By JOHN HOOD
RALEIGH — North Carolina’s “headline” unemployment rate in May was 12.9%. That’s the highest monthly rate since the Great Depression. But on a number of occasions during the month, I talked with North Carolina restauranteurs and other business owners who were struggling to fill vacancies as they reopened.
Can you have a labor shortage and high unemployment at the same time? Of course — because workers aren’t widgets or raw materials. They are people with a variety of skills, circumstances, interests, and incentives.
Workers aren’t easily interchangeable. A mechanic laid off from an auto-repair shop in Chicago is unlikely to fill a vacant position at a restaurant in Palm Beach. Even during economic booms, when unemployment rates are low, large numbers of jobs are destroyed every month as some businesses contract or going out of business. Even during recessions, when unemployment rates are high, some new or expanding businesses create jobs and have trouble immediately filling them with qualified applicants.
When economists say “employers” or “the economy” gained or lost a certain number of jobs each month, then, they are using abstractions to describe the net result of a complicated matching process, of labor markets in constant churn.
For example, from September 2018 to September 2019, North Carolina businesses shed nearly 3.4 million jobs. That period was long before the events of the spring and summer — before the COVID-19 epidemic, before the precipitous drop in mobility and consumer purchases, before the closures and lockdowns of the Great Suppression.
So why wasn’t everyone talking about a massive recession back then? Because during the same period, other North Carolina businesses added even more jobs than the number of jobs lost. There was a net increase in employment, despite the losses, just as in recent months there has been a net decrease in employment, despite some gains.
Labor markets will always be in flux, with just enough “friction” to keep some workers sidelined for at least a short while. For generations, politicians have convinced themselves they can create laws and programs to make this inherently chaotic process far more orderly. All too often, their political schemes are counterproductive.
Consider the case of unemployment-insurance benefits. Reacting to the COVID-19 emergency this spring, Congress created a bonus of $600 a week for dislocated workers. The bonus was supposed to last until the end of July. As was predicted at the time, the practical effect of the government’s well-intended effort to buttress consumer spending during the crisis was to discourage many laid-off workers from taking other jobs, even ones that matched their skills and locations, because their UI benefits exceeded their potential paychecks.
Also predictably, many politicians who championed the original $600-a-week bonus now want either to extend it until the end of 2020 or to replace it with a sliding-scale system that would perpetuate weekly bonuses in the range of $400 to $600 for states such as North Carolina where jobless rates are improving relatively slowly.
Again, I understand the desire to help. But getting people back to work, not encouraging them to remain unemployed for additional months, should be the priority. Long-term joblessness has deleterious effects of its own. Job skills and connections atrophy. Idleness can be bad for one’s physical and mental health.
Because workers aren’t interchangeable, and labor markets continue to churn, there will be some North Carolinians laid off from jobs in the spring who can’t or won’t be rehired by their former employers as the economy reopens. They’ll have to transition to some other profession or industry. If government wants to help speed that transition, it can finance training programs and eliminate barriers such as occupational licensing that needlessly keep willing workers and entrepreneurs on the sidelines.
What government shouldn’t do is to use unemployment-insurance bonuses as some kind of back-door increase in the minimum wage, as labor unions and progressive activists are clearly trying to accomplish. That would keep large numbers of workers unemployed — because it would make them unemployable by businesses trying to stay afloat.
John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “NC SPIN,” broadcast statewide Fridays at 7:30 p.m. and Sundays at 12:30 p.m. on UNC-TV.
