With the economy humming away and GDP eclipsing its pre-pandemic high, Americans appear to be returning to old habits, from shopping to eating out to driving. But not everyone wants to go back to their pre-pandemic lives, and there’s at least one aspect of “normal” that some workers are not willing to go back to: obscenely low wages. Across the country, employers in the service sector are reporting that they’re having trouble staffing up their businesses, causing anxiety about a potentially prolonged labor shortage. But what some businesses are finding is that the key to drawing back employees is simply to apply some economics 101 and raise their wages.
There are several factors that could be contributing to workers’ lack of willingness to return to low-paid service-sector jobs. The one that employers are pointing out is that enhanced unemployment benefits are keeping people home. Workers, on the other hand, say that the low wages offered aren’t making unsafe working conditions worth the risk. (Earlier this year, for example, a study showed that line cooks have the highest risk of dying from COVID-19 among US workers.) But there’s truth in what they’re all saying: More generous unemployment insurance is giving workers some financial breathing room to think about what jobs they actually want — and to hold out for higher wages in the process.
This moment — where businesses are looking for workers and many Americans have the leverage to be choosy about which jobs to take — presents the federal government with a unique opportunity to push employers to raise wage standards. And there are three steps the federal government can take to do just that.
First, it would be a mistake to prematurely end the expanded unemployment benefits set to expire in September. If the federal government wants to strengthen workers’ position in the economy, then it has to provide Americans with choices, and that’s what unemployment insurance is currently doing. It’s not necessarily making people not want to work anymore; it’s often allowing them to ask employers for decent working pay and conditions. And for the time being, it seems to be working: Employers like McDonald’s, Chipotle, and Papa John’s are all starting to offer higher wages and competitive benefits to draw workers back.
There’s some evidence that ending these enhanced benefits too soon, before the pandemic’s greatest threat has subsided, will lead people back to very low-paying jobs. Twenty-six states — all but one of which are Republican-led — have stopped their residents from receiving the expanded unemployment benefits in an effort to push people back to work. It has yet to be seen how effective their decision has been, but preliminary data suggest that they are, in fact, seeing a faster return to work than their Democratic counterparts. This, however, is coming at the cost of pushing workers back to low-paying and unstable jobs in the gig economy at a time when the Delta variant poses a high risk to the unvaccinated.
Second, the federal government must lead by example and raise the minimum wage for workers on federal contracts. Not only would this boost earnings for hundreds of thousands of employees — roughly half of whom are women and roughly half of whom are Black or Hispanic — but it would also push employers competing for the same workers to offer competitive wages. The good news is that the Biden administration has already laid the groundwork for doing so by early next year.
Third, because Congress failed to raise the federal minimum wage of $7.25 an hour — which would have been a simpler solution — the federal government must still reject a reality in which the economy is propped up by millions of workers on poverty wages and instead use tax incentives for employers to raise pay. The economists Emmanuel Saez and Gabriel Zucman have proposed a tax policy, for example, that would unofficially raise the minimum wage by increasing payroll taxes on employers for employees making below $15 an hour, and crediting the raised funds to their workers. In effect, the government would facilitate closing the gap between the current minimum wage and a desired one — be it $15 or, better yet, a flexible figure that accounts for regional cost-of-living differences — by simply taking money from the employer and giving it to the employee. (If employers raise worker pay to the desired minimum wage, then they would be exempt from the new extra tax.)
Tax policies like these should be aimed at big businesses. Anytime the federal government raises the minimum wage, whether directly or otherwise, it should have a carve-out for small businesses to help them meet the new standard. In this case, the federal government can provide a tax credit to small businesses, like family restaurants, that raise their base pay to the federal government’s desired minimum wage. That would allow a local neighborhood market to compete with a Whole Foods for employees by providing competitive wages and for consumers by maintaining competitive prices, since they wouldn’t see a significant change in operational costs. (And policy makers also need to focus on the factors other than wages that stand in the way of getting people back to work in service sector jobs and beyond, including inadequate child care and the skills gap.)
By many measures, the US economy is improving. Businesses are open, jobs are being created, and GDP is on the rise. But despite all this growth, wage hikes are still no guarantee. If the Biden administration wants to, in fact, “build back better,” then they must see to it that workers get a raise.
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