Businesses encounter hiring challenges as demand surges

Restaurants and bars say they are struggling to hire enough workers to keep up with surging consumer demand even though more than 8 million Americans are still unemployed.

As COVID-19 vaccinations increase and states ease pandemic-related restrictions, examples of a labor shortage in the hard-hit food and beverage service industry are becoming commonplace across the U.S. In short, many customers are ready to come back, but few job candidates are available to serve them.

While fears of a labor shortage are most pressing for the restaurant and bar industry, Google searches for job openings fell sharply in March and have just begun to level out, according to Daniel Zhao, senior economist at job posting and employer review website Glassdoor.

Zhao found Google searches for jobs fell as much as 15 percent since March 1 and settled roughly 10 percent lower as of last week.

“There are a lot of factors that are affecting labor supply right now, but none of them quite fit the pattern that we’re seeing since the beginning of March,” Zhao said.

“There isn’t one clean explanation for why this is going on.”

Many business owners and several economists argue that the March extension of enhanced unemployment benefits through President Biden’s stimulus bill is the primary force behind the apparent labor shortage.

Biden’s bill extended a $300 boost to weekly jobless benefits, an unemployment insurance (UI) program for gig workers and contractors, and additional weeks of unemployment insurance through September to help get tens of millions of households to the other side of the pandemic-driven recession.

Several studies from last summer — when millions more were jobless and the weekly boost was $600 — showed that the additional aid did little to disincentivize unemployed workers from taking jobs even if they would have made less money working. The primary factor suppressing the labor market then, economists found, was COVID-19 depressing consumer demand and making major parts of commerce unsafe.

A year later, some economists say that while generous jobless benefits made sense during the depths of the pandemic, they could be an emerging — but serious — restraint on the recovering economy.

“I don’t think that expanded UI has been much of a constraint on job growth for basically the entirety of the pandemic, because demand was so weak that it didn’t really matter that most workers didn’t want to come back,” said Adam Ozimek, chief economist at job recruitment site Upwork.

He added that the expanded unemployment aid likely benefited the economy by keeping consumer spending high, along with the obvious humane benefits of keeping households afloat.

“But things are starting to change now as the economy begins to head back to normal,” Ozimek continued.

“As demand for in-person businesses has increased, I think we are going to increasingly see that reduced supply because of UI going to be a pain point for the economy.”

Restaurants, bars and retailers are among the first of the hardest hit industries to see both jobs and consumer demand come back with the U.S. on the cusp of a boom.

Public and private sector forecasters expect the U.S. economy to grow at least 6 percent this year and bring many of the more than 8 million unemployed Americans back to work and millions more who left the labor force back into the job search.

The escalating pace of COVID-19 vaccinations has also primed the U.S. to reach herd immunity potentially before the end of summer, increasing the urgency for businesses to staff up ahead of the rush.

Some supporters of increased jobless benefits counter that the labor shortage will be ironed out as enough working-age Americans get vaccinated and reduce their personal medical risks.

“We do have a unique moment in time right now when things are opening up more quickly than the vaccine … procedure is flowing,” said Andrew Stettner, senior fellow at The Century Foundation, a left-leaning nonprofit.

“What’s going to happen over the next several months is as the vaccine protocol improves some of this is going to work itself out.”

Stettner also noted that critics of generous unemployed benefits have criticized the length and size of weekly payouts following previous crises and other labor shortages.

Both Stettner and Ozimek said bonuses for workers who forgo jobless aid to come back to work could help reduce labor shortages.

Ozimek, however, said asking struggling restaurants and bars to raise wages beyond their means to draw workers off the sidelines isn’t a sustainable solution.

“You can’t give people a raise in April and then take it back in September,” he said. “You give them a big raise, it’s got to be permanent, or else you’re going to have a huge morale problem.”

Zhao — along with Ioana Marinescu of the University of Pennsylvania and Daphné Skandalis of the Federal Reserve of New York — found in a study released last month that a 10 percent increase in unemployment benefits caused a 3.6 percent decline in applications.

While that effect didn’t prevent vacancies from being filled when unemployed workers outnumbered open jobs several times over, that dynamic could be different with more job openings on the way.

Even so, Zhao said neither the extension of jobless aid nor health concerns alone explain the labor shortage. He added that the effects have been most pronounced for the food and retail industries since they have been among the first to see a surge in demand, so watching for shortages in other industries may be crucial to understanding the problem.

“I don’t think we’re yet at the phase where we understand the problem well enough that we can propose a policy solution,” he said.

“Even if we don’t have an explanation now and even if we can’t find an explanation in the future, it is still something we’re going to keep an eye on as the economy tries to climb out of this crisis.”