Labor Shortage Means Better Wages, Right? – A Very Sad Research Project of Mine.

By: Benjamin Smart

Wages have been stagnating for decades, but there has been a worker shortage for over a year. I set out to see how these two well-documented trends impact each other. 

I’ll start by quickly defining and explaining these two trends:

WAGE STAGNATION: Real wages – specifically the amount of money you make adjusted for inflation – are practically the same now as they were in 1964, and have varied little over that span for most earners. This article illustrates another core point: that despite wages remaining the same, productivity has increased over 240% since 1979, and wages for the top 1 percentile and for CEOs has been growing. Health benefits for young people have also been on the decline, by about 20% since the 80s. Pay for the bottom 90% has been stagnant for decades, despite more profit and money being made. We aren’t playing a zero-sum game, the top few percentile are just taking all  of the extra resources being created. 

COVID: Second, since COVID hit the economy, the job market was thrown around. Unemployment initially spiked (Bureau of Labor Statistics report, 9/2/22), but has been more or less consistently dropping ever since, down recently to 3.7%, which is slightly above pre-pandemic levels. There was some talk of a “Great Resignation,” but only about 1% less people are working now than before the pandemic; currently we have a 62.4% labor participation rate (BLS). However, there have been significant increases in job demand, with over 3 million jobs being added in 2021, and there has actually been significant job shuffling, which some argue makes up a large part of the supposed trends we see. 

These are both notable trends that have dominated the headlines for a few years-but what has happened due to the labor shortage? It seems counter-intuitive, but wages have actually gotten worse: BLS indicates that real wages have declined over 3.6%  in the last year alone. Interestingly enough, the sudden drop in real wages coincides with the beginning of the labor shortage in the summer of 2021. Inflation being so high is likely the primary cause of this, as the US has experienced about 15% cumulative inflation  since 2019.

Another important factor for the lowest earners is whether they can even get full time jobs. I personally know people willing to work, and unable to find genuine full time jobs-employment that comes with mandated benefits. This continues to be how large companies run their businesses, and they have no intention of stopping.  

Union membership was at 10.3% in 2021, the same as in 2019. There was a 0.5% increase in 2020 that was lost again in 2021. Union membership has been on the decline since at least the 80s (which may be contributing to stagnating wages). Public approval of unions is at a new high, but this may not result in actual changes in unionization, as most workers are still uninterested in unions. In fact, 58% of workers are “not interested at all” in joining a union. 

However, there are still some small good signs. Workers, while not collectively bargaining in unions, appear to be making consistent trends by quitting jobs that pay them the least, work them the hardest, and give them the least benefits. Specifically, this means they’re quitting jobs in food and hospitality – and looking for other jobs that offer real benefits. Many companies and CEOs at least claim that they will be expanding employee benefits. Hard data on the increase in benefits is hard to find, as the last BLS survey published is from March 2021, when the labor shortage was just beginning. There are signs of modest improvement, but things do not appear to have changed significantly. 

To sum up my findings: Real wages have plummeted despite the labor shortage. Things may look hopeful for collective bargaining, or for collective action happening without collective bargaining. But the simple fact is that workers do not appear to have translated a labor shortage into better compensation, and the decades-long trend of stagnation has been exacerbated by inflation. Workers have an unusual amount of power right now, but are struggling to use that power effectively.

Ben Smart received a B.A. in Philosophy and Sociology from The University of Oklahoma, and is currently a 2L at Sandra Day O’Connor College of Law. He is particularly focused on justice in criminal and international law, and hopes to be an ethical prosecutor after graduation. When not working, he enjoys messing with his dog and throwing a line in water, hoping a fish will pity him enough to bite.