Businesses boosting wages in scramble to hire scarce workers: Fed
Businesses across the U.S. scrambled to hire workers in May as a variety of pandemic-related constraints keep potential employees on the sidelines, Federal Reserve officials said in a Wednesday report.
The June Fed’s Beige Book — a periodic summary of economic conditions in each of the central bank’s 12 regions — reported widespread struggles among firms to find enough workers to meet rising demand. The shortages have prompted many businesses to boost wages, offer hiring bonuses, poach employees from competitors, and raise prices, Fed officials said.
“The lack of job candidates prevented some firms from increasing output and, less commonly, led some businesses to reduce their hours of operation. Overall, wage growth was moderate, and a growing number of firms offered signing bonuses and increased starting wages to attract and retain workers,” the Fed said.
“Contacts expected that labor demand will remain strong, but supply constrained, in the months ahead.”
The publication of the Beige Book comes two days before the Labor Department releases a hotly anticipated monthly employment report for May. Economists expect the U.S. to have added roughly 500,000 last month after gaining just 266,000 in April due to several issues related to COVID-19.
Analysts attributed April’s disappointing jobs gain to a combination of health concerns, a lack of childcare options, and potentially expanded unemployment benefits keeping potential workers on the sidelines. Many businesses reported similar issues stretching into May, the Fed said.
“One firm reported sharply higher pay rates for selected positions and said that the higher rates reflected a combination of labor scarcity and growing business confidence. Other firms launched new recruiting campaigns to combat labor scarcity” in the region covered by the Federal Reserve of Boston, officials said.
“Some contacts perceived that generous unemployment benefits were the deciding factor holding back labor supply, but others expected at least a modest boost in labor supply as vaccination rates climbed and infection rates declined.”
While the lack of applicants have hindered some businesses from meeting the rush of demand, business contracts told the Fed that newly empowered workers have been able to hold out for higher wages and more desirable jobs in other industries.
The Cleveland Fed said that more than half of business survey respondents increased wages over the past two months, up from about 40 percent previously, and one staffing company official has turned away employers offering less than $13 an hour “because he will not be able to find anyone at that wage.”
The Richmond Fed reported increased turnover among workers seeking jobs with higher status and pay at other firms, and rising starting wages prompting veteran workers to ask for commensurate raises.
Many Democratic lawmakers and liberal policymakers say the pressure on businesses to raise wages is long overdue after years of tepid increases despite soaring corporate profits and a widening executive pay gap.
“When it comes to the economy we’re building, rising wages aren’t a bug, they’re a feature,” President Biden said in a Friday speech.
“The simple fact is, though, corporate profits are the highest they’ve been in decades,” he added. “Workers’ pay is at the lowest it’s been in 70 years. We have more than ample room to raise worker pay without raising customer prices.”
But the labor shortage has also fueled concerns among Republican lawmakers and some centrists that rising pressure on wages and prices could cause rapid and uncontrollable inflation.
Both annual and monthly measures of inflation have risen sharply due largely to rapid remobilization of the U.S. economy causing supply and labor shortages. Even so, hawks fears that a flood of fiscal and monetary stimulus could push the U.S. in a longer battle with inflation that derails the recovery.
Despite those concerns, Fed officials have expressed confidence in their ability to respond to a sharper than expected increase in inflation.
“Should inflation move materially and persistently above 2 percent, we have the tools and experience to gently guide inflation back down to target, and no one should doubt our commitment to do so,” Federal Reserve Governor Lael Brainard said in a Tuesday speech.
Brainard also noted that more than a decade of low inflation and the uncertain path of the post-COVID-19 economy could also put unexpected downward pressure on prices and wages, which also poses a threat to the economy.
“Remaining steady in our outcomes-based approach during the transitory reopening surge will help ensure the economic momentum that will be needed as current tailwinds shift to headwinds is not curtailed by a premature tightening of financial conditions,” she said.