As more Minnesotans are vaccinated against COVID-19, the features of a post-pandemic world are emerging: maskless faces, hugs — and “Now Hiring” signs on storefronts and businesses. It seems everyone’s hiring, from restaurants to big box stores to bars, and many of them are struggling to find enough workers to fill their open positions.
At the same time, there are a lot of people still out of work. And workers who are on unemployment are receiving an extra $300 per week through the federal American Rescue Plan passed earlier this year.
Lots of people — pundits, employers, politicians — are sure that those extra unemployment benefits are a problem, incentivizing workers to stay home instead of looking for work. In fact, 25 states including Montana, Florida, Arizona and Ohio, are ending the weekly supplemental benefit early in an effort to push unemployed workers into jobs.
But is a $300 weekly benefits bump really enough to keep unemployed workers from taking jobs?
Unemployment in Minnesota hit 4.1 percent in April — just a bit higher than the low unemployment before the pandemic and the lowest it’s been since the pandemic began in March of 2020.
That sounds like good news, but the actual workforce picture is a little less rosy. The standard unemployment rate only measures the percent of people who are out of a job and looking for work. It doesn’t include people who are out of a job and have stopped looking for work. And data suggest that for whatever reason, there are plenty of people in this boat.
Since early 2020, Minnesota’s labor force participation rate, or the percent of people 16 and older who are working or actively looking for work, has dropped from 70.2 percent to 67.7 percent, the lowest it has been since June of 1978, when far fewer women were in the workforce. If you compare that drop to the size of Minnesota’s population age 16 and older, it means roughly 112,000 fewer people in the workforce compared to a little over a year ago — a loss comparable in size to the population of Rochester, Minnesota.
Throughout the pandemic, a historically high number of people were unemployed. Because of the crisis this posed to the economy, the federal government added supplementary unemployment payments to the usual amounts people were eligible for.
Under the federal CARES Act, passed last year, people on unemployment received an extra $600 per week from early in the pandemic through July. By executive order of former President Donald Trump in August, people on unemployment got a $300-extra-per week from the federal government. Under the American Rescue Plan, the extra $300 per week was extended to Sept. 6.
Minnesota’s unemployment system pays people half their former weekly wages, up to $740. With the $300 supplemental payment, the maximum a person on unemployment in Minnesota would be making is $1,040, or $26 an hour for a 40-hour workweek. But DEED Commissioner Steve Grove said the vast majority of people on unemployment are making far less than that.
Is that enough to keep Minnesotans out of the workforce?
“Firms definitely think that,” said Ron Wirtz, the director of regional outreach at the Federal Reserve Bank of Minneapolis, said in an interview last week. “We do a lot of survey work, and we have started asking them about their impressions about why labor availability is tight, and that does tend to be the top thing that they’ve mentioned — just that unemployment insurance benefits are very generous, and that’s what’s keeping people out of the labor force.”
Labor market frictions
Actually pinpointing the effect of the extra unemployment benefits is hard because there are lots of other factors causing friction between workers and jobs right now, Wirtz said.
One, Wirtz said, is that many workers are still fearful of getting or spreading COVID-19. While more than 50 percent of Minnesotans have been vaccinated against COVID-19, lots of people, younger children included, aren’t yet vaccinated.
“The fear of COVID is still out there, especially for multi-generational households,” he said, citing surveys. While that share is likely getting smaller, it’s not non-existent.
Another is a mismatch between the jobs that are open and the jobs workers want or are qualified for. Job counselors surveyed by the Minneapolis Fed and the Department of Employment and Economic Development found a significant number of job seekers are looking for telework options.
“There are a lot of people that are laid off and didn’t have that option, and think, ‘I think I would like that option,’” Wirtz said.
Others might not be qualified for the jobs that have lots of openings: the construction industry, for one.
“We have a lot of hospitality workers that are not working right now. They can’t easily go into construction very well even though there are tons of openings in construction,” Wirtz said.
DEED’s Grove pointed out Minnesota had a labor shortage before the pandemic, and now the labor market looks different than it did before.
“You’ve got a pandemic economy trying to transition to a post-pandemic economy, and that transition is not going to be smooth,” Grove said. “There’s going to the bumps.”
“Different jobs are more attractive than others now based on what happened during the pandemic and different companies are hiring at different rates based on who fared well or who didn’t, or who had challenges or didn’t in the pandemic,” Grove said.
Another factor is family care issues.
Some childcare providers have operated at lower capacity, and others have operated intermittently due to COVID-19 cases, something that can make it much harder for parents with kids to come back to the labor market if they are away.
Julia Pollak, a labor economist at ZipRecruiter, a company connects job applicants to employers, said some parents with the option to stay home might not see the point of going back to work right now, with kids in school for just a short time before being home over the summer vacation starting soon. Once kids are back full time in September, there may be movement back into the labor force.
Combined, all these issues paint a complicated picture of Minnesota’s and the country’s labor market as the pandemic wanes.
“It seems easy: if you’re unemployed, and there are lots of jobs, well just go get a job,” Wirtz said. “I think the pandemic has shown that life is complicated and it’s more complicated the more you dig into the different households, and the different obstacles they might have in easily reattaching to work.”
Wirtz said there’s no question that enhanced unemployment has smoothed over some of these frictions for people, allowing them to reevaluate their job situations in some cases, but the extent to which it’s that extra money or the issues workers are facing in getting back is hard to tell.
“It’s safe to say that enhanced unemployment benefits are affecting some workers. How many, I think that’s a really important question that I don’t think we know the answer to,” Wirtz said. “I think I’m pretty safe to say it’s likely more than those claiming that it has no effect. And I think it’s likely less than those who believe that the pandemic-era unemployment [is] the only reason why people aren’t working now.”
While some say it’s the $300 weekly unemployment payments keeping workers home, others say firms simply aren’t paying workers enough to make working worth their while.
This may be an issue, but it’s not accurate to say that’s the only reason employers are struggling to find workers, Pollak said.
The shortage of workers has put upward pressure on wages at lots of employers — Target, Walmart and other major chains among them. The number of Minnesotans on unemployment is dropping week by week. And some workers are being drawn in by higher wages — and many of them are not people who were on unemployment in the first place, Pollak said. At the national level, for example, teenage employment is higher now than it was before the pandemic as young people seek jobs, suggesting teens are being attracted into the labor market by higher wages.
A natural experiment
Soon, it may be easier to tell how big an effect the extra $300 per week has had. The supplemental benefits through the American Rescue Plan go through Sept. 6 of this year, but at least 25 states are ending them early, creating a sort of natural experiment where researchers may be able to see if more people go back to work in states where the benefits have ended.
Pollak said economists will be working to tease out the effects of ending the $300-per-week benefit versus some of the other differences in the states ending them early.
But for now, Pollak said any easy answer ignores the complexity of the labor market.
“I think the two things that are definitely wrong: the idea that unemployment benefits are having no effect, and the idea that they’re fully responsible are two extremes and completely wrong,” she said.“It’s just important to recognize that the labor market is complicated — that job seekers are complex, they have lots and lots of different motivations,” she said.