Everyone is looking at the wrong jobs numbers

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Averages hide the real situation, but no one is talking about the real problem

Everyone is up in arms about the April jobs report. The US added 266,000 jobs during the month, but it was a fraction of what was expected and did nothing to change the unemployment rate. Certain narratives have blamed continuing recovery from COVID, or potentially child-care and chip shortages.

At the same time, we had a viral TikTok video of a McDonald’s in Texas apologizing for being short staffed because “No one wants to work anymore.” Conservatives are quite loudly implicating the cause of this (and other similar anecdotes from small businesses) are caused by supplements to unemployment benefits and other pandemic aid discouraging work.

So which is it? Are workers prevented from returning to the workforce? Or is it that they’re taking advantage of unemployment benefits?

Well, probably both. And a factor that has plagued the labor market for years that hasn’t really been talked about outside of industry.

It’s both, but that’s not particularly interesting

School reopenings have been a well-covered battleground in American politics. Although it’s been difficult to quantify, there are clearly impacts on parents returning to work (which has been best studied in healthcare). Chip shortages have very obviously impacted auto plant production. As such, while we don’t know exactly how much these factors impacted jobs, it’s fairly reasonable to expect they did.

Separately, it’s actually not that controversial that better social insurance programs increase length of time employees spend out of work. Studies looking at when these benefits were phased in have shown this relationship quite clearly (though it differs by program—but unemployment insurance had some of the strongest impacts). As such, it’s also quite reasonable that this is impacting the labor force… but it’s not necessarily a bad thing either. Workers feeling free to spend more time finding a good job match, care for children out of school (as we’ve discussed), or numerous other individual economic decisions may be overall more optimal than forcing them into work quickly.

Averages lie

It’s funny how much argument there’s been over the top-line number, but even within the BLS report itself, it had in the first paragraph:

“Notable job gains in leisure and hospitality, other services, and local government education were partially offset by employment declines in temporary help services and in couriers and messengers.”

In other words, restaurants, hotels, theme parks, and the like are coming back, along with teachers, but there are fewer temps and delivery drivers. That’s a little oversimplified, but the overall picture of people moving out of “gig economy” back into the workforce is not intuitively surprising—and is exactly what we want.

But, you might ask, don’t we need more of these couriers and messengers given we have so much more e-commerce and delivery (which we’ve discussed ourselves at Creative Ventures, and actively looked for investments in)? Well, never fear:

“Within transportation and warehousing, employment in couriers and messengers fell by 77,000 in April, but is up by 126,000 since February 2020.”

The sector actually increased still—which is what we would expect. Some of these workers who “surged” into the gig economy due to hospitality/travel closing down are now returning, but delivery employment is still higher than it was at the beginning of the pandemic.

That’s what we’d expect and is the sign of a healthy economic rebalancing.

The brick wall we’re running 

Given all of this, the short term picture is quite positive. Sure, we could be recovering faster, but the overall situation looks fairly healthy.

For now, anyway.

labor force percentage change
Labor force growth has continually slowed since the 1980s

At Creative Ventures, one of our core investment theses is actually a demographic crunch of shrinking labor forces globally. This has caused US labor shortages, but also have driven increases in even Chinese labor costs. You can see it in the chart, messy as it is (I have big arrows in it to help point that out).

Of course, this alone is fine. Sure, the supply of workers is shrinking, but maybe the world’s population is just getting smaller? The problem comes into play when anyone who has paid even the slightest attention knows that the “population getting smaller” is wrong. So where are all the workers going?

Older dependents relative to younger workers is a skyrocketing ratio

If you look at the dependency ratio chart—the ratio of older dependents to young workers—you see the answer. Although the chart is for the US, this applies to the entire world (including China, which inflicted it on itself in an even worse way with the one-child policy). We’re aging as a population. This means we still have “mouths to feed” (in reality, consumption demand) but have fewer bodies to produce.

The world has fewer workers, so even if you want to pay more for them, there’s finite amounts for industries that require a lot of bodies—say, food services.

As Clayton Wood, CEO of Picnic, a food services automation startup (robotic food prep, basically) said: it’s been an open secret in the industry that labor shortages have been a severe problem, even before the pandemic. As Clayton stated in the podcast, with automation, they’re really taking “job openings—not jobs.” There are already too few workers, so at this point, any automation really is a productivity tool and not a threat to work.

We’re ok, for now

As such, everyone should calm down. Job progress is ok. For now. We’ll have bigger problems down the line, but that’s been a reckoning that has been coming for years—which the pandemic only accelerated.

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