Why the Pandemic Labor Shortage Is More Myth Than Reality

The chief executive of Domino’s Pizza has complained that the company can’t hire enough drivers. Lyft and Uber claim to have a similar problem. A McDonald’s franchise in Florida offered $50 to anybody willing to show up for an interview. And some fast-food outlets have hung signs in their windows saying, “No one wants to work anymore.”

The idea that the United States suffers from a labor shortage is fast becoming conventional wisdom. But before you accept the idea, it’s worth taking a few minutes to think it through.

Once you do, you may realize that the labor shortage is more myth than reality.

Econ 101

Let’s start with some basic economics. The U.S. is a capitalist country, and one of the beauties of capitalism is its mechanism for dealing with shortages. In a communist system, people must wait in long lines when there is more demand than supply for an item. That’s an actual shortage. In a capitalist economy, however, there is a ready solution.

The company or person providing the item raises its price. Doing so causes other providers to see an opportunity for profit and enter the market, increasing supply. To take a hypothetical example, a shortage of baguettes in a town will lead to higher prices, which will in turn cause more local bakeries to begin making their own baguettes (and also cause some families to choose other forms of starch). Suddenly, the baguette shortage is no more.

Human labor is not the same thing as a baguette, but the fundamental idea is similar: In a market economy, both labor and baguettes are products with fluctuating prices.

When a company is struggling to find enough labor, it can solve the problem by offering to pay a higher price for that labor — also known as higher wages. More workers will then enter the labor market. Suddenly, the labor shortage will be no more.

One of the few ways to have a true labor shortage in a capitalist economy is for workers to be demanding wages so high that businesses cannot stay afloat while paying those wages. But there is a lot of evidence to suggest that the U.S. economy does not suffer from that problem.

If anything, wages today are historically low. They have been growing slowly for decades for every income group other than the affluent. As a share of gross domestic product, worker compensation is lower than at any point in the second half of the 20th century. Two main causes are corporate consolidation and shrinking labor unions, which together have given employers more workplace power and employees less of it.

Just as telling as the wage data, the share of working-age Americans who are in fact working has declined in recent decades. The country now has the equivalent of a large group of bakeries that are not making baguettes but would do so if it were more lucrative — a pool of would-be workers, sitting on the sidelines of the labor market.

Corporate profits, on the other hand, have been rising rapidly and now make up a larger share of G.D.P. than in previous decades. As a result, most companies can afford to respond to a growing economy by raising wages and continuing to make profits, albeit perhaps not the unusually generous profits they have been enjoying.

Sure enough, some companies have responded to the alleged labor shortage by doing exactly this. Bank of America announced Tuesday that it would raise its minimum hourly wage to $25 and insist that contractors pay at least $15 an hour. Other companies that have recently announced pay increases include Amazon, Chipotle, Costco, McDonald’s, Walmart, J.P. Morgan Chase and Sheetz convenience stores.

Low wages seem normal

Why the continuing complaints about a labor shortage, then?

They are not totally misguided. For one thing, some Americans appear to have temporarily dropped out of the labor force because of Covid-19. Some high-skill industries may also be suffering from a true lack of qualified workers, and some small businesses may not be able to absorb higher wages. Finally, there is a rollicking partisan debate about whether expanded jobless benefits during the pandemic have caused workers to opt out.

For now, some combination of these forces — together with a rebounding economy — has created the impression of labor shortages. But companies have an easy way to solve the problem: Pay more.

That so many are complaining about the situation is not a sign that something is wrong with the American economy. It is a sign that corporate executives have grown so accustomed to a low-wage economy that many believe anything else is unnatural.

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ARTS AND IDEAS

A Flamin’ Hot dispute

Richard Montañez was a janitor at Frito-Lay when he pitched the idea for Flamin’ Hot Cheetos to executives. The spicy puffs were a huge success, and Montañez worked his way up the company’s ranks to become an executive himself.

It’s the kind of inspiring story made for a biopic — one that the actress Eva Longoria is set to direct. And yet, the details may not be entirely true, according to an investigation by The Los Angeles Times.

While Montañez did make valuable contributions to Frito-Lay, the company stated that he did not create Flamin’ Hot Cheetos. Lynne Greenfeld, an employee at Frito-Lay’s corporate office, did. “That doesn’t mean we don’t celebrate Richard, but the facts do not support the urban legend,” Frito-Lay said.

Montañez has disputed Frito-Lay’s claims, with some support from another executive, and said his low job status explained the lack of documentation of his role. “I wasn’t a supervisor, I was the least of the least,” Montañez told Variety. He retired from the company in 2019.

As for the movie, Frito-Lay told its producers about the story discrepancies in 2019. “I think enough of the story is true,” Lewis Colick, a screenwriter for the project, recently said. “The heart and soul and spirit of the story is true. He is a guy who should remain the face of Flamin’ Hot Cheetos.” — Sanam Yar, a Morning writer

PLAY, WATCH, EAT

What to Cook

Inspired by California Pizza Kitchen’s tricolore salad pizza, this recipe features greens, beans and a Parmesan crust.

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If you’re in the mood to play more, find all our games here.

Thanks for spending part of your morning with The Times. See you tomorrow. — David

P.S. The Times’s Andrew Ross Sorkin will host an event at 1:30 p.m. E.T. today with Dame Ellen MacArthur about how to reduce our carbon footprint. R.S.V.P. here.

You can see today’s print front page here.

Today’s episode of “The Daily” is about Joe Biden and Benjamin Netanyahu. On the Modern Love podcast, a man returns to the orphanage he tried to forget.