School closures and elderly COVID fears more to blame for labor shortage than unemployment benefits, UBS says

  • The labor picture in America right now is confusing, especially following a dismal jobs report.
  • It’s hard to determine what’s the driver behind the labor shortage; some blame UI, others childcare.
  • Economists at UBS say school closure and COVID fears may be main reasons behind the lack of labor.
  • See more stories on Insider’s business page.

The labor picture in America right now is, in a word, confusing. With reopening fueling hopes of an economic boom, April brought a surprisingly dismal jobs report, with gains primarily concentrated in the hard-hit leisure and hospitality industry.

The reactions from different sectors have been swift. Nearly 20 GOP-led states have announced they’ll halt their participation in additional unemployment benefits, subscribing to the theory that higher UI benefits are keeping people out of the workforce.

As Insider’s Andy Kiersz and Kate Taylor reported, it is certainly possible for workers to be making more on unemployment than minimum wage. But even those numbers don’t tell the full story; in most states, the total weekly benefits are still lower than the average weekly wage. And, as Insider’s Eoin Higgins argues, restaurant and retail workers aren’t clamoring back because they’re sitting around collecting unemployment — rather, they want to avoid the poor working conditions.

In a research note, UBS economists led by Andrew Dubinsky offer some answers on what they think is causing the current labor market tightness. Notably, they say, people with young kids and those over 55 have driven the drop in the labor force.

“In our view, these facts suggest that the lack of full school reopening, as well as some Covid fears among the older cohorts, are among the main drivers of the lack of labor supply,” the economists write. 

Childcare has emerged as a hot-button issue in the labor story, as women in particular have been continually disproportionately pummeled by the pandemic’s job losses. More women dropped out of the labor force in April.

Other research supports the argument that working mothers are more impacted, while also suggesting that childcare overall may have had a negligible impact on unemployment. A paper from former Obama economic advisor Jason Furman, Melissa Kearney of the University of Maryland, and Wilson Powell III of the Harvard Kennedy School found childcare playing a small role in the labor shortage.

The paper finds a bigger impact on women with children, projecting that women with young children have left the workforce at a slightly higher rate than other women, but men with young children have left at a lower rate than men without. Employment rates for parents with young children are down 4.5% versus 5.2% among people who aren’t parents of young children.

As Insider previously reported, the pandemic has had a bifurcated impact on women. For lower-wage female workers, labor pains have been less about employment than loss of income — an issue likely exacerbated by childcare costs and shuttered schools.

Notably, UBS does not attribute the current labor situation solely to beefed-up unemployment benefits.

“While high unemployment benefits could at the margin also be contributing to this, it is notable that states with high unemployment insurance recipient ratios have seen an outperforming of job growth in the low-wage sectors, relative to the rest of the states: To date, more generous unemployment benefits are not associated with less low-wage job growth,” the economists write. They also note the recovery for low-wage industries has been similar for states with different unemployment programs.

What is clear, then, is that the recovery will still hold some surprises — and there’s no one clear answer for what’s going on.

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