July 2021, Volume 27, Number 3
Labor, UI, Wages
The US added 850,000 jobs in June 2021, when the unemployment rate was 5.9 percent. Employment was 152.5 million in February 2020 and dropped by over 20 million in April 2020 when the unemployment rate was 14,8 percent before rebounding to 145.7 million in June 2021.
The labor-force participation rate was 61.6 percent in June 2021, two percentage points less than before the pandemic.
Unemployment Insurance. The number of job openings increased faster than the labor force in summer 2020, raising questions about the lack of US workers. Analysts point to fears of getting or spreading Covid, closed schools and lack of childcare, and generous unemployment benefits as the major reasons for the slow return of workers to jobs.
Many employers complained that jobless workers received more in benefits than they could earn by working. Average UI benefits in May 2021 were $318 in state benefits and $300 in federal benefits, for a total of $618 a week or the equivalent of $15.45 an hour, which is more than many employers are offering. Over 40 percent of those receiving UI benefits in spring 2021 got more in benefits than they earned while working.
Most states limit UI benefits to 26 weeks, and 22 states led by Republicans announced plans to end the $300 federal benefits before they expire in September 2021 to induce jobless workers to return to work.
Wages. President Biden in April 2021 issued an executive order that begins a rule-making process to raise the minimum wage of the employees of federal contractors to $15 an hour by 2022, up from the current $10.95 established in 2014. Another executive order in July 2021 encourages the Federal Trade Commission to ban or limit noncompete agreements that prevent workers from moving to another employer in the same industry and to review the need for occupational licenses. Some fast-food restaurants and hair salons barred their employees from taking jobs at similar establishments in the same area.
Many economists believe that employers have monopsony power in local labor markets, as when one hospital employs most of the nurses in an area. Monopsony employers can hold down both wages and employment to increase profits. Some divide their workforces so that they do not have to raise wages for all workers, as when hospitals pay high wages to traveling nurses to fill jobs rather than raise wages to attract more nurses to the area.
By one estimate, lack of competition costs the typical US household over $5,000 a year in higher prices and lower wages.
As restaurants reopened in spring 2021, many employers complained that they could not find enough workers to cook and serve food. Employers cited generous unemployment benefits as a reason they could not hire enough workers, while worker advocates noted that wages for fast food workers averaged $11.50 an hour in mid-2020. Amazon to Walmart raised starting wages to $15 an hour, and worker advocates said that other employers would have to follow suit.
Biden welcomed wage increases for low-skilled workers, saying “we want employers to compete with each other to attract workers.” McDonald’s in May 2021 announced plans to raise wages at the 650 corporate-owned US outlets by 10 percent to $11 to $17 an hour. Wages in the other 14,000 McDonald’s US outlets are set by franchisees.
New York City sued Chipotle for violating its Fair Workweek Law, seeking $150 million for 6,500 workers employed between November 2017 and September 2019 who had their schedules changed without sufficient notice and for hiring new workers without offering additional hours to current employees. Chipotle owns most of its 80+ New York City restaurants, and the Service Employees International Union Local 32BJ has been trying to organize Chipotle’s New York City employees.
Amazon’s semi-automated warehouses rely on robots and employees to ship items quickly to consumers. Warehouse employees are paid at least $15 an hour and monitored. Media exposes conclude that Amazon encourages worker turnover in its warehouses to retain a “fresh” workforce. Turnover in Amazon warehouses is reportedly three percent a week or 150 percent a year.
There is limited upward mobility for warehouse workers, which is one reason for high turnover. Amazon prefers to hire outside managers, often fresh college graduates, rather than to promote from within; by contrast, three-fourths of Walmart managers began as hourly employees. Amazon, which calls itself “Earth’s most customer-centric company,” says it will change its HR policies to become “Earth’s best employer."
During their convention in June 2021, the Teamsters voted to make organizing workers in Amazon warehouses a priority. The Teamsters have a million members and revenue of $200 million a year, and aim to use boycotts and protests to persuade Amazon to recognize the Teamsters as the bargaining representative of Amazon workers rather than to call for NLRB-supervised elections.
The specter of inflation appeared as wages rose in the recovery from Covid; the consumer price index rose by five percent in May 2021. The Biden administration and the Federal Reserve believed that the spike in prices is temporary, linked to false predictions of falling demand a year ago that led to a shortage of computer chips. There was also unexpected behavior during the pandemic, such as remodeling projects and new home construction that led to a jump in the price of lumber.
H-1B. The US makes 65,000 H-1B visas a year available to employers who seek to hire college-educated foreigners, and there are an additional 20,000 visas for foreigners with master’s degrees from US universities. President Trump agreed with critics who allege that H-1B workers are indentured servants, and increased scrutiny of applications for H-1B visas and restricted the ability of spouses of H-1B visa holders to work in the US.
The effects of limiting the number of H-1B visas are disputed. Employers requested 308,000 H-1B visas for FY21 and the USCIS selected the winning H-1B visas by lottery. The 15 US employers receiving the most H-1B visas got 33,000 in FY20, including six outsourcers, firms that provide computer support to US firms. Infosys is an outsourcer that received over 5,500 H-1B visas in FY20, followed by Amazon with 4,900.
President Trump’s Buy American, Hire American executive order prompted USCIS to publish more data on the US firms that hired foreign graduates of US universities under the optional practical training program and the characteristics of foreigners who won H-1B visas.
Covid. The Occupational Safety and Health Administration released an emergency workplace safety rule in May 2021 that mandated mask-wearing, hand-washing and social distancing in workplaces. Employers threatened to sue to block implementation of the OSHA regulation, arguing that the rising share of US residents who are vaccinated makes an emergency rule unnecessary.
Critics attacked the CDC for recommending too many safety precautions, including mask wearing outdoors, as vaccination rates rose and Covid rates dropped. A particular flashpoint involved CDC recommendations to wear masks outdoors, where documented cases of Covid transmission are rare.
Spending on Medicaid topped $600 billion in 2019, ten times more than was spent on the Earned Income Tax Credit. Many economists favor cash transfers rather than the provision of services to poor people, noting that poor people value their Medicaid benefits at less than 50 percent of the cost to provide them, while they value cash transfers at 100 percent of their cost. Subsidizing health insurance for the poor primarily benefits hospitals.
President Biden proposed a $6 trillion budget for FY22 that includes the largest increase in federal spending since WWII to combat climate change and to reduce income inequality. The national debt exceeds the value of US GDP, $22 trillion, and is projected to increase to 115 percent of GDP by 2030 as Biden borrows to fund new initiatives. The budget assumes that economic growth will average two percent a year and inflation will be 2.3 percent a year. Biden proposed to pay for the increased federal spending by raising the corporate tax rate from 21 percent to 28 percent.
Covid encouraged many people to move to suburbs and others to renovate their homes. One result was rising lumber prices, which peaked at $1,600 per thousand board feet in May 2021 before falling below $1,000 in summer 2021 as Covid restrictions were relaxed. Lumber prices remain well above the average $400 per thousand board feet in pre-pandemic times.
Canada is a major producer of the softwood used in home construction. Most of Canada’s lumber is from public lands, and loggers pay fees to Canadian governments to cut timber that US lumber producers allege are artificially low. The US charges a nine percent tariff on Canadian lumber imports that could double to 18 percent, renewing interest in resolving the conflict. Most US lumber is from private land, while most Canadian lumber is from public land.
Ivy League schools are selective, accepting a fraction of the students who apply. Since the federal Grad Plus loan program that allows unlimited borrowing for graduate studies was created in 2005, many Ivy League schools added master’s programs in fields such as film and theater than leave students with large education debts and low salaries.
Columbia University in NYC has 32 master’s programs, including half that left graduates with more debt than they earned two years after graduation. Despite the failure of film graduates to earn enough to repay their loans, fewer than 10 percent of the 800 applicants to Columbia’s master’s program in film were accepted in 2020.
Many Ivy League schools offer generous financial aid to undergraduate students, but treat their master’s programs as cash cows that subsidize other programs.