Yes And No Taper To Labor (And Inflation)

It doesn’t really make much sense, does it? If you stop and think about it for more than a quick second, this notion of a labor shortage doesn’t get past the smell test. The economy overall is, we hear, booming. Really booming. And it’s booming in a way that has the labor market healing far faster than thought not long ago (setting aside, for now, how we’ve heard this a few times before). So fast, even the cautious Jay Powell is rethinking his models into tapering his QE.

Yet, American workers already sidelined by two huge recessions (we still hadn’t recovered from the prior one) just are not streaming back into the workforce like they would if any of the above were true.

The only way to attempt to reconcile this booming economy with that damning labor force contradiction is by way of some presumed labor shortage. Companies are, according to this view, falling all over themselves to find workers, but are unable to procure their labor because of the overly zealous government handouts rendering employers’ preferred wages uncompetitive.

It sounds plausible enough in a vacuum of ceteris paribus, especially since pockets of such anecdotal complications are easily spotted throughout the US. However, if business was as incredibly robust as all this, then an extra $300 per month wouldn’t really be much of an impediment to buzzing businesses more concerned about keeping the good times rolling in.

If things are this good, what’s stopping them from paying the market-clearing wage?

The logical, rational answer is: maybe things aren’t “this” good after all. Or, at best, maybe the situation is alright even relatively good (better than last year isn’t a high bar, though) right now, but perhaps companies are a bit more concerned about whether it will or even could last much longer.

In either of those scenarios, in the aggregate firms would continue to operate more cautiously, content to over-manage their costs in exactly the same way as they had been, frustratingly, since 2009. Practically everyone’s biggest cost is, of course, payrolls.

It is not a labor shortage when businesses say they want more workers but won’t or can’t offer nearly enough for those prospective employees to come off the sidelines. Not a labor shortage but an economy shortage.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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