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Why Higher Labor Costs Are Bad News for Consumers

June 4, 2021 By Debbie Young

Typical american now hiring sign in black letters over the white background with local small business building

By BublikHaus @ Shutterstock.com

What’s in a name? Call it what you will, it still smells like inflation.

The good news for workers? They are being paid more to join the U.S. labor force.

The not-so-good news? Higher labor costs will come out of workers’ elevated paychecks.

What will it take to persuade potential workers to join the U.S. labor force? America’s small businesses have never had such a hard time trying to attract new employees, James Freeman reminds WSJ readers.

According to the May employment survey (out later today) from economist William Dunkelberg, chief economist at the National Federation of Independent Business:

“Strong job growth eased in May as small businesses struggled to find workers to fill open positions,”

From Mr. Dunkelberg:

  • Unfilled job openings “increased from 44% to 48%, seasonally adjusted.
  • May is the 4th consecutive month setting a record high reading for unfilled job openings.
  • May’s reading is 26 points higher than the 48-year historical average of 22%.
  • Labor shortage is particularly acute in industries like construction, where 66% of surveyed firms reported few or no qualified applicants, an increase of 6 percentage points from the April survey.

The increase in unfilled openings was accompanied by a 2-point increase in the percent that reported hiring or trying to hire in May, 61 percent. Owners have plans to fill open positions, with a seasonally adjusted net 27 percent planning to create new jobs in the next three months… up 6 points from April.

Seasonally adjusted, a net 34 percent reported raising compensation (up 3 points), the highest level in the past 12 months. Raising compensation is about the only way owners have to remedy the labor shortage problem. A net 22 percent plan to raise compensation in the next three months, up 2 points.

Read more about the worker shortage here.

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Debbie Young
Debbie, editor-in-chief of Richardcyoung.com, has been associate editor of Dick Young’s investment strategy reports for over three decades. When not in Key West, Debbie spends her free time researching and writing in and about Paris and Burgundy, France, cooking on her AGA Cooker, driving her Porsche Boxter S through Vermont and Maine, and practicing yoga.
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