The Labor Shortage Crisis


Everywhere you go these days there are signs that say “Help Wanted.” Every restaurant seems to have a shortage of servers. Every large department store has a shortage of cashiers. Every supermarket has a shortage of deli workers – and cashiers. There are about 10.4 million job openings out there but very few are being filled. There’s a backlog of freighters waiting to unload at our ports because there aren’t enough truck drivers. Already they’re predicting Christmas presents will be in short supply. What’s going on?

I’m a surgeon, not an economist, but I don’t buy this is all because of the pandemic. John C. Goodman is a real economist, specializing in healthcare issues, who writes for Forbes. Goodman says the latest jobs report was dismal, despite the claims of the White House. Only 194,000 people were newly employed, a far cry from the 500,000 predicted. He says there are 5 million fewer people employed today than before the Covid pandemic struck and 7.7 million are officially counted as unemployed. But another 6.0 million say they want a job, but are not counted as unemployed because they are not actively seeking work.

This is remarkable given there are record high job openings and employers around the country report difficulty hiring workers, even after offering higher pay! Goodman agrees with me that fear of Covid is not the most important factor. He says federal policies that punish work and reward non work are more important.

It’s all about incentives to work. Income and payroll taxes reduce worker take-home pay and more than thirty federal entitlement programs reduce benefits as family income rises. In other words, many families find they can make more money not working than working.

It is a monumental task to research the complexity of the entitlement programs, but Boston University professor Lawrence Kotlikoff and his colleagues have taken on this task. They have calculated the lifetime incentive effects of all the tax and entitlement programs for families at different ages and income levels. The study finds that workers in their 20s who are in the bottom fifth of the income distribution stand to lose $770 in taxes and reduced benefits if they earn an additional $1000 of income.  That’s a 77% net marginal tax rate and it is higher than for any other income group. The top 1%, for example, faces a net marginal tax rate of 44.5%.

Kotlikoff gives the example of a single mother living in Oregon with three children and earning $37,157 a year. She qualifies for such annual benefits as food stamps ($1,334), Section 8 housing vouchers ($15,015), Obamacare subsidies ($11,372) and other benefits. If she earns $1,000 more, she will violate the Section 8 housing requirement to maintain continuous eligibility. That will cost her a lifetime of housing support with a present value of $184,456!

In another example, a father of four in Wyoming earns $57,432 per year. He receives $23,921 in annual childcare support and a $40,337 Obamacare subsidy. Additional earnings of $1,000 would cause the loss of his entire childcare subsidy, which, extended over future years, has a present value of $149,197.

In a third example, a retired Alaskan couple receives Supplemental Security Income (SSI), which in Alaska automatically qualifies them for adult Medicaid. An additional $1,000 of earnings, however, would cause the couple to lose their eligibility for SSI and Medicaid, with a present value of $39,539.

As if this is not bad enough, according to Goodman, Democrats in Congress want to make it much worse. For example, the newly proposed Child Tax Credit (CTC), which would increase the maximum benefits to $3,000 or $3,600 per child (up from $2,000). The current system has pro-work incentives, but the new proposal would make the full credit available to all low- and middle-income families regardless of earnings or income.

Democrats claim this would reduce child poverty by 34% and deep child poverty by 39% – which assumes families will not change their work behavior. But the authors of a new study estimate that an additional 1.5 million workers will exit the work force, meaning child poverty will fall by only 22% and deep child poverty would not fall at all!

University of Chicago economist Casey Mulligan writes: “The implicit employment and income taxes in the bill would increase marginal tax rates on work by about 7 percentage points. I expect that such a change in the disincentive would reduce full-time equivalent employment by about 4.5%, or about 7 million jobs.”

That’s 7 million fewer people employed than now! Goodman says, “Economics teaches that incentives matter. The more perverse the incentives, the more perverse the results.” Sounds like we need to get used to ordering at the counter and bussing our own tables.

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