The U.S. economy has a long way to go in the post-coronavirus recovery. Despite more states reopening for business, companies engaging in a hiring blitz, and millions of Americans getting jabbed, the labor market has yet to witness the fruits of these efforts. This is clear in the April jobs report, falling short of most economists’ expectations of approximately one million new positions. So much for riding high in April, as the old Frank Sinatra tune goes. But is this a case of April showers potentially bringing May flowers? Or is the specter of COVID-19 still casting its shadow over the United States? More importantly, will Bidenomics rescue the American economy from the doldrums of a stagnant job market?
April Shows Bring May Flowers?
According to the Bureau of Labor Statistics (BLS), the U.S. labor market created 266,000 positions in April, falling short of the median estimate of 978,000. This is down from the newly revised 770,000 job gains in March. The unemployment rate rose to 6.1%, higher than the market forecast of 5.8%. Average hourly earnings picked up 0.7%, average weekly hours edged up to 35, and the labor force participation rate climbed to 61.7%.
Most of the job creation was concentrated in two areas: leisure and hospitality (331,000) and government (48,000). Professional and business services declined 79,000, transportation and warehousing shed 74,100 jobs, the manufacturing sector lost 18,000, and the retail trade eliminated 15,300 positions.
This came soon after the BLS reported that the number of Americans filing for unemployment benefits fell to a fresh pandemic low of 498,000 in the week ending May 1, below the expectation of 540,000. In addition, job cuts announced by U.S. companies fell 25% to 22,913 in April.
So, fewer Americans are losing their jobs, private firms are cutting fewer positions, and the April jobs report was “a huge disappointment.” What happened? It could be a case of workers not wanting to return to the labor market just yet.
Minimum Wage or Jobless Benefits?
Liberty Nation recently reported on the extreme lengths that many businesses are going through to find workers. A Tampa Bay, FL McDonald's franchise is paying applicants $50 for an interview. A Dunkin' location in Florida is venturing beyond quick cash: the coffee and doughnut giant is offering a $50 weekly attendance bonus, $100 sign-on bonus, paid time off, $100 anniversary bonus, and much more. Carlos Gazitua, the president and CEO of Sergio’s Restaurants in Southern California, told CNBC that his firm has increased wages, walked around neighborhoods, and hired three staffing agencies. This is a real-life illustration of the marketplace right now.
A March survey conducted by the National Federation of Independent Business (NFIB) discovered that a record high 42% of owners had employment openings that could not be filled. A separate poll of small businesses found that 60% attempted to hire people in April.
The reasons for this discrepancy vary, from parents needing to care for children to fear of getting COVID-19. But one of the most compelling factors that many experts seem to agree on is that unemployment benefits are too appealing. The American Rescue Plan Act topped up an extra $300 per week in Federal Pandemic Unemployment Compensation (FPUC) payments until Sept. 6, 2021. This might not be enough to persuade a white-collar worker to sit on the sofa and collect a check from Uncle Sam. However, for someone who will work behind the counter at McDonald’s, the question becomes: Why bother? One could only imagine if a universal basic income (UBI) was ever imposed by the Leviathan.
Many financial analysts are waiting for next month's jobs report to begin sounding the doomsday alarm, noting that this may be an anomaly. Ian Shepherdson, the chief economist at Pantheon Macroeconomist, wrote in a client note: “Time for a deep breath. One month’s data prove nothing; payrolls could rebound massively in May.”
But President Joe Biden thinks the weak numbers are proof that the government needs to create even more massive jobs and family legislation. The Federal Reserve is also likely to keep pumping out monetary stimulus. Minneapolis Federal Reserve Bank President Neel Kashkari confirmed that the central bank would not curtail its quantitative easing efforts anytime soon. However, Florida’s Gov. Ron DeSantis (R) is taking a different approach. He recently warned Floridians receiving unemployment benefits that they will need to prove that they are looking for work if they wish to keep getting a check from the Sunshine State.
The Swamp Distorts Labor Markets
If the public ever wanted empirical evidence of how the government can distort markets, generous welfare benefits in the age of COVID-19 is an example. Critics will argue that small businesses can solve the labor shortage by paying workers more. But while a national franchise juggernaut like Dunkin’ could afford to cover the costs of a lucrative compensation scheme, a typical mom-and-pop bakery would have trouble mirroring these payment packages. So, once again, politicians and bureaucrats commit democide and victimize entrepreneurs with a handful of employees. Eminent economist Milton Friedman was correct: "The government solution to a problem is usually as bad as the problem."
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