The Great Labor Shortage Crisis | Economics Explained - YouTube

just over a year ago in march of 2020 unemployment  in the u.s spiked to 15 percent as the fallout  

of the coronavirus forced many businesses to  close and many more to take drastic cost-cutting  

measures to survive the turbulent times that lay  ahead today thanks in part to government stimulus  

and a new acceptance of the status quo in the  workplace this figure has fallen to six percent  

which is still far higher than the 3.5 percent  was hovering around before the economy shut down  

but it is obviously a massive improvement in fact  today the usa is facing a completely different  

somewhat paradoxical problem people are no longer  struggling to find places to work workplaces are  

struggling to find people reports of massive labor  shortages have compelled some of the nation's  

largest employers to offer potential recruits  50 just to show up for a job interview here  

in australia uber is offering people a 500 bonus  just to sign up as a driver and do 20 deliveries  

what's more is that those same companies are  having to offer higher salaries and career  

progression opportunities beyond the minimum wage  they have typically paid to entry level employees  

so this sounds like a good thing unemployment  falling wages rising conditions improving  

what's not to like unless maybe you're a fast food  franchise owner however these seemingly positive  

headlines have actually got a few economists  pretty worried to understand why we need to as  

always look at a few things in detail and properly  understand what this could all mean to the  

recovery of the american economy as a whole so why  are economists concerned about people having their  

choice of jobs with better pay and conditions  what could this situation do to the wider economy  

and what is the best way to take advantage of  this apparent surge in demand for new employees  

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so you have probably heard the phrase full  employment it gets thrown around a lot by  

politicians economists and it's even one of  the central goals of the federal reserve bank  

but the actual phrase itself full employment is a  bit misleading you would be forgiven for thinking  

that this means zero unemployment but it doesn't  for starters that's never actually been achieved  

because in an economy as large as the us there  is always going to be someone out of work so  

what does it actually mean well economists kind of  disagree on this they all agree it is a low rate  

of unemployment but it will never be zero the  first approximation of this is based on what is  

called the natural rate of unemployment what this  means is that the only people who are willing and  

able to work but are not currently working are  either temporarily between jobs like let's say an  

executive taking a week off before starting a new  role at a new company or are training up to work  

in a different role like let's say a blacksmith  learning to write code so they can go and work at  

google yeah okay extreme example but you get the  point this is known as frictional and structural  

unemployment respectively these are normally seen  as the good type of unemployment or at least the  

type of unemployment that isn't terrible like the  alternatives cyclical unemployment is the one that  

we are normally afraid of this is unemployment  caused by changes in the business cycle if an  

economy goes into a recession there is naturally  less demand which means fewer employees are needed  

to meet that lower level of demand people are laid  off and lose their income so they can't afford to  

purchase as much which in turn reduces demand and  the cruel cycle of cyclical unemployment continues  

i must quickly add before anyone corrects me in  the comments section that cyclical unemployment  

is so core because it is caused by the short-term  business cycle not because it compounds on itself  

like demonstrated here that's just a nice little  piece of irony that i like to point out anyway  

this is why to try and avoid this the central bank  is tasked with among other things maintaining full  

employment but that role can sometimes spirit  odds with another responsibility of the fed  

which is maintaining low inflation there is  another idea of what full employment is and  

it has to do with a term that you may have  heard thrown around in the news recently  

the nehru which is just an acronym for the  non-accelerating inflation rate of unemployment  

this is the reason that economists don't want zero  unemployment first analyzed by william phillips  

he found that there was a relationship between  the unemployment rate and inflation notably  

higher levels of employment higher levels of  inflation but it's not a linear relationship  

sure as employment levels rise so too does  inflation but it only really starts to become  

a problem when it passes this arbitrary point  the nehru now this graph may look daunting but  

the actual fundamentals of this theory couldn't  be more simple it's supply and demand imagine a  

world with 10 unemployment it shouldn't be that  difficult it was literally the world a year ago  

if you are the unlucky one out of every 10  that finds themselves involuntarily out of work  

then you are in trouble any job opening is  going to have a lot of potential applicants  

and a lot of applicants that will be willing  to work for rock bottom wages just so they can  

get a job at all it's worth mentioning that  this also really sucks for the frictionally  

and structurally unemployed as well because they  might be training up for or transitioning into  

jobs that don't exist anymore ultimately the labor  market is a market like any other and more people  

looking for fewer jobs means that there is more  supply less demand and ultimately lower wages now  

the opposite is also true but to a more extreme  degree say your unemployment drops below this  

nehru level then we will have a situation where  almost everybody that wants a job has a job if  

you are an employer and you post a job opening you  might find that literally nobody applies so maybe  

you have to offer a slightly higher salary or  poach people from other workplaces with attractive  

signing bonuses or you know maybe even pay people  fifty dollars just to show up for a job interview  

now a little bit of this is great it gives the  working pool of labor a bit more negotiating power  

it means that people don't need to work 80 hours a  week in a coal mine or deal with environments that  

will obviously impact their long-term health but  too much can cause a problem there is certainly  

a good argument for a higher minimum wage but  what happens if restaurants need to turn around  

and start paying all of their employees 15 20 40  100 an hour just to attract enough staff to make  

sure the operation runs eventually the salary  expenses of these businesses would just make it  

infeasible for them to keep on running which  means they will close down which reduces the  

supply of tasty burgers in circulation which means  that the burger places that are left in operation  

will get to charge a premium for their products  been sold in the burger market that they have now  

cornered of course this is an extreme example  but even gradual increases in income can lead  

to gradual increases in the price level of goods  and services if a company needs to pay a plumber  

30 an hour to get them to show up to work they're  going to be passing that cost along to you  

and on the other side of that equation if that  plumber is looking for a brand new truck to  

celebrate his pay rise he's going to be competing  against every other plumber that just got a pay  

rise and wants to buy themselves a brand new  truck now i know what you might be thinking oh  

mr economics man just wants to complain about  inflation again didn't you make a video on this  

last month and well while that is half true there  is more to this whole problem than just inflation  

alone beyond that this is ignoring the glaring  elephant in the room which is that unemployment  

is still almost twice of what it was before  the pandemic if this wasn't a problem back then  

why is it a problem now the short answer is that  the nehru has shifted but that only makes sense  

when you address the bigger picture you are  never going to see a politician campaign on a  

platform of increasing unemployment and offering  less jobs to less americans for a few reasons  

obviously it would be incredibly unpopular with 99  of the people who either don't know what nehru is  

or think at the very least it's a tiny micro  nation in the south pacific but beyond that  

increasing unemployment is very easy it's as  simple as cancelling a few government projects  

the challenge is more so in keeping unemployment  as low as possible without racking up too much  

debt or inflation the government tries very hard  to get this figure as low as possible because  

it is politically popular this is either done  directly through employing people in government  

roles as government contractors or indirectly by  generally running an expansionary fiscal budget  

where not a lot of money is tax but a lot of money  is given away the problem with this second option  

is that it can create a whole new category of  unemployment that doesn't get nearly as much  

attention as these other ones institutional  unemployment this is unemployment that is  

caused by institutional policies that impact  the labor market this can be anything from  

a mine getting shut down because the workers  threatened to unionize to companies refusing  

to hire workers of a particular race or gender  but more commonly it has to do with government  

intervention in markets there is an argument  being made by a broad group of economists today  

that the measures taken to protect people from the  direct economic repercussions of the coronavirus  

were too generous unemployment insurance combined  with supplements of up to three hundred dollars  

per week compounded by multiple stimulus checks  have meant that people are making more money by  

not working than they would be making in the  industries which are hurting when it's also  

considered that going to work also includes hidden  costs like paying for transport to and from the  

workplace child care eating out more because  you don't have time to cook at home then this  

decision makes logical fiscal sense what's more  is that there is still a global pandemic going on  

given the choice between staying home or working  in food services where you'll come into contact  

with hundreds of people in a given day i think i  would know which choice i would take i know this  

is anecdotal but i would like to think i'm the  type of guy that values a solid day's work and  

normally given this decision i would choose to  earn my own money rather than take assistance  

even if the earning potential was the same  but given the context of the world that we  

live in right now you would need to pay me a  pretty healthy premium for taking that risk  

now this entire process effectively means  that the non-accelerating inflation rate of  

unemployment that we were studying earlier  can shift and indeed it shifts all the time  

following the recession in 2008 this race spiked  up by one percent to just under six percent of  

course that never really became a problem because  unemployment at this time was hovering over  

eight percent but today we are in a potentially  worse economic situation than we were back then  

given that there are real material constraints on  the economy there are not enough computer chips  

not enough lumbar not enough cars and not enough  of basically everything we use to run an economy  

which is kind of to be expected let's not ignore  the fact that we are still in a crisis right now  

it surely makes sense that unemployment should be  higher and the relentless obsession by governments  

to drive this figure to be as low as possible is  driving it beyond where it actually should be in a  

properly functioning economy which is giving us  all of the weirdness that we are seeing in the  

world right now economists support this theory  primarily those that subscribe to the austrian  

school of economics we'll also point out that  these distortions will cause knock-on impacts  

in the economy that will end up doing more harm  than good if that plumber from earlier who is  

currently earning thirty dollars an hour has  to go back to working for 20 an hour he might  

default on the payments for that new ford f-150 he  overpaid for which causes more issues than these  

temporarily higher wages solved a rough analogy  would be that covert hit the global economy  

like an unexpected breakup now there are two ways  to deal with a breakup you can realize that this  

is gonna suck for a while take some steps to try  and make yourself feel better and get over it  

or you could go on a bender which will almost  totally eliminate the pain and suffering in the  

short term but inevitably make things much worse  in the long term it must be noted that not all  

economists agree with this rather pessimistic view  some argue that this is simply a systematic issue  

that will sort itself out over time this also  does make sense when you look at the figures  

as we saw at the height of the pandemic millions  of people were laid off in a very short period of  

time in the months since then most people have  had to find alternatives to support themselves  

this could be anything from going back to school  to retrain to living off government welfare to  

simply just getting a new job life finds a way  so to speak fast forward to today and those same  

businesses are reopening and looking to fill out  their staff base all over again only to find that  

all the people they'd let go had found these  other arrangements job openings right now are  

at the highest point in history and sure some of  the people that were laid off will either be happy  

or be forced to come back to work but some will  end up sticking with the alternatives that they  

have found during the lockdown over time this  will even itself back out new people will join  

the workforce and eventually there won't be as  many businesses that need to hire staff to reopen  

everybody lives happily ever after so to speak  but what can you do to capitalize on all of this  

well now is the perfect time to start shopping  around for a new job with a better salary for  

the first time in a long time it is the employers  fighting over the employees rather than the other  

way around studies suggest that employees who stay  with their companies for longer than two years get  

paid 50 percent less on average than their peers  who are more happy to job hop for a promotion a  

pay rise or just better conditions getting the  best value for your hard work is always good  

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