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Fed panel: Wage increases, more flexibility are the answers to hiring woes

The pandemic and recovery are part of the issue, but the conditions generating the lack of workers existed long before the first COVID-19 infections in the U.S., said Joe Hobot, president and CEO of the American Indian OIC.

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The Federal Reserve Bank of Minneapolis.
Contributed / Federal Reserve Bank of Minneapolis
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MINNEAPOLIS — Worker expectations of higher wages, better employee benefits and job flexibility could explain the hiring struggles firms are facing as the economy continues to recover from the pandemic, a recent analysis by the Federal Reserve Bank of Minneapolis suggests.

At a regional economic conditions conference this month, a panel of four employment specialists from across the Minneapolis Fed’s six-state footprint agreed: Wages being too low was among the biggest factors keeping potential employees out of the workforce. Many service industry jobs aren’t paying enough to entice workers who will often have to contend with inconsistent or unreliable hours and few or no benefits, panelists said.

Employers across all sectors have struggled to fill positions since the economy started to recover from the initial shock of the pandemic. Since bottoming out under 5 million in spring 2020, the number of job openings in the U.S. labor market had grown to nearly 11 million near the end of last year. Minnesota’s labor force participation rate remains at 67.7%, about 2.5% below where it was in the months before the pandemic.

The pandemic and recovery are part of the issue, but the conditions generating current hiring woes existed long before the first COVID-19 infections in the U.S., said Joe Hobot, president and CEO of the American Indian OIC, a Minneapolis organization that helps Native Americans find employment.

“This is going to be the new normal, probably extending for five years or longer,” Hobot told the panel. “We don’t really believe this to be an anomaly brought on by the pandemic but really an acceleration of trends we saw coming for a while.”

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The No. 1 thing any employer can do to attract workers is increase wages, he said.

“The debate over $15 an hour minimum wage is quaint and I think we need to see a dramatic increase in these wages particularly at entry-level and preliminary level places of employment,” Hobot told the panel.

Brianne Farr, market manager for the Upper Peninsula of Michigan for ManpowerGroup, a global staffing and recruiting company based in Milwaukee agreed: Lower-level jobs where wages have not yet grown to match inflation are harder to fill.

“The few individuals that are looking for work — the few, and the few quality ones, they want the highest pay rate they can get, and I don’t blame them,” she said.

In the summer of 2021, as millions of American workers started seeking new jobs in what some called "the Great Resignation," the Fed and local labor groups surveyed low-wage service and hospitality workers in the Twin Cities area who were seeking new employment. Of that group 58% sought higher wages, 47% wanted better benefits and 43% wanted more flexibility.

Lack of flexibility at jobs also works against parents seeking to enter or reenter the workforce. Staff at the Minnesota Employment Services Coalition told Fed surveyors the biggest perceived obstacle faced by job seekers was the affordability of day care, followed by housing. More than 70% said day care affordability was a significant challenge, with more than 50% saying it was extreme. More than half of the staff at the coalition described low pay as a significant concern for job seekers.

While concerns about COVID-19 did not rank high in the survey, Farr said many of the clients she works with say it is a common reason for people continuing to avoid the workplace.

“Even if you’re vaccinated people are still afraid to go to work,” she said. “Maybe they have an unvaccinated child at home, maybe they’re immunocompromised themselves.”

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Wade Luneberg, with Unite Here Local 17, a union representing about 8,000 Minnesota hospitality workers, said the pandemic still has many service employees skittish.

“COVID in a customer-facing industry is really tough — not knowing what the status of that customer might be or the person working next to them,” he said. “Shutdowns also pose a threat to the reliability of hospitality, retail and service work. The other extreme is overscheduling due to labor shortages.”

Reliable return to child care is also going to be key to getting people back into jobs, said Luneberg, who added that school closures due to COVID have made child care more of a challenge for workers.

What are workers relying on income-wise as they keep out of the labor market? While some blamed lower workforce participation on the end of expanded unemployment benefits, the end of those measures do not appear to have affected the types of income workers rely on, according to fed analysis of US. Census Household Pulse Survey data.

“While there was indeed a considerable use of those benefits, particularly in the first half of 2020, it has generally trended downward and many households relied on a mix of other sources of income,” explained Erick Garcia Luna, a regional outreach director at the Minneapolis Fed.

Many households have supplemented their incomes by dipping into savings, selling belongings, using credit cards and loans, and borrowing from friends and family, according to the data.

The Fed and local labor group low-wage service and hospitality workers survey found more than 80% continued to rely on regular income from work to meet spending needs since the pandemic began. While self-reported reliance on unemployment did increase, there was also a jump in the level of reliance on credit, savings and borrowing from friends.

“They showcase the complexity of worker’s finances and provide some insight into why the termination of pandemic benefits may not have had the effect many were hoping for,” Garcia Luna said.

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The Federal Reserve Bank of Minneapolis monitors economic conditions across Minnesota, the Dakotas, Montana, northern Wisconsin, and the Upper Peninsula of Michigan and is tasked by Congress with encouraging conditions that maximize employment and keep prices stable.

Alex Derosier covers Minnesota breaking news and state government for Forum News Service.
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