Frederica Freyberg:

In his State of the State address, Governor Evers boasted of the current unemployment rate of 2.8% as being the lowest in Wisconsin history. Good news. Bad news, worker shortages. National labor statistics show in Wisconsin 209,000 jobs remain unfilled. Our next guest, UW-Madison professor of public affairs in economics says the word “shortage” is a misnomer. So we welcome Professor Menzie Chinn. Thanks very much for being here.

Menzie Chinn:

Well, thanks for having me on, Frederica. It’s a pleasure to be here.

Frederica Freyberg:

So if it’s not a worker shortage when employers can’t fill jobs, what is it?

Menzie Chinn:

Well, I think there’s a distinction between how economists use the term shortage and how it’s generically understood. So a shortage would be, for economists, we would say where for some reason prices or in this case wages aren’t allowed to move up to the level where people are joining the labor force and taking jobs in the levels that they want to. Now there’s nothing that restricts firms from raising wages and benefits and the working conditions so that you fill all the jobs but it takes some amount of time. So I think it would be better to say not a labor shortage, but there’s a shortfall in the number of people who are willing to take the jobs, given the wages and working conditions that firms are willing to offer. So I think that’s a distinction we should put into place, and then we can think about why is it that workers at these wages aren’t willing to take the jobs that are available.

Frederica Freyberg:

Is salary the defining factor then in people taking a job?

Menzie Chinn:

Well, I think it’s a whole slew of characteristics. I mean, for a long time, we’ve had what has been called a shortage in Wisconsin, the appropriate workers that have the skills that are necessary. But really nothing has stopped firms from raising wages. In addition to that, it’s the conditions. How flexible is work? It’s the availability of other sources of labor, for instance, immigration, to allow more people who are willing to work for whatever [unintelligible] wages. Lots of these things have just been exacerbated tremendously by the pandemic, wherein for a while, benefits were elevated for good reasons to help workers who lost their jobs to manage through these times, but in addition to that, people might say, well, I can’t get child care during these times, and so it’s very hard for me to get on maybe a bus service that doesn’t exist anymore to get to a job that might be available. So those things have occurred, but then also the fear of infection and getting sick. So what’s happened is you’ve had a re-assessment by a lot of workers, either because of the constraints that are imposed upon them or just because they’re thinking about the tradeoffs that exist in their lives and the fact that maybe they’ve got a little bit of savings socked away to wait out until they can find the right job in the right place, which has meant for some period, I think it’s already dissipating, you have this juncture between job openings and those job openings being filled.

Frederica Freyberg:

You say nothing is stopping employers from raising wages. But potentially, you know, profits?

Menzie Chinn:

Sure, and if you look at the aggregate numbers, what’s true is profits are shooting way up. They have shot way up during this pandemic. If you look at overall corporate profits. Now what’s true is, the degree to which firms can pass on the costs of higher wages differs a lot. So you see profits jumping up for some meat processors. Well, there’s a degree of concentration there, which is meeting at the same time high demand for what’s being produced. And so there, well, profits are jumping up even if wages might also be rising. Now other firms that are more exposed to competition, maybe there are lots of producers so they don’t have this monopoly power, they’re going to be less able to pass on those price increases. So for sure I sympathize with those firms. They’re going to feel incredibly pressed and they’re going to say I just can’t raise the wages enough without squeezing my profits below what I consider survivable profits. So I understand where they’re coming from, where they say I can’t raise the wages, but if you think about how we’ve always argued the free market system should work and prices and wages should move to equilibrate the market, that’s not actually a consistent answer.

Frederica Freyberg:

So what kind of public policy could you be put in place to help? Would it be moving people off benefits programs or boosting things like child care tax credits?

Menzie Chinn:

Well, I think, you know, without thinking about the usefulness of either of those, I mean it’s true, if we were to reduce benefits and reduce benefits to zero, that would probably increase the labor force participation rate. It would induce people to take jobs more readily, that’s for sure. I’m not sure how big that effect is. I mean, for the things that are being contemplated, for instance, when we eliminated extended or enhanced unemployment efforts in September in Wisconsin, did you see an enormous jump in the number of people working and joining in the labor force? You saw a small one but not enormous. So you have to ask yourself how big of an effect there. On the other hand, you do know, at least anecdotally there are people who say I have these difficulties where I’m juggling familial responsibilities, either it’s children or parents that have to be taken care of and that and that constrains them in a time when some services like transportation might be cut back and people can’t get a car to travel to where they need to to take on a job, I think there are a variety of constraints that policy can sometimes mitigate. So that would include, for instance, a child tax credit, which I’m sorry to see is not going to be part of, as far as I can tell, the federal plan or what would be possibly contemplated at the state level. So we could do these things. I would say that if you could induce people to, for instance, get more vaccination rates up so that people had a better assessment of lower risk of working in the workplace, that, too, would be something that changes the benefit cost calculation for individual worker whether to take a job or not. Particularly in those sectors that have been hurting like leisure and hospitality.

Frederica Freyberg:

Indeed. All right, Menzie Chinn, thank you very much. Thanks for your information.

Menzie Chinn:

Okay, my pleasure. Thank you.