Kudlow: Post-pandemic worker shortage leads to supply scarcities

‘Kudlow’ host discusses the supply chain crisis and September jobs report

What's wrong with work? that's a big question these days. There's a lot more unfilled job openings than there are people unemployed.

In fact, in today's JOLTS release from the Labor Department, job openings did decline by 666,000. Which I suppose is good. but still remain historically very high 10.4 million.

Pending on how you count them, I would say there's a minimum of 6 million unemployed people compared to pre-pandemic levels.

In today's JOLTS report, the quits rate hit a record high in August. So, folks, they're still confident they can get a better job someplace else. It's actually a sign of labor market strength and tightness. 

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As we read and hear constantly in the media, there are post-pandemic supply shortages everywhere and apparently not enough people going to work to solve that problem.

Long Beach and Los Angeles, the nation's biggest ports apparently have enormous container ship backlogs. Which is a big source of all the shortages. People tell me there aren't enough longshoreman to unload or they only work until 3 pm instead of 24/7. I have no idea if that's true. It's what I hear.  Because I can't figure out what's so hard about unloading a bunch of boxes off a ship that would fix all this stuff.

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But I also hear there aren't enough truck drivers to cart the stuff away if it is unloaded. I don't know if that's true either. it's just what I hear. But these jobs all pay in the low six figures. They're very attractive.

So I don't know why there's a worker shortage. But it does create supply scarcities which in turn drive up prices. I call it pandemic inflation. which is temporary. But I have no idea what temporary means anymore. As a parenthetical, I am growing more worried about fed-driven monetary inflation. Because they keep buying up bonds and creating excess money, maybe to finance all the government spending and borrowing. But whatever their motive, the danger here is that they're also underwriting these supply shock shortages. And could easily turn temporary inflation into permanently higher and higher inflation.

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Anyway, work is a virtue. The dignity of work is central to our whole social fabric. Folks who work hard, climb the latter of opportunity. Folks that live off government welfare entitlements have no opportunity. It's a dead end.  I would say work is a godly virtue. It's how we serve our friends, our families, our employers and our country.

Something else I don't understand is why people aren't responding better to the rise in real wages. Now I know inflation has jumped but actually from the latest employment report average hourly earnings (in other words wages) added to aggregate hours worked is up an incredible 11.6% annually over the past 3 months. A huge number! People are getting paid a lot and they're putting in plenty of hours.

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Now the CPI for the 3 months to August was 5.3% annually. That's not good. But it's 6.3% less than the wage income proxy.

So that's a big increase in real wages. Markets should work and people should go back to work to take advantage of better real compensation. 

Now, everybody thought the September jobs report from last Friday was a disaster. But as I argued, it wasn't. Wages up. Private sector jobs up over 400,000.

Household survey showed a huge 526,000 jobs increase.

Unemployment actually fell by about 730,000. Indeed the unemployment rate dropped to 4.8%. Which really is a good low number. So some good things are happening. Although post-Trump tax cuts, it came down to 3.5%.

The big miss in the September report had to do with erratic school reopenings. Not the fundamentally important private sector. It's also important to recognize that in the last couple weeks as the plus-up in federal unemployment benefits expired in 26 states 7 million people fell off continuing pandemic unemployment claims. 7 million!

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I think most of them are going to go back to work at some point in the near-term future. Or at least I hope they do. I’d love to talk to them individually to persuade them of the dignity and importance of work.

Now I’ve thrown a lot of numbers at ya, but it's a tough subject and deserves some empirical work. The late Ed Lazear, perhaps America’s finest labor economist and a mentor of mine always taught that the employment to population ratio was the best measure of the health of the labor market. Well, it still looks soft.

Before the pandemic, the ratio was 61.1%. today it's 58.7%.

Same for the prime age employment ratio. 80.4% pre-pandemic 78.0% today.

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So, we've got work to do. And I do think overly generous benefits until they ran out earlier this month was a problem for worker participation. Conrad DeQuadros, Wall Street economist tells me the latest fed consumer finance survey shows that lower income people have a $400 billion in total of excess savings. Because of the pandemic-related benefits and other factors. So perhaps that gives that group a cushion. Maybe they'll be a little slower to take a job and stay home a little longer. But I hope not.

Now if the Biden administration succeeds in layering on $4-5 trillion in additional entitlements and welfare, without any workfare, or education requirements, then this big government European-style socialism will in fact provide incentives not to work. This would do great damage to the workforce, to their families, and to the whole economy.

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Add to that massive tax penalties on successful earners and businesses. And you have a nasty witches brew that will undermine our free enterprise economy and thereby weakening us at home and abroad.

That's why I say save America. Kill the bill. But I also say, let’s put America back to work. That's my riff.

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