The labor supply shock

Source: EconLog
by Scott Sumner

Over the past year, the US has been hit by a pretty severe labor supply shock. Employment is sharply depressed, but wages are rising fast and companies are having trouble finding workers. At this point the question is not whether a labor supply shock exists, rather the issue is what is causing labor supply to be so depressed. I’ve seen at least three theories: 1. A supplemental unemployment insurance program that pays lower wage workers more than they earned on their previous jobs. 2. Lack of childcare, partly due to school closures. 3. Fear of the health risk associated with working. In order to evaluate those theories, let’s look at some employment data.” (06/04/21)