Higher Wages are Good News — But There Is A Dark Side
As the U.S. emerges from the recession caused by the COVID-19 pandemic, a different sort of economic recovery has materialized. While vaccines have been distributed, the unemployment rate has dropped from 11% to 6%, according to the Bureau of Labor Statistics, but even with the unemployment rate at 6%, there are indications that there aren’t enough available workers to fill jobs. Across the country, businesses report that they simply can’t find enough workers — qualified or unqualified. And the disappearance of workers seems to be responsible for the beginnings of an economic nightmare: higher inflation.
In Myrtle Beach, South Carolina, the problem is particularly acute. The number one industry in Myrtle Beach is tourism, and the biggest employers are hotels and restaurants. Wherever you look, there are help wanted signs — even a billboard for a local hotel that advertises wages of $14 an hour for housekeepers. Concurrently, businesses can’t keep up with the demand that is surging as people travel in unprecedented numbers. There have been reports of restaurants limiting hours or closing altogether because they can’t be adequately staffed.
Laurel Montano, a front desk worker at a local hotel, reports that the lack of housekeepers have contributed to very long wait times of up to eight hours to check in guests. “Because of the pandemic, we’re not doing daily housekeeping as it is,” she said, “we’re only cleaning rooms when the rooms turn over. And we simply can’t keep up.” Even the hotel manager was pitching in to clean rooms, she said.
The worker shortage in Myrtle Beach has gotten so bad that there is a marked increase in rude behavior from customers — perhaps understandable because of long wait times. A sign at Mellow Mushroom on 21st Avenue in Myrtle Beach reminds customers to be respectful of their staff. The workers who do choose to come to work are being asked to work longer hours or shifts, leading to stress and breakdowns, according to several conversations with staff at several restaurants.
The proximate cause of the labor shortage is the money that the federal government has given out to lower-income individuals to offset lost income during the pandemic. The total amount of stimulus checks that have been handed out going back to 2020 is $3,200, along with enhanced unemployment benefits that amount to $300 a week over lost wages, plus child care benefits. Businesses have been placed in a position where they are forced to bid against the government for talent, leading to increased wages.
The distortions aren’t confined to hotels and restaurants — it’s anywhere low-wage labor is employed. The owner of a local beer distributor, who asked not to be named, said “We are having trouble finding delivery drivers and warehouse workers. We pay well, but you can’t fight free.”
But the effects of the wage distortions extend far beyond Myrtle Beach. The owner of a small manufacturer in Pittsburgh told a similar story. “A year ago I had 24 employees. We’re currently barely running with 17. In fact, one of our locations isn’t even open on weekends — not enough workers.” He goes onto say that his payroll today is about the same as it was a year ago — with 25% less employees. “We can’t get a response to job ads offering $13 to $14 an hour. So I guess we’re going to have to try $15.”
The wage inflation has not gone unnoticed by economic analysts. Jerry Jordan, a hedge fund manager from Boston, said “Higher wages — it’s about time.” And yes, wages have been mostly stagnant on the low end for the last twenty years as most of the wage gains have accrued to higher income workers. But we are starting to see encouraging signs that inequality might reverse.
Justin Fox, former editor of the Harvard Business Review, details this phenomenon in a recent article for Bloomberg. “Which part of the U.S. wealth distribution saw its net worth rise the fastest over the past year, five years, and decade? No, not the top 1%, according to the distributional financial accounts published last month by the Federal Reserve.” But he goes on to say that even after the gains of the past decade, “The bottom 50% control only 2% of U.S. household wealth, lower than at any time on record before 2007.”
The danger is that wage gains will feed into higher prices, as businesses pass along the increased labor costs to consumers, resulting in higher inflation. “Persistent wage pressure creates a potentially more enduring inflationary cycle than simply counting on pent-up savings from the past year creating overwhelming demand,” said Bloomberg writer Brian Chappatta in a recent column. In other words, the good news is that wages are rising; the bad news is that with inflation, it may end up being a push.
