsibilities fall primarily on women, the damned kids are keeping women stuck at home and not able to go look for work. According to a survey from the Kaiser Family Foundation, 30% of women were forced to quit and drop out of the workforce because their child’s school or daycare closed down, with many primary schools in the US having no plans to reopen for the rest of the academic year.
Add this all up and we have a shecession. Women were first to lose their jobs, then got stuck at home caring for their kids, and will be last to get their jobs back, likely at a lower wage than everyone else. So while we’ve all suffered during this pandemic, spare a thought for the women in our lives. They have suffered far more.
What About Real Estate?
And finally, there’s our old friend real estate.
This hasn’t reared its ugly head yet, but I’m betting it will as the economic recovery drags on. Last recession, an unexpected factor in prolonging the economic recovery in 2008/2009 was the inability of people to relocate to where the jobs were. This was of course caused by the housing crash that cratered American home prices. By making so many people underwater on their mortgages, people ended up trapped inside their houses, unable to move or sell because they owed more on their mortgages than their property was worth. So even though jobs were available halfway across the country, people weren’t able to take advantage of them because they were slaves to their home.
We are primed for a similar situation now. Much shock and confusion was played out across the media about how in the middle of a recession, home prices were continuing to rise. But it wasn’t downtown cores where all the buying frenzy was happening, it was in sleepy small towns like Columbus, Ohio and Hamilton, Ontario where city dwellers fled their virus-infested condos to swarm detached homes with weird features like “yards” and “driveways.”
The resulting bidding wars drove home prices in these small towns to insane levels. These buyers went into crazy amounts of debt buying real estate at big city prices, but in places with nowhere close to the job market necessary to support them.
As the recovery happens, these people will find themselves underwater and trapped in these overpriced albatrosses just as the unfortunate victims of the 2008/2009 recession did.
Only this time, it will be 100% their fault. While subprime lending was blamed for the 2008/2009 crisis, many of the people whose home prices got hammered actually didn’t do anything wrong themselves. They were sideswiped by history like the rest of us through no fault of their own.
This time, the people who go underwater on their mortgages will be because they way overpaid for houses that were never worth that much to begin with. These are the people who got swept up with the FOMO, got into bidding wars, and let their emotions get the better of them. When interest rates plummet, you’re supposed to use the opportunity to pay off debt, not get into more of it! Unfortunately, they will realize their mistake way too late to do anything about it.
So there you have it. These are three factors that are holding back the job market at this state in the economic recovery. The first I believe is overblown for political reasons, the second is a problem but will eventually go away once schools reopen, and the last I believe will become a longer-lasting factor that will plague the economy for months or years after vaccinations have peaked.
What do you think? Is our economic recovery going to be fine, or do you think it’s going to be in trouble and why? Let’s hear it in the comments below!
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