Where Did 7 Million Workers Go?
The U.S. economy right now is a little bit like Dune.
Not Frank Herbert’s magisterial sci-fi epic novel, or Denis Villeneuve’s new and reportedly sumptuous film adaptation. I mean David Lynch’s infamously bewildering 1984 movie version, which is remembered mostly for being a semi-glorious mess. Like that space oddity, today’s economy is too strange to neatly categorize as “clearly great” or “obviously terrible.” You keep waiting for it to just be normal. But it stays weird—big economic indicators point in conflicting directions—so you have to accept that nothing is going to make sense for a while, and maybe it’ll be okay.
Americans are buying more stuff than ever before. That’s good. But because of supply constraints, it can feel like there’s a painful shortage of just about everything. That’s bad. Economic growth is booming, but the president’s approval rating on the economy is falling, which is a historically odd juxtaposition. Businesses everywhere are struggling to fill jobs, which sounds bad, but employer pain is workers’ gain, and wages are rising, which is wonderful. But because prices are rising too, inflation-adjusted hourly-wage growth actually declined in September, which is not wonderful.
The strange October economy is a chapter within a broader saga of strangeness. Last year, COVID-19 put our economy in a time warp by forcing tens of millions of Americans to stay home, destroying millions of jobs, and accelerating the digitization of at-home shopping and entertainment. The pandemic thrust many people back into the homestead economy of the 1830s, while also re-creating the Depression-era economy of the 1930s and advancing into the virtual economy of the 2030s. Like the dreams of the Dune boy-hero Paul Atreides, the U.S. economy is experiencing the disorienting superposition of multiple timelines.
The great mystery of this moment is the labor shortage. America’s GDP is larger than it was in February 2020. But the total economy is down about 7 million workers. That’s akin to the entire labor force of Pennsylvania sitting on the sidelines. In September, the number of people working or actively looking for work mysteriously declined, which is not what you would expect to see in a rapidly growing economy with simmering inflation. Wages are rising. Job openings are everywhere. But we’re running out of people who seem to want a job right now.
So what’s going on? Where are all the workers?
That might sound like a stupid question, on account of this is a pandemic. More than 10,000 Americans are still dying of COVID-19 every week. Tens of thousands more are sick from recent infections or lingering symptoms. Millions more might be scared of throwing their body in front of the coronavirus by going back to work among rude customers who might refuse vaccines, masks, or any sense of human decency. Finally, more than 700,000 people have died from COVID-19, and although it’s ghoulish to treat these deaths predominantly as a loss for the labor force, that the virus has killed many American workers is nonetheless undeniable.
But when you look closely, the direct effects of COVID-19 don’t explain very much. Most pandemic deaths have been among elderly people, not Americans of prime working age. And COVID fears have lessened over the past few months. Even so, the number of Americans under 65 looking for work is still shrinking.
“What’s most puzzling to me is that the labor shortage is everywhere,” Jason Furman, the chairman of the Council of Economic Advisers under President Barack Obama, told me. “It’s everywhere, and it’s every industry. Every small-business person I talk to has a story. And this is coinciding with large increases in nominal wages. So what are people doing? How are they getting by?”
The most complete explanation is that the massive fiscal-policy response to the pandemic reduced the urgency of looking for work. The United States has spent trillions of dollars to help families get through the economic deep freeze, via stimulus checks, expanded unemployment benefits, and the moratorium on student-loan interest payments. National eviction bans have taken pressure off renters. Then there’s the record-high surge in savings among families who haven’t gone on vacation or splurged on experiences in more than a year. Add to that the fact that job openings have hit record highs—which means people know that if they wait a month or three, there will still be jobs aplenty to apply to. Seeing this whole picture, more Americans clearly feel like they can take a more leisurely approach to going back to work.
Surveys bear this out. A monthly questionnaire by the hiring company Indeed found that the most common reasons given for not looking for work right now are “having an employed spouse” and having a “financial cushion,” followed by “care responsibilities” and then “COVID fear.” These might seem like distinct reasons, but we can knit them all together into one meta-explanation: People can afford to prioritize family care and avoid COVID-19, for now, because of savings and working partners.
The labor shortage fits into a broader picture of workplace turmoil. Widespread media reports assert that strikes are “sweeping the labor market,” although it’s a bit unclear whether the frequency of strikes or the volume of the media coverage is what’s increasing. What’s more certain is that Americans are quitting their jobs at record numbers, especially in the leisure and hospitality sector. The “Great Resignation” seems to be accelerating, alongside a remote-work revolution in the knowledge economy.
This raises a bigger question: Is this a new normal? For now, much of the labor force seems to be participating in a kind of distributed protest against the status quo of work in America. As more people reject the office, spend more time with their family, or avoid returning to work entirely, this may be a pivotal turning point in the relationship between labor and capital.
Or maybe not! Perhaps we are suspended in an air bubble in history, and perhaps it will pop in the next year. Eventually, Americans will go back to work, where bosses will still boss them around, employers can still fire them, unions are still rare, and real wage growth is still slow. President Joe Biden is stumping for a social-infrastructure bill that would include paid family leave, expanded child tax credits, and subsidized child care. But the fate of that bill is highly uncertain.
Whether or not today’s worker revolt becomes tomorrow’s worker revolution, what’s abundantly clear is that America needs more workers. America’s prime-age population stopped growing more than a decade ago, and because of declining fertility rates, it’s unlikely to recover through natural growth alone. If the U.S. needs more workers, the arithmetic is straightforward: We need more immigrants.
Welcoming immigrants is more complicated than putting up a Help Wanted sign at the border. Democrats are looking for ways to expand legal immigration—a matter of moral and long-term economic urgency—while avoiding a xenophobic backlash from the right. One great way to do this would be to “recapture” surplus permanent-residency visas, or green cards, that went unclaimed in previous years. Since 1992, hundreds of thousands of green cards authorized by Congress have not been issued because of administrative hiccups; last year, unused green cards reached a record high. As a result, the U.S. could extend permanent-residency visas to more than 100,000 immigrants—essentially liberalizing immigration law without technically increasing the total number of visas already authorized by Congress. This would be a clever first step in allowing more legal immigration without spooking Americans who are, for a variety of reasons, resistant to dramatic changes in the number of people the U.S. admits.
Eventually, Americans will spend down their savings and millions of people will come back from the sidelines and start working again. When they do, America will still need more workers to build houses, staff restaurants, run hotels, and care for the elderly—fields that are now experiencing serious worker shortages and that, in the past, have provided many immigrants with their first foothold in the U.S. economy. More immigration would fill more vacancies, stimulate more demand, and lead to more new ideas, new companies, and new technologies. What stands in the way of this abundance agenda is little more than an irrational fear of new Americans’ contributions. In economic policy, as in interstellar psychological warfare, fear is the mind killer.