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Will the end of US unemployment benefits fix the labor shortage?

US economist Mark Blyth shares his view.

Allie Nawrat

US labor shortage
Credit: NICK JACKSON via Twenty20.

Could focusing on resolving burnout be a more effective solution? Unleash Your Potential

Almost 18 months after they were introduced, the US has brought federal unemployment benefits for those who lost their jobs during the pandemic to an end.

Under the scheme, the jobless received $600 a week from April 2020, this was then reduced to $300 a week from December 2020 onwards. In addition, Biden’s package offered further assistance for the long-term unemployed and extended a special program for gig workers who do not usually qualify for unemployment benefits.

But this week’s move removes benefits from 7.5 million Americans; and another three million will lose that $300 a week, which has kept them afloat during the pandemic.

The reason why US President Biden allowed these benefits to come to an end – without calling Congress to extend them as was done in December 2020 and March 2021 – is because the administration believes the economy is ready to move from the need for federal assistance, according to the New York Times.

Advisors to the president suggest that more and more Americans are returning to the workforce, meaning wages and paychecks will be able to replace government aid in powering economic growth and consumer spending.

The US job market is certainly looking promising, as proven by recent job reports from the Bureau of Labor Statistics. For example, the report for August suggested that the total non-farm payroll in the US rose by 235,000 and the unemployment rate declined by 0.2 percentage points to 5.2%.

Could this solve labor shortages in the US?

The question now is whether, as the Biden administration and some other economists are suggesting, ending unemployment benefits might help to coax Americans back to work and, therefore, solve the US’ severe labor shortages, which are linked with the ‘Great Resignation’.

These labor shortages have gotten so severe that the likes of McDonald’s are now looking at cash incentives and hiring teens to fill the gaps. In addition, some investment banks have had to offer huge bonuses to retain their staff, as well as attract new talent.

But professor of international economics at Brown University Mark Blyth disagrees that the end of federal unemployment benefits will be a solution to the staff shortages.

He tells UNLEASH about an experiment in July when some states in the South of the US refused to extend the federal unemployment benefits. However, while doing this increased the labor supply, according to Blyth, it had little impact on reducing staff shortages.

Oxford Economics’ chief US economist Gregory Darco told Reuters: “As such, benefits discontinuation may end up doing more bad on the personal income ledger than good on the employment ledger of the economy.”

In fact, the growth in job gains was similar across all states irrespective of whether they kept or got rid of federal benefits, according to reporting by Reuters.

This perhaps suggests that the employees who no longer have access to benefits are not the right match for what employers are looking for.

According to Blyth, this is partly because many of the jobs that existed pre-pandemic are gone; this is because lots of companies have either gone bust or had to scale back their operations.

He adds that mobility is a problem – many of the job shortages are not where the unemployed are and they are in more expensive parts of the country where people cannot afford to move to in order to find a new job.

Therefore, Blyth says that cutting benefits, as well as raising wages, will not be sufficient to fix the labor shortages in the US.

He notes that workers want to know they are safe at work (including reducing their risk of contracting COVID-19) and valued by their employer, whether they work in retail, hospitality, or investment banking. Remember the saga back in April when Goldman Sachs was called out by its junior analysts for its horrific working conditions, including 95 hour weeks and managers dismissing mental wellbeing concerns.

Ultimately, it is clear that burnout is a huge problem for workers and is pushing them to leave their jobs in droves, so what employers need to do to fill their empty vacancies is prove they are taking mental wellbeing seriously.

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