The Great Labor Shortage Crisis

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just over a year ago in march of 2020 unemployment  in the u.s spiked to 15 percent as the fallout of the coronavirus forced many businesses to  close and many more to take drastic cost-cutting measures to survive the turbulent times that lay  ahead today thanks in part to government stimulus and a new acceptance of the status quo in the  workplace this figure has fallen to six percent which is still far higher than the 3.5 percent  was hovering around before the economy shut down but it is obviously a massive improvement in fact  today the usa is facing a completely different somewhat paradoxical problem people are no longer  struggling to find places to work workplaces are struggling to find people reports of massive labor  shortages have compelled some of the nations largest employers to offer potential recruits  50 just to show up for a job interview here in australia uber is offering people a 500 bonus  just to sign up as a driver and do 20 deliveries whats more is that those same companies are  having to offer higher salaries and career progression opportunities beyond the minimum wage  they have typically paid to entry level employees so this sounds like a good thing unemployment  falling wages rising conditions improving whats not to like unless maybe youre a fast food  franchise owner however these seemingly positive headlines have actually got a few economists  pretty worried to understand why we need to as always look at a few things in detail and properly  understand what this could all mean to the recovery of the american economy as a whole so why  are economists concerned about people having their choice of jobs with better pay and conditions  what could this situation do to the wider economy and what is the best way to take advantage of  this apparent surge in demand for new employees this episode of economics explained  is brought to you by skillshare thanks to skillshare you can learn valuable  skills that will make you a marketable asset no matter what the world is doing its a hotbed of  knowledge that employers from all over the world wish you had their platform provides you with  unlimited access to thousands of high quality tutorials on virtually every subject imaginable  from video editing to cooking stay tuned until the end to learn more or be the first 1000 viewers  to sign up using the link in the video description below to receive a completely free trial of  skillshare premium after your trial its only 10 bucks a month with an annual plan so pause the  video right now be one of the first 1 000 viewers and see what all the hype is about the  link is in the video description below so you have probably heard the phrase full  employment it gets thrown around a lot by politicians economists and its even one of  the central goals of the federal reserve bank but the actual phrase itself full employment is a  bit misleading you would be forgiven for thinking that this means zero unemployment but it doesnt  for starters thats never actually been achieved because in an economy as large as the us there  is always going to be someone out of work so what does it actually mean well economists kind of  disagree on this they all agree it is a low rate of unemployment but it will never be zero the  first approximation of this is based on what is called the natural rate of unemployment what this  means is that the only people who are willing and able to work but are not currently working are  either temporarily between jobs like lets say an executive taking a week off before starting a new  role at a new company or are training up to work in a different role like lets say a blacksmith  learning to write code so they can go and work at google yeah okay extreme example but you get the  point this is known as frictional and structural unemployment respectively these are normally seen  as the good type of unemployment or at least the type of unemployment that isnt terrible like the  alternatives cyclical unemployment is the one that we are normally afraid of this is unemployment  caused by changes in the business cycle if an economy goes into a recession there is naturally  less demand which means fewer employees are needed to meet that lower level of demand people are laid  off and lose their income so they cant afford to purchase as much which in turn reduces demand and  the cruel cycle of cyclical unemployment continues i must quickly add before anyone corrects me in  the comments section that cyclical unemployment is so core because it is caused by the short-term  business cycle not because it compounds on itself like demonstrated here thats just a nice little  piece of irony that i like to point out anyway this is why to try and avoid this the central bank  is tasked with among other things maintaining full employment but that role can sometimes spirit  odds with another responsibility of the fed which is maintaining low inflation there is  another idea of what full employment is and it has to do with a term that you may have  heard thrown around in the news recently the nehru which is just an acronym for the  non-accelerating inflation rate of unemployment this is the reason that economists dont want zero  unemployment first analyzed by william phillips he found that there was a relationship between  the unemployment rate and inflation notably higher levels of employment higher levels of  inflation but its not a linear relationship sure as employment levels rise so too does  inflation but it only really starts to become a problem when it passes this arbitrary point  the nehru now this graph may look daunting but the actual fundamentals of this theory couldnt  be more simple its supply and demand imagine a world with 10 unemployment it shouldnt be that  difficult it was literally the world a year ago if you are the unlucky one out of every 10  that finds themselves involuntarily out of work then you are in trouble any job opening is  going to have a lot of potential applicants and a lot of applicants that will be willing  to work for rock bottom wages just so they can get a job at all its worth mentioning that  this also really sucks for the frictionally and structurally unemployed as well because they  might be training up for or transitioning into jobs that dont exist anymore ultimately the labor  market is a market like any other and more people looking for fewer jobs means that there is more  supply less demand and ultimately lower wages now the opposite is also true but to a more extreme  degree say your unemployment drops below this nehru level then we will have a situation where  almost everybody that wants a job has a job if you are an employer and you post a job opening you  might find that literally nobody applies so maybe you have to offer a slightly higher salary or  poach people from other workplaces with attractive signing bonuses or you know maybe even pay people  fifty dollars just to show up for a job interview now a little bit of this is great it gives the  working pool of labor a bit more negotiating power it means that people dont need to work 80 hours a  week in a coal mine or deal with environments that will obviously impact their long-term health but  too much can cause a problem there is certainly a good argument for a higher minimum wage but  what happens if restaurants need to turn around and start paying all of their employees 15 20 40  100 an hour just to attract enough staff to make sure the operation runs eventually the salary  expenses of these businesses would just make it infeasible for them to keep on running which  means they will close down which reduces the supply of tasty burgers in circulation which means  that the burger places that are left in operation will get to charge a premium for their products  been sold in the burger market that they have now cornered of course this is an extreme example  but even gradual increases in income can lead to gradual increases in the price level of goods  and services if a company needs to pay a plumber 30 an hour to get them to show up to work theyre  going to be passing that cost along to you and on the other side of that equation if that  plumber is looking for a brand new truck to celebrate his pay rise hes going to be competing  against every other plumber that just got a pay rise and wants to buy themselves a brand new  truck now i know what you might be thinking oh mr economics man just wants to complain about  inflation again didnt you make a video on this last month and well while that is half true there  is more to this whole problem than just inflation alone beyond that this is ignoring the glaring  elephant in the room which is that unemployment is still almost twice of what it was before  the pandemic if this wasnt a problem back then why is it a problem now the short answer is that  the nehru has shifted but that only makes sense when you address the bigger picture you are  never going to see a politician campaign on a platform of increasing unemployment and offering  less jobs to less americans for a few reasons obviously it would be incredibly unpopular with 99  of the people who either dont know what nehru is or think at the very least its a tiny micro  nation in the south pacific but beyond that increasing unemployment is very easy its as  simple as cancelling a few government projects the challenge is more so in keeping unemployment  as low as possible without racking up too much debt or inflation the government tries very hard  to get this figure as low as possible because it is politically popular this is either done  directly through employing people in government roles as government contractors or indirectly by  generally running an expansionary fiscal budget where not a lot of money is tax but a lot of money  is given away the problem with this second option is that it can create a whole new category of  unemployment that doesnt get nearly as much attention as these other ones institutional  unemployment this is unemployment that is caused by institutional policies that impact  the labor market this can be anything from a mine getting shut down because the workers  threatened to unionize to companies refusing to hire workers of a particular race or gender  but more commonly it has to do with government intervention in markets there is an argument  being made by a broad group of economists today that the measures taken to protect people from the  direct economic repercussions of the coronavirus were too generous unemployment insurance combined  with supplements of up to three hundred dollars per week compounded by multiple stimulus checks  have meant that people are making more money by not working than they would be making in the  industries which are hurting when its also considered that going to work also includes hidden  costs like paying for transport to and from the workplace child care eating out more because  you dont have time to cook at home then this decision makes logical fiscal sense whats more  is that there is still a global pandemic going on given the choice between staying home or working  in food services where youll come into contact with hundreds of people in a given day i think i  would know which choice i would take i know this is anecdotal but i would like to think im the  type of guy that values a solid days work and normally given this decision i would choose to  earn my own money rather than take assistance even if the earning potential was the same  but given the context of the world that we live in right now you would need to pay me a  pretty healthy premium for taking that risk now this entire process effectively means  that the non-accelerating inflation rate of unemployment that we were studying earlier  can shift and indeed it shifts all the time following the recession in 2008 this race spiked  up by one percent to just under six percent of course that never really became a problem because  unemployment at this time was hovering over eight percent but today we are in a potentially  worse economic situation than we were back then given that there are real material constraints on  the economy there are not enough computer chips not enough lumbar not enough cars and not enough  of basically everything we use to run an economy which is kind of to be expected lets not ignore  the fact that we are still in a crisis right now it surely makes sense that unemployment should be  higher and the relentless obsession by governments to drive this figure to be as low as possible is  driving it beyond where it actually should be in a properly functioning economy which is giving us  all of the weirdness that we are seeing in the world right now economists support this theory  primarily those that subscribe to the austrian school of economics well also point out that  these distortions will cause knock-on impacts in the economy that will end up doing more harm  than good if that plumber from earlier who is currently earning thirty dollars an hour has  to go back to working for 20 an hour he might default on the payments for that new ford f-150 he  overpaid for which causes more issues than these temporarily higher wages solved a rough analogy  would be that covert hit the global economy like an unexpected breakup now there are two ways  to deal with a breakup you can realize that this is gonna suck for a while take some steps to try  and make yourself feel better and get over it or you could go on a bender which will almost  totally eliminate the pain and suffering in the short term but inevitably make things much worse  in the long term it must be noted that not all economists agree with this rather pessimistic view  some argue that this is simply a systematic issue that will sort itself out over time this also  does make sense when you look at the figures as we saw at the height of the pandemic millions  of people were laid off in a very short period of time in the months since then most people have  had to find alternatives to support themselves this could be anything from going back to school  to retrain to living off government welfare to simply just getting a new job life finds a way  so to speak fast forward to today and those same businesses are reopening and looking to fill out  their staff base all over again only to find that all the people theyd let go had found these  other arrangements job openings right now are at the highest point in history and sure some of  the people that were laid off will either be happy or be forced to come back to work but some will  end up sticking with the alternatives that they have found during the lockdown over time this  will even itself back out new people will join the workforce and eventually there wont be as  many businesses that need to hire staff to reopen everybody lives happily ever after so to speak  but what can you do to capitalize on all of this well now is the perfect time to start shopping  around for a new job with a better salary for the first time in a long time it is the employers  fighting over the employees rather than the other way around studies suggest that employees who stay  with their companies for longer than two years get paid 50 percent less on average than their peers  who are more happy to job hop for a promotion a pay rise or just better conditions getting the  best value for your hard work is always good advice but maybe never more so than right now of  course this process is made even easier by being able to leverage an ever-expanding set of valuable  and marketable skills like the ones that you can learn with skillshare thanks to skillshare  learning in demand skill sets has never been easier the economics explained team has recently  brought on a full-time video editor which you may have noticed thanks to all of the beautiful graphs  and animations that we now have in our videos i say this not only to show off this massive  quality improvement but also to say that finding someone to do this job was hard almost every  applicant we went through just didnt have the skills that we were looking for but obviously we  did end up finding someone who learned everything that they know online with skillshare this is  a good job that can be done from anywhere in the world and it goes to show the power of having  an in-demand skill that is taught by an engaging teacher who truly knows their craft and uses it  themselves in the real world of course maybe video editing is not your thing or maybe you dont have  grand ambitions of becoming a digital nomad thats fine there are thousands of courses available on  skillshare that range anywhere from cool tricks to impress your friends all the way up to core  competencies that you could build a career of and guys heres the best part the first 1 000  of you to sign up using the link in the video description below will receive a completely free  trial of skillshare premium providing you with instant and unlimited 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Economics Explained: The Great Labor Shortage Crisis - Business Services