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The US labor shortage, explained

More Americans are quitting their jobs than ever.

Tony Marquez is the only bellhop in the U.S. to get a 5–star rating from the Mobil hotel rating service. Here, he’s seen in action at the Hotel Bel–Air in California on Aug. 13, 2004.
A bellhop transports luggage at the Hotel Bel Air in California on August 13, 2004. Workers in the hospitality industry are quitting at a higher rate than in any other industry.
Richard Hartog/Los Angeles Times via Getty Images

The US economy doesn’t have enough workers.

For a record 16 straight months, the number of open jobs has been higher than the number of people looking for work. The US economy had 7.4 million job openings in June, but only 6 million people were looking for work, according to data released by the US Department of Labor.

This is not normal. Ever since Labor began tracking job turnover two decades ago, there have always been more people looking for work than jobs available. That changed for the first time in January 2018. Just look at the chart below.

St. Louis Federal Reserve

Employers have been complaining about a shortage of skilled workers in recent years, particularly workers with advanced degrees in STEM (science, technology, engineering, and math) fields. Nearly every industry now has a labor shortage, but here’s the twist: Employers are having a harder time filling blue-collar positions than professional positions that require a college education.

The hardest-to-find workers are no longer computer engineers. They are home health care aides, restaurant workers, and hotel staff. The shift is happening because more and more Americans are going to college and taking professional jobs, while working-class baby boomers are retiring en masse.

This means that for once, low-skilled workers have the most leverage in the current labor market.

One way to measure that leverage is to see how many workers are quitting their jobs. When more people are quitting than getting fired, that’s a sign of a healthy labor market. It means people are finding better-paying jobs, or feel confident that they will. And, sure enough, a record number of workers are quitting.

In April, 3.5 million workers quit their jobs — the highest number ever recorded in a single month (check out the red line in the graph below). Meanwhile, layoffs and firings remain at record-low levels.

St. Louis Federal Reserve

Who are the workers quitting at the highest rates? Restaurant and food catering workers, followed by those in the hotel and tourism industry. Both industries rely on a large number of low-paid workers. The fact that so many are quitting suggests that workers are fed up with crappy jobs.

It “indicates that workers are feeling more confident in their jobs prospects to quit in search of better opportunities,” writes economist Elise Gould of the Economic Policy Institute.

While a labor shortage seems like something for President Donald Trump to brag about, there is one troubling sign: The total number of job openings is decreasing. That means economic growth could continue to slow. That’s bad news for the president.

But in the meantime, there’s no better time for working-class Americans to demand better wages, benefits, schedules, and work conditions. It also means immigration reform is more urgent than ever. In order to fill all the open jobs and keep the economy growing, Congress will need to allow more low-skilled immigrants to work — legally.

Employers need to raise wages by a lot

The numbers are pretty clear about what comes next. If 7.4 million jobs are open and only 6 million people are looking for work, then employers need to find a lot more workers. They need to encourage more Americans to join the workforce.

Right now there are about 1.5 million people who are considered “marginally attached” to the US labor force and who are not counted as job seekers. They are people who would like to work but don’t need to, or can’t work because of other responsibilities. Their most common reasons for not working are because they’re enrolled in school or taking care of family members, according to the Labor Department.

Economists agree that employers need to do more to entice workers to join the labor market. They need to sweeten the deal.

“Companies looking to attract enough blue-collar workers will have to continue increasing wages and, as a result, possibly experience diminished profits,” wrote Gad Levanon, chief economist for North America at the Conference Board, a global economic research organization that has studied the recent US labor shortage.

Slow income growth has been the most persistent problem affecting the US economy in its recovery from the Great Recession. Wages have barely kept up with the cost of living, even as the unemployment rate dropped and the economy expanded.

With such a tight labor market and rising productivity, workers should expect much bigger pay raises than they’re getting.

Private sector workers (excluding farmworkers) got a measly 8-cent average hourly raise in July, adding up to an average pay of $27.98 an hour. Workers’ wages only grew about 1.6 percent in the past year, after adjusting for inflation.

While that’s faster than wages have been growing since the recession started in 2007, it’s still a pathetic amount compared to the sky-high payouts corporate CEOs are getting.

But raising wages will only do so much to ease the labor shortage. Businesses will need to hire more foreign workers too.

The US economy needs more low-skilled immigrants

The new labor market data shows a lot of unfilled jobs that require college degrees — about 1 million in the professional business service sector. But there are even more open jobs that don’t require that much education.

These are the kinds of jobs that low-skilled immigrants, often from Latin America, have long helped fill. But Trump’s restrictions on immigration threaten to make the labor shortage worse. Since taking office, his administration has tried to scale back nearly every avenue of legal immigration, ignoring the high demand for unskilled immigrant workers, even though he employs undocumented workers at his own golf clubs.

Trump’s most recent immigration proposal would revamp the current legal immigration system, which currently prioritizes immigrants with family ties to the US. The new green card system would instead favor immigrants with high levels of education, English-language fluency, and professional skills. Most of the green cards would go to immigrants under a point system that ranks applicants based on certain criteria, such as professional skills, education level, age, and English fluency. So Trump would like to make it even harder for unskilled immigrants to come to the US.

In 2017, the Wall Street Journal’s editorial board warned Trump that his restrictions on immigration could hurt the economy.

“If President Trump wants employers to produce and build more in America, the US will need to improve education and skills in manufacturing and IT. But the economy will also need more foreign workers, and better guest worker programs to bring them in legally,” the publication said in March 2017.

Darrell West, a Brookings expert on technology and public policy, pointed out in 2013 that the US economy would suffer if Congress didn’t overhaul the immigration system:

America’s immigration system is not designed for today’s economy, and remains largely unchanged since 1965. In fact, of the approximately one million green cards given out by the US in 2011, around 139,000 (or 13 percent) were given out for economic reasons, a number far too small to meet the needs of the world’s largest economy.

Providing more work visas for skilled and unskilled immigrants seems like an obvious solution to ease the labor shortage. But it’s also the solution Trump seems least inclined to take.