About 13% of low-wage jobs in Germany would not be viable if workers knew how good their options really are abroad. This is the conclusion of a recent study by Benjamin Schoefer, my colleague at the University of California, Berkeley, and his co-authors Simon Jäger, Christopher Roth, and Nina Ruossille.
“When subjective external choices of workers are compared with objective measures of pay premiums based on data contrasted between employers and employees,” these experts observe, “many workers mistakenly believe that their current salary is representative of the external labor market – the Objectively low-paid (or well-paid) workers are excessively pessimistic (optimistic) about their options abroad ”.
In plain language, the explanation is that if something were to shake low-wage workers’ false beliefs about how poor their external options are, labor market conditions would fundamentally change. The same basic perception surely also applies to the United States, only there more, because the federal minimum wage is much lower, relative to average productivity, than that of Germany.
If ever there was such a shakeup, it is what happened with the covid-19 pandemic and its widespread economic consequences. Recent data shows that 3% of American workers – 4.4 million people – quit their jobs in September. That monthly resignation rate is not only notoriously high; It is unprecedented, especially considering that the employment-to-population ratio in the United States is still just 59.2%, almost two points below its peak in February 2020. What is happening in the United States labor market? United? In normal times, current figures would suggest that the United States is dealing with a severe job shortage. However, the impressive willingness of workers to quit their jobs and seek something better indicates that these are not normal times.
There is a standard list of explanations for the so-called Great Renunciation. An obvious factor is fear of COVID-19, especially among those living with elderly or immunocompromised relatives. Low-wage workers do not want to spend long hours in service industry environments that require them to be in close contact with other people, especially the high percentage of the population that is still unvaccinated.
Another related issue is the disruption of child care, which often forces at least one parent to stay at home. Many observers also contend that workers feel empowered because they still enjoy the bonanza of aid programs during the pandemic. And others argue that the past two years caused more people to adopt a more relaxed stance, rather than working hard at an unpleasant, low-paying job. The problem with this explanation, observes Paul Krugman in The New York Times, is that Western Europe, which generally had a similar pandemic experience, is not experiencing a Great Quit or depression in the percentage of adults who are employed.
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One notable effect of the pandemic is that it has fueled a transformation of work and the workplace that would have taken decades in the absence of the virus, or never would have occurred outright. Consider, for example, the widespread shift toward remote back office work, rapid automation of substantial components of service work, or the transformation of retail – requiring many more drivers to deliver products and far fewer salespeople in brick-and-mortar stores. .
These changes have been very convenient for many consumers and employees. Suddenly, the online tools are good enough that no one needs to shop in person to get an idea of the quality of a product. (And if a delivered product doesn’t meet expectations, it can always be returned to you.) Sectors affected by these changes will not return to the pre-pandemic status quo.
Unless workers are explicitly laid off, reformulating the division of the labor force to restore employment after a massive disruption is always a long and painful process. In the 10s of this century, the return to full employment seemed associated with a speed limit of one percentage point per year, mainly because demand remained relatively weak as those responsible for fiscal and monetary policies focused on fighting the ghosts of debt and inflation.
It would not be a good policy for the current recovery to be restricted by this low speed limit. A speedy recovery demands that US employers offer better deals to low-wage workers, which, by quitting en masse, is what they are obviously demanding. This requires an accelerated removal of the main supply-side barriers to labor participation: a lack of childcare and protection measures against the virus. And it calls for a high-pressure economy, so it’s obvious to workers on the margins that there are good opportunities out there.
The Administration of President Joe Biden and the Democratic parliamentary majority must recognize that workers and employers alike need far more support now than American businesses can normally offer. Europe offers a promising example. America needs more examples like this.
J. Bradford DeLong is a former Deputy Under Secretary of the United States Treasury, Professor of Economics at the University of California, Berkeley, and a research partner in the National Bureau of Economic Research.
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