Why the wave of job seekers will be ‘gradual’: Economist

Julia Pollak, ZipRecruiter Labor Economist, joins Yahoo Finance to discuss the impact of states ending jobless benefits and the impact of the labor market on the U.S. recovery.

Video transcript

- Well, many states are hoping to push more people back into the labor market by canceling enhanced unemployment, while other Americans are seeing those benefits expire. So what is the impact? We're joined now by Julia Pollak ZipRecruiter's Labor Economist. So Julia, let's just start with that question that I asked there. What is the impact of some of these jobless benefits going away, whether by expiration or just by outright cancellation?

JULIA POLLAK: Right, so 25 states are going to be canceling their pandemic-related unemployment benefits early. 21 of those states are not just canceling the extra $300 weekly boost to unemployment benefits but all pandemic-related unemployment benefits. And so the majority of those recipients stand to lose all their benefits entirely. Those states are giving up about $22 billion in federal aid. And, of course, they're doing that in the hopes that people will be pushed back into the labor market. But that waits to be seen.

ALEXIS CHRISTOFOROUS: Yeah, Julia, I know that there is scarce data on this. But I know some states have already cut off those unemployment benefits, especially the extra $300. Are early indications that people are indeed being incentivized to get back out into the workforce?

JULIA POLLAK: So right now, there are about 15 million people receiving unemployment benefits. And so you wouldn't need a lot of people to be incentivized to continue receiving those benefits, to exhaust those benefits, in order to have some kind of effect. Let's say one in five people are saying, look, I have a little bit of extra time now to hold out for a better opportunity, to hold out for remote opportunities, to invest in my skills, to maybe start my own business, to explore freelancing or self-employment.

And we see self-employment at an all-time high now, or high for this decade. We see new business starts at a record high. We see the number of people getting real estate licensing credentials at a record high. So, many people are taking this time to explore other opportunities and to hold out for better working conditions. And it's not necessarily clear that's bad for the labor market. It certainly is a big challenge for employers.

That said, we keep looking at our data and trying to measure the effects of these benefits. And I have to say, so far, it's kind of too soon to tell. So in the four states that cut off extra benefits two days ago, on the 12th of June, we have seen clicks per job posting and applications per job posting edge up but ever so slightly. It really is very, very, very small an effect so far. And it really is just too soon to tell.

- So Julia, just kind of touching on some of those things that you were mentioning, because I think I've heard this call quite loudly and consistently throughout this entire pandemic, especially as folks are saying, you know, it's not fair that people on these jobless benefits are actually making more money now than they were when they were at their jobs. And the counter-call to that has been, well, frankly, employers should have been paying their employees more to begin with.

Because how sad is that, that people are able to make more money on unemployment then they can from a job? So I'm curious to know if you think that the labor market is actually going to be permanently shifted or changed going forward, especially as you're mentioning some folks are saying, I'm going to hold out until I get a job with higher pay or better benefits. I deserve more as a worker. I deserve more as an employee. Do you think that there are these permanent shifts being made to the labor market?

JULIA POLLAK: So it's clear that workers have a lot of leverage right now. We're seeing major employers make huge increases in pay, offer the kinds of perks that they've never really offered before. Of course, in marketplaces and gig work marketplaces, where wages adjust based on supply and demand, earnings are at an all-time high for Uber drivers and Lyft drivers, for example, in most cities. And those companies are offering additional incentives to drivers.

So it's clear that right now, at this very moment, workers have a lot of leverage. And employers are having to come up with all kinds of creative ways to get them to come. The issue is, will that be permanent? So these benefits for all workers across all states, these pandemic-related benefits will expire on September 6. And many people predict there will be a wave of job seekers entering the market then.

The labor market's still down more than 3 million workers. We don't expect that they will all stay out permanently. Many are likely to come back in. And the question is, will that wave of job seekers cause slack in the labor market that allows employers then to reduce those wages and benefits? That's the big question. I think that that wave of job seekers will be gradual. And it'll happen over time. It won't come all at once.

And so we may actually see the labor market remain as tight now, even after this huge crisis and all of this disruption, for the long-term, as tight as it was in 2018, 2019 at the end of a 10-year expansion. And that's really quite remarkable. And it is the result of the huge fiscal stimulus that we put into the economy this time around.

ALEXIS CHRISTOFOROUS: Julia, we've been seeing wages increasing across the board at a number of companies, including some of those lower wage jobs. Do you anticipate that companies are going to have to continue to raise those wages? And might we start seeing some more wage inflation, which we know is something the Fed talks about time and time again? They need to see that before they start to move on interest rates.

JULIA POLLAK: So we do see in the trends in all of the data series on wages that wages, especially at the bottom end, have risen quite a lot in the last few months. So wages are up 8%, more than 8% year-over-year for non-supervisory employees in leisure and hospitality, for example. That's a pretty remarkable increase. We've also seen hours increase for those workers. So their weekly earnings are going up even more.

We do know from many studies that when employers are forced to raise wages, they typically do that by passing on higher prices to customers. There was a big study looking at what happened when McDonald's raised wages. And they increased the price of your Big Mac. So yes it is possible that this could lead to inflationary pressure. That said, there are still so many people on the sidelines who could be drawn in by these higher wages and who could respond by raising productivity.

It's not clear yet that this increase in wages and in activity and in spending is beyond the capacity of the economy to deal with it. And so I think most of this inflation likely will be temporary. And the result of it will be to stimulate additional production and additional investment and people coming back into the labor market, which will sort of offset it somewhat and balance it.

So I hope that it won't be a big, long-term risk. There is just still so much slack in the labor market. You know, we're down 7 million jobs, more than 7 million jobs from where we were before the pandemic, and more than 10 million jobs from where we would have been absent the pandemic. So we still have a very long way to go to bridge that gap. And a little bit of wage inflation and even price inflation will potentially help push us there.

- All right. Julia Pollak, Labor Economist for ZipRecruiter, thanks so much.