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Larry Lindsey

President & CEO, The Lindsey Group

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After pandemic ‘labor hoarding,’ hospitality jobs may be cut

Dec 11, 2023

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American states are breaking records for their lowest unemployment rates in history, and the American economy is booming. U.S. workers are also now “mostly happy” with their employment.

Straight Arrow News contributor Larry Lindsey cautions that part of this success is due to a phenomenon called “labor hoarding,” where companies retained as much labor and talent as possible. Lindsey contends that this hoarding process will soon unravel into a “dehoarding” process, where more and more workers will be let go.

There’s no question that COVID really messed up the U.S. labor market. A lot of people did not want to go to work. Some places managed to have part-time working at home, or sometimes even full-time working at home. But that’s for your typical office worker. For much of the economy, people had to physically show up, and workers were hard to get. So employers really needed to get warm bodies. And by the way, the best warm body to have was one who was already working for you, so you didn’t have to attract someone new.

But firms tend to lay off the bottom 5% to 10% of their workforces every year as a matter of course, just to keep the quality of their workers up. They weren’t doing this. Layoffs hit lows, since data has been collected, as a share of the working population. So we ended up doing something that was best called “labor hoarding.” They were holding in people they normally wouldn’t, just to cover any emergency that might happen.

Well, who can do this? Generally, it’s people with more casual employees. [You] can’t really hoard professional workers. You may try, and you may try it even in the skilled trades, but the typical hoarded worker was part-time, they had much more casual employment, and low-wage. Well, the classic industry where this is true, where there was lots of labor hoarding, was in the leisure and hospitality industry.

There’s no question that COVID really messed up the U.S. labor market. A lot of people did not want to go to work. Some places managed to have part-time working at home, or sometimes even full-time working at home. But that’s for your typical office worker. For much of the economy, people had to physically show up, and workers were hard to get. So employers really needed to get warm bodies. And by the way, the best warm body to have was one who was already working for you, so you didn’t have to attract someone new.

 

But firms tend to lay off the bottom 5% to 10% of their workforces every year as a matter of course, just to keep the quality of their workers up. They weren’t doing this. Layoffs hit lows, since data has been collected, as a share of the working population. So we ended up doing something that was best called “labor hoarding.” They were holding in people they normally wouldn’t, just to cover any emergency that might happen.

 

Well, who can do this? Generally, it’s people with more casual employees. [You] can’t really hoard professional workers. You may try, and you may try it even in the skilled trades, but the typical hoarded worker was part-time, they had much more casual employment, and low-wage. Well, the classic industry where this is true, where there was lots of labor hoarding, was in the leisure and hospitality industry.

 

The people who take care of your bedroom when you go to a hotel, or serve you at a restaurant, is a typical person. Their average workweek is just 25 hours. So they come in and leave the labor force fairly easily. In addition, their wages are 37% lower than the average for all workers, classic industry where labor hoarding can take place. And in fact, we saw it last year, employment surged 3.6% in the leisure and hospitality industry, versus just 1.7% for the economy as a whole. And the same was true for most of the year before that as well. If they could get workers, they did. The same thing was true in the retail industry. And in social assistance, basically, people who provide elder care and childcare, again, more casual employment, and generally lower wages. Well, that was labor hoarding. Now we be getting to look like we’re starting the de-hoarding process, job openings have gone down. And we’re probably about to see declines in the leisure and hospitality and similar industry. Because now people can be let go, without fear of not being able to hire a replacement. So de-hoarding is going to have a few effects. The first one is if you get rid of the dead wood, your average labor productivity is likely to go up. And there are some signs that this has already begun.

 

But in addition, average wages nationwide are also likely to go up. Why? Because you’re basically getting rid of the lower-wage people. And so the average goes up. If we didn’t have extra rapid growth in leisure and hospitality, and other similar industries, the average earnings in the last year wouldn’t have raw risen by 4.2%, as was reported, but by 4.9%. And that’s a big difference. So the de-hoarding process is going to be possibly higher productivity, but also higher reported wages. The question is, how long can the hoarding go on? And the answer is, well until you get rid of those hoarded workers, and that’s probably not forever, maybe a year or two. So productivity gains are may help us out in the near term, but they are not going to help us out longer term. This is just one of the many bumps in the economy caused by COVID, but it’s going to see a much more efficiently allocated class of workers in the long run although possibly fewer opportunities for those who are least skilled. This is Larry Lindsey for Straight Arrow News.

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