Seeing link between wages and workers, more businesses raise the former to address the latter

Dani Romero August 8, 2021

As businesses emerge from COVID-19 lockdowns, many are facing the challenge of too few workers to accommodate strong demand. And while the labor shortage isn’t new, it’s definitely a sore spot for many that’s growing more acute.

And amid a booming jobs market, some economists say the shortage isn’t labor related, but rather wage-driven — an economic third rail that companies big and small have increasingly grabbed in order to address widespread labor shortages. 

Yet the strategy of raising pay, which can be risky given the higher costs that may get passed down to consumers, is especially perilous for small businesses that often lack pricing power.

According to data from worker advocacy nonprofit One Fair Wage, 57% of service workers are not returning to restaurant jobs in states that have prematurely ended federally funded unemployment insurance benefits. Around half of U.S. states have made this move, or soon will, as a way to spur workers to fill record-high openings.

Yet the fear of contracting COVID-19 remains a major factor, about 54 percent of workers are leaving the sector for that concern, according to One Fair Wage’s study.

“The data is showing that in fact, they don’t want to come back because they’re saying the tips are unreliable, the health risks are too high and most of all, [they] don’t want to work for sub-minimum wage anymore,” Saru Jayaraman, president of One Fair Wage said.

The list of companies paying more grows longer

To be certain, there is a link between joblessness and pandemic-era unemployment assistance. U.S. Bureau of Labor Statistics data for April shows that 25 states planning to cancel benefits early have recovered about 80% of the jobs lost during the crisis, compared to a 66% recovery rate for the rest of the country.

However, about 2.4 million more people in states that have stopped the insurance benefits early are unemployed, or no longer looking for work, hinting at a slower hiring cycle for the future.

Meanwhile, the labor shortage has reached “crisis” levels — especially in the services sector, where independent businesses and restaurants — slammed by COVID-related lockdowns — continue to struggle finding workers, even with the underlying recovery.

There’s no question that some industries are facing challenges filling open positions as the economy slowly reopens. But in the restaurant industry, there are other constraints at play keeping workers from reentering the labor market.

Owners have blamed the shortage on a variety of factors, even as they challenge the idea that workers prefer to stay on unemployment insurance rather than return to work.

Increasingly, observers and worker advocates point to low wages as being to blame for the labor pressures restaurants are facing. In response, a growing number of food and consumer giants like Chipotle (CMG), Walmart (WMT), Amazon (AMZN) and McDonald’s (MCD) have announced that they are raising wages in a bid to attract workers.

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