Speaking to NABE Los Angeles last month, the Chief Economist of Wells Fargo questioned whether the United States has enough human capital to power its smarter machines beyond 2019.
During normal times, members of the New York Association of Training & Employment Professionals focus first on helping workers get re-hired.
But these aren’t normal times.
Now, as New York’s economy reaches its lowest unemployment levels in a decade, the focus of workforce programs in the state has shifted toward helping employers cope with too few workers, the Adirondack Daily Enterprise reported on Saturday.
That newspaper, which covers the towns of upstate New York’s Adirondack mountains, recently launched a series, Labor Gap, chronicling how the lack of enough workers for existing jobs has affected the quality of life of the region’s residents and stunted its businesses.
“From entry-level service workers to highly trained technicians, employers in the Adirondacks are finding that a lack of workers is slowing down everything from hotel openings to moving elderly patients from hospital rooms to their homes,” the Daily Enterprise’s Glynis Hart wrote.
Adirondack employers’ problems finding enough workers reflect a wider national problem. As employer-side demand continues pushing unemployment rates down to levels unseen since the height of the DotCom era in late 2000, business owners across industries–from long haul trucking companies to general contractors and hospitals–have begun openly worrying whether or not they’ll be able to expand.
And that has economists, such as Dr. John Silvia, worried. Not about this year or next but what comes after.
Speaking to NABE Los Angeles on February 22, the Chief Economist of Wells Fargo and former longtime economic advisor to the U.S. Senate explained why he believes the growing imbalance between work and workers reflects a dramatic, permanent shift in the American workforce that poses limits to sustainable growth of the U.S. economy.
“We’ve stimulated aggregate demand a lot,” Silvia said, referring to the effects of the GOP’s $1.3-trillion Tax Cut and Jobs Act passed in December. “I’m not sure where we get increased aggregate supply. That’s the risk of inflation.”
Added Silvia, “They can buy equipment, but where are their workers?”
On March 9, after a better-than-expected February jobs report came in, Treasury Secretary Steven Mnuchin explained to CNBC’s “Squawk Alley” why he wasn’t sweating.
“Everyone has said: ‘Aren’t you concerned about inflation given we’re at full employment and given the tax cuts and the growth in the economy?’ My comment is we’re not really at full employment because of the participation rate.”
Mnuchin’s focus on the labor force participation rate makes perfect sense. Jump starting participation underlies Treasury Secretary Mnuchin’s and the Trump Administration’s approach to keeping economic growth alive.
After all, economies grow as a result of two things–how many workers work and how productive those workers are. Productivity gains are fickle, but Mnuchin hopes that the increased competition for workers will lure more back into the workforce.
Put simply, he wants to grow the economy by getting more workers to work, and he thinks lower tax rates will do that.
So far, Mnuchin has had reason to be hopeful. The February jobs report showed a slight uptick in labor force participation, rising from 62.7 percent to 63 percent–where it had been in September.
Treasury’s Mnuchin will be watching that number like a hawk in upcoming jobs reports.
Living on a Prayer?
February progress aside, there are reasons to be skeptical that the Treasury Secretary’s plan will create sustainable economic growth even if demand for labor continues rising.
First, consider the state of wages. The jobs growing the fastest in New York State, for example, aren’t giving workers on the sidelines a lot of reasons to jump back in. The new jobs pay a median salary of $24,000 a year when it takes more than double that to afford living there.
That’s not isolated. Across the country, low-wage work—like home health aides and personal care assistants–has been growing the fastest.
More troublingly, even higher wages won’t necessarily increase the labor supply, Silvia told NABE Los Angeles.
“This labor market is complex. You increase wages it doesn’t mean you’re going to see people jump for jobs,” said Silvia.
One reason is the gig economy. Why take a full-time job if you can pay the bills with Airbnb and Uber?
But Silvia also thinks there’s something else going on—and he doesn’t think it’s temporary.
Pointing to data showing there are more job openings for every level of unemployment over the last decade than the one before it, Silvia said it’s increasingly clear that U.S. workers don’t have the skills for many of the latest jobs.
“Productivity is not more equipment. Its educated workers who know how to use that equipment,” he said.
“We have an economy going someplace, not sure where.”