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The revenge of the underpaid

The coronavirus pandemic has hurt lower-income workers the most. Americans earning $60,000 or more have slightly higher incomes than they did before the pandemic, almost as if there were no downturn at all. But for those earning less than $27,000, incomes have fallen 28%.

Workers on the lower rungs, however, finally seem to be getting the upper hand, at least for a while. With businesses reopening, many can’t find enough workers to get back to full capacity. The latest government data shows 8% of all job openings are unfilled, the highest level on record in data that goes back 21 years. The highest vacancy rates are in leisure and hospitality, the industry with the lowest pay. Business owners seem to have assumed workers would come streaming back to low-paying jobs the moment they were needed. They haven’t.

Beware anybody proffering a simple narrative to explain this apparent labor shortage. Republicans opposed to the huge rescue package Democrats passed in March argue that overgenerous unemployment benefits are keeping people from looking for work. Republican governors in at least 19 states are turning down supplemental federal jobless aid hoping it will help fill open jobs. President Joe Biden acknowledged this possibility recently, reminding the public that unemployed people getting benefits have to take a “suitable” job, if offered.

There’s certainly some validity to the notion that a government check is better than a paycheck if it’s more money. Even if that’s happening, however, government benefits are giving lower-paid workers leverage they didn’t have before. Millions of workers now have temporary options other than working for subsistence pay in jobs with few benefits (or none) on schedules that might be hostile to family needs or mental health. Business owners may feel workers should return for whatever pay they can get. For the time being, many have other choices.

There’s little data showing why people look for work, or don’t, but anecdotal reporting suggests many people want better work, rather than no work at all. “Nobody’s going to get rich off unemployment,” says Hilton Rachal, 36, of Oakland, Calif., who collected jobless aid for a couple months last year after leaving a job packaging COVID-19 tests when a co-worker contracted the virus. He then went to work for DoorDash (DASH), where a surge in deliveries allows him to earn $25 an hour or more. “Knowing there’s this closing door, I don’t see how unemployment could dissuade you from looking at a job. The only thing that dissuades you is if pay isn’t enough to make it worth dealing with management or your co-workers. Then, forget about it.” Rachal recently found a restaurant offering $20 an hour for cooking pizzas, which he's considering, in addition to the DoorDash gig.

In this Monday, July 1, 2019 photo, a help wanted sign appears on a bus stop in front of a McDonald's restaurant in Miami. On Tuesday, July 9, the Labor Department reports on job openings and labor turnover for April. (AP Photo/Wilfredo Lee)
In this Monday, July 1, 2019 photo, a help wanted sign appears on a bus stop in front of a McDonald's restaurant in Miami. On Tuesday, July 9, the Labor Department reports on job openings and labor turnover for April. (AP Photo/Wilfredo Lee)

Democrats favor a raft of reforms that would require higher pay and better conditions at the bottom of the income chain. Biden and many Democrats want to raise the federal minimum wage from $7.25 an hour, where it’s been stuck since 2009, to $15. Biden’s proposed families and jobs plans would provide 12 weeks of paid annual leave for health or family reasons and create incentives to create the kinds of good-paying manufacturing jobs that have been disappearing for 40 years. Progressives such as senators Bernie Sanders and Elizabeth Warren would go further, with free health care and an even wider safety net than Biden is pushing for.

These are politically difficult goals that have essentially no Republican support and not even uniform Democratic backing. Some Democrats think a $15 minimum wage is too high, for instance, and the votes might not even be there to raise it to $12 or $13.

But Democrats may have nonetheless enacted a stealthy, de facto hike in the minimum wage, at least this year. If people are, in fact, choosing jobless benefits over a paycheck, then employers will have to raise wages until work is a better alternative. This is happening, starting with big companies. Bank of America (BAC) plans to boost its minimum wage from $20 to $25 within four years. McDonald’s (MCD), Amazon (AMZN), Costco (COST), Under Armour (UA) and other businesses that need workers are raising their minimums as well, in many cases above the $15 Biden wants. If lavish jobless benefits are part of the reason, then Democrats have partly achieved their goal of boosting pay, in a roundabout way.

[Read more: From Amazon to McDonald's, here's who's hiking wages amid the labor crunch]

Federal jobless benefits expire in early September, and sooner than that in states that are ending participation early. For some unemployed folks, it’s a race against time. Valerie Scott of Indianapolis lost her job as a correctional officer last year and has applied for dozens of jobs since then, with no luck. She got state and federal jobless aid, but those benefits will end completely on June 19, when Indiana’s Republican Gov., Eric Holcomb, says state residents will no longer qualify for $300 per week in federal aid.

Scott, who’s 62, with a disabled son, has a bachelor’s degree in criminal justice and is aiming for a job that pays at least $15 per hour, which is what she earned before. The governor says jobs are plentiful in Indiana, but Scott can’t find one that would cover her bills. “I see some at $12, some at $13,” she says. “I don’t want to do it, but I may have to take a $12. Seven dollars and twenty-five cents, that’s not gonna help me.”

After passing several large stimulus bills totaling $6 trillion, Congress may not extend federal jobless aid any further or send out any more stimulus checks. State jobless aid expires, too, after 26 weeks in most states. If Republicans are right, the worker shortage should ease and the unemployment rate should fall, perhaps sharply, as the end of federal benefits approaches in early September.

But that won’t necessarily make workers rejoining the labor force better off. Pernicious trends have been forcing pay down in occupations that can be automated or outsourced overseas or that don’t require technical skills in short supply. That’s a 30-year trend unlikely to change because of temporary government programs lasting a few months. Biden is aiming for more permanent improvements, but it’s not clear he’s got the right formula, or the rest of Washington will go along. Workers will return. Prosperity may remain elusive.

Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.

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