The Problem with a Low Unemployment Rate

As the economy continues to improve over time, the unemployment rate has dropped to 4.1%, a 17 year low. More people working is clearly a good thing. So what's the problem?

Low unemployment appears to have led to a labor crunch -- not enough qualified workers to meet the demands of business. As a recent article in Barron's notes: "Across the nation, in industries as varied as trucking, construction, retailing, fast food, oil drilling, technology, and manufacturing, it's becoming increasingly difficult to find good help." In the next 10 years, the U.S. "faces a shortage of 8.2 million workers" according to one estimate.

The repercussions are varied. A labor shortage can impede our continued economic growth. The lack of qualified workers in such areas as energy, for example, can cause production delays. In the housing industry, builders are stymied because they can't find enough laborers to meet the demand for new homes.

As a result, companies are starting to compete for workers by raising wages, making workers happy. Higher pay may, however, lead to rising inflation, although it has yet to occur in any meaningful fashion.

Where are all the workers? Some of them are aging out -- another baby boomer is retiring every nine seconds. Moreover, labor force participation is declining "owing to factors such as disability, opioid addiction, and prison records." Efforts to reduce immigration will negatively impact the labor supply as well. Finally, some potential workers just don't have the skills employers are looking for.

Both the Wall Street Journal and The Washington Post have reported on the extraordinary efforts being made to attract new workers. The town of Branson, Missouri, a large tourist destination, has over 2,000 vacant positions. Employers in Branson are trying to lure residents of Puerto Rico to the mainland with the promise of jobs, especially since the island was devastated by Hurricane Maria. Puerto Ricans are U.S. citizens and don't need a work visa, which often can be difficult to obtain.

A shortage of workers is problematic for yet one more reason. We need more workers to pay Social Security taxes to cover our benefits when we retire. Social Security is a "pay-as-you-go" system. It's in all of our interest to have a healthy economy and sufficient employment to make sure we receive benefits.

Words of Wisdom

When more and more people are thrown out of work, unemployment results. -- Calvin Coolidge