US grapples with paradox of surging economic growth but sluggish job figures

Hermenegildo Cruz found himself back behind the wheel two weeks ago, picking up passengers in Los Angeles via the Lyft app. Originally from Oaxaca, Mexico, Cruz spends 12 hours a day ferrying passengers, many of whom are increasingly frustrated with long waits for a pickup and fares that are three times higher than usual. A driver shortage due to Covid-19 means that gig economy work is plentiful, and Cruz has made the app his primary source of income. “I’m better off, I’m my own boss and I feel less exposed to the virus,” he said from the front seat, divided from his passengers by a thick sheet of plastic. Cruz has lived in L.A. for 23 years and spent the last seven working in a restaurant, a job he has just quit.

The US economy is emerging from a Covid-induced slump, with more than 40% of the population having received at least one vaccine dose. Businesses are working out what the new normal looks like, and pent-up demand is fueling spending. The US economy grew at an annualized pace of 6.4% in the first quarter of 2021, the second-fastest rate since 2003, and US households are sitting on at least $2.3 trillion in excess savings. But the picture painted by April’s jobs figures looks lethargic: the US economy added only 266,000 new jobs, a figure well below expectations. By comparison, 770,000 jobs were created in March, and the national unemployment rate remains at 6.1%.

Many conservatives point to stimulus checks and government subsidies as the reason why Americans are not rushing into new jobs, though economists warn the labor shortage reflects an underlying shift. Many Americans have moved into different fields during the pandemic, and the labor market is readjusting to a post-Covid reality, these analysts say. The more progressive wing of US politics is meanwhile asserting that companies must further improve wages in a country where many unskilled workers need welfare payments to survive. There are also renewed fears about inflation, which reached its highest level since 2008 last month.

The problem is that too many employers in America are exploiting their workers by paying starvation wages with no benefits

Senator Bernie Sanders

Hermenegildo Cruz’s example is telling. Many of his fellow drivers who have not yet returned to work are still collecting unemployment benefits of up to $300 a week, and stretching out the Biden administration’s $1,400 stimulus check. As the weeks go by, “help wanted” signs are starting to appear in restaurant windows, and not just in downtown L.A. Some business owners are complaining that they can’t find workers, and Republican states like Tennessee and Missouri have decided to cut all federally funded pandemic-related unemployment benefits this summer in hopes of stimulating job seekers’ attention. “From conversations with business owners across the state, we know that they are struggling not because of Covid-19 but because of labor shortages resulting from these excessive federal unemployment programs,” Missouri Governor Mike Parson said when announcing the cutoff. “It’s time that we end these programs that have ultimately incentivized people to stay out of the workforce.”

Texas is also opting out of federal unemployment benefits linked to the pandemic, its governor announced on Monday. Glenn Hamer, president of the Texas Association of Businesses, welcomed the move. “With vaccines readily available to anyone who wants one, it is time for the president and Congress to realize that this policy is a barrier to enhanced employment in Texas and throughout the country,” said Hamer in a statement. According to his organization, 70% of 177 businesses surveyed had between one and twenty vacancies that needed filling.

Specialists are not alarmed by the jobs data. “The economy is a patient in a coma, and we are pulling it out of that state. A patient like that does not have the same muscular strength as before... so worker productivity cannot be the same,” said Òscar Jordà, an academic and senior advisor to the San Francisco Federal Reserve. Jordà downplays the importance of the jobs figures, and the rebound of the consumer price index. “We have to have a little patience,” he urged.

Jordà, who is also a professor of economics at University of California, Davis, noted we are living in abnormal times. Last year, a study he authored on the economic impact of epidemics that cause more than 100,000 deaths found that the repercussions can be felt for decades. Analysing plagues and pestilence of one kind or another since the 14th century, he found that it takes up to 40 years for interest rates to recover to levels projected if the pandemic had not occurred. “Economies are sluggish when they come out of pandemics...there is an excess of workers relative to capital,” he added.

Some sectors have introduced incentives as a form of shock therapy. Chipotle, the Mexican fast-casual food chain, announced a $2 per hour increase in its minimum wage this week, so an employee at one of its more than 2,700 restaurants will now earn at least $15 an hour. This move was copied by McDonald’s, which aims to recruit 10,000 employees in three months. “Let’s be clear. The problem in America is not that unemployed workers are receiving an extra $300 a week in emergency benefits during a horrific pandemic. The problem is that too many employers in America are exploiting their workers by paying starvation wages with no benefits,” tweeted left-wing Democratic Senator Bernie Sanders.

A revival is underway, despite the naysayers. In the first week of May, applications for unemployment benefits dropped from 507,000 to 473,000 a week earlier, a pandemic-era low. In April 2020 this figure stood at 6.1 million claims. Historically speaking, the figures are still high, but they indicate a step in the right direction. “Maintaining the vaccination levels seen to date is an important factor in continuing this trajectory of higher employment and lower claims for unemployment benefits,” said Brenda Samaniego, an associate professor at the University of California, Santa Cruz (UCSC).

Samaniego believes that normality will also bring the return of a mismatch between labor supply and demand. Good jobs were already highly competitive, but employers perceived little interest in some vacancies. “The two perspectives may seem contradictory but they can occur simultaneously and existed before the pandemic, when there were a lot of unattractive jobs with low pay, low flexibility and high risk,” the UCSC economist said. Job seekers focused on offers with better conditions. The proliferation of precarious and difficult jobs, especially in economic activities most exposed to the virus, caused many Americans to switch sectors in the pandemic.

Economists agree that women are the group hardest hit in attempts to reintegrate into the labor market. The closure of schools and day care centers has hindered many from returning to work. “Schools and day care centers in many places still have limited schedules and this hinders participation in the labor market,” said Samaniego. Jordà wonders whether there will be sufficient incentives for women to rejoin the labor market, as a generation of women who started working shortly before the 2008 crisis have now lived through a pandemic, many with children. “They have suffered a lot in their working lives,” he said.