Unemployment Benefits Aren’t To Blame For The “Labor Shortage”


It’s not the strong who survive, its those who are most adaptable to change.  There is a ton of ink being printed on “the labor shortage”.  A common thread is that the $300 per week in extra unemployment benefits is causing businesses to be unable to staff people, but I am confident that other macroeconomic factors are afoot and the extra unemployment benefit is the least of the problems.  For this article I will focus on my home state of Michigan.



Examining Unemployment Benefits:

In Michigan, during May of 2021 the unemployment rate stood at 5% with 235,000 claiming unemployment benefits out of a total civilian workforce of 4,710,000 people. This is way down from 8.2% in December of 2020 and 23.6% in April of 2020.  The normal base unemployment rate from Jan 2017 through March 2020 when our economy was amazing and without extra unemployment benefits was 4%.  This means only 1% of the unemployment rate is above normal and can be attributed to pandemic conditions and the $300 extra per week.  This 1% amounts to just 47,000 people…out of a state population of 10 million people.  

Now let’s examine Michigan’s unemployment benefits.  I’ve written in detail about it here.   To determine the monthly benefit amount the state of Michigan looks at the highest quarter of earnings and multiplies it by 4.1%. In order to receive the maximum unemployment benefit in Michigan of $362 per week an employee would need earnings of $8,882 in their highest quarter, a rate of at least $35,448, equivalent to a wage of $17.72 an hour. Currently the $300 extra would put this persons weekly benefit at $662, which is 93% of this individuals replacement pay.  By the way, another individual who got laid off from a $100,000 a year job would receive the same benefit and would only be receiving 33% of his replacement income.

The majority of jobs that are not finding employees are not looking to pay someone $17.72 an hour.  Most of these jobs want to pay $10 an hour.  If I start a business and predicate its success on finding 10 people in a small local market who are willing to give me 100% open availability and work for $2 an hour, the odds of me finding those employees are next to nothing.  It isn’t an unwillingness of people to work, its a mismatch of supply and demand.  If I want a brand new Tesla Model 3, and I offer $10,000 for it, I can guarantee there is a zero percent chance I will get one, the supply of those vehicles available at that price is zero. The labor market works the same way.

Even if the cash people are receiving on unemployment is equal to or close to or even above their normal pay, most people receive larger long term benefits from returning to work, which is why when most people find a suitable job they do so.  You can’t qualify to contribute to an IRA without earned income.  You can’t qualify for the Earned Income credit without income.  You can’t qualify for future unemployment benefits without earned income.

The $362 per week max, which is just under what minimum wage is in Michigan, has not increased in 20 years, despite significant inflation during that time period.  Bottom line: While the $300 extra unemployment benefit may indeed entice some people to not seek a job right now, the number of people in that situation in Michigan is absolutely unequivocally under 47,000 people.


Our Labor Market Has Been Insane For The Last 14 Years:

The biggest problem has been the perversion of the labor market since the 2007 recession.  Prior to 2007 entry level jobs were typically actually entry level.  They employed teenagers.  Teenagers under 18 and often teenagers under 16.  The great recession greatly reduced this practice.  Not only were restaurants and other entry level jobs hiring primarily adults, but they also required 100% open availability, while only giving out limited hours.  This was exacerbated by the Affordable Care Act, which required employers to provide health insurance for workers if they worked over 30 hours a week.  These employers by and large cut the hours of all their workers from around 40 hours a week to 30 hours a week.  I experienced it personally, so did my wife, and so did most of the people I know.

Why did people stand for it? because of the recession.  Because we had a lingering economic disaster that occurred directly after our country had spent decades shipping millions of low to middle skill jobs overseas. Baby Boomers hadn’t started to retire yet and there was a glut of labor available and not enough jobs for those people. This put substantial downward pressure on wages, benefits, and working conditions.

Demographic Changes:

We have an aging population. Baby boomers are retiring and Gen X and Millennials arent’s as big of a generation.  They also have not had the same reproductive prowess as the Baby boomers.  These generations earned less, had women more likely to participate in the workforce, and delay, reduce, or eliminate child birth.  The workforce is being reduced by these constraints.  As a good example, my wife and I are older millennials.  Our oldest is 18 and in the job market.  She had him young and unplanned. When we got together it would have made sense to have tighter grouping in ages for our kids but we absolutely could not afford to have a child in 2006/2007 while we were working these minimum wage jobs.  We delayed having a child for multiple years.  Our 2nd child is turning 13 this summer, whereas if we had a stronger economic environment back in 2006 he would be 15 and able to enter the work force. The great recession absolutely delayed reproduction choices, and several factors are leading to both a national and a worldwide decline in children per woman, but that’s another article.

The Pandemic:

When the pandemic hit many baby boomers realized they could take the leap and retire.  A lot of older people left the workforce and I’m willing to bet that number is well in excess of 47,000 in Michigan.  These employees had to adapt to working from home, many faced unemployment for the first time in their careers, and after examining their finances decided to not return to work.

The pandemic had far reaching effects that will take years to fully grasp.  Some things remain certain:

  • The state governments can eliminate your job or business with a pen stroke.
  • Your employers will absolutely lay you off if their budget needs it.
  • Having multiple streams of income is a necessity.

During the pandemic people started their own businesses. It had to happen in order to survive. More people chose small scale entrepreneurship.  By the time the employers chose to rehire or the government dictators chose to allow people to go back to work, these former employees adapted to change, became more resilient, and no longer need to work for 10 bucks an hour with open availability for 20 hours a week. Starting a small business is infinitely easier with todays internet than it was when the last recession hit in 2007.  Amazon FBA, Shopify, Etsy, Fiverr, eBay, Youtube, and even Onlyfans have provided massive outlets for people to start their own businesses from home.

When the pandemic hit we briefly entertained the idea of Mrs. C. returning to a W2 job, of course in March of 2021 everyone was laying off (including my employer).   Instead, Mrs. C. and I created a business she could run from home and that she could employ all our kids in (now all 4 of our kids are in the workforce officially).  Mrs. C. is 38 and will never be a W2 employee again.


Employers of course have to compete with each other.  My oldest son turned 18 this summer and has 1 year of high school left.  He started applying for jobs once school let out.  A local restaurant chain interviewed him and hired him for $10 an hour.  This is 55 cents above minimum wage in Michigan.  They hired him on a Saturday and told him to come in to work for training on Wednesday. On Wednesday they had him fill out paperwork, unpaid, and they had him leave after a half hour.  They then had him start work on the following Saturday.  This to me seemed like a long time in between hiring and starting to work. I also thought training on the busiest day of the week was unwise.

Anyways he worked Sat – Tues, was given Wed – Fri off and scheduled for the following week the same way, with <25 hours per week. Meanwhile this restaurant is actively trying to hire more people and has multiple job postings listed.  Not allowing their employees to work over 30 hours a week is why they have a problem. Paying $10 an hour is why they have a problem. He would willingly work 40 hours a week, or more, but they would only schedule him for <25 hours.  During 2 of his 4 shifts they told him as he was supposed to leave that they needed him to stay an hour later, no advanced notice.

He continued putting in applications and a large national retail store not only replied to his application, they hired him virtually, immediately, for $14.50 an hour with full time hours and benefits.  Rather than earning around $230 a week he will be earning $580 a week.

Now tell me why this restaurant should be in business? They are not adapting to change, they are not competing.  They are not even in the same ballpark.

So What Fixes Do I Recommend?

Employers must pay competitive wages: Wages have to increase to be competitive. Will prices need to increase? Potentially;  or waste needs to be eliminated and better systems set up to more effectively apply the labor that is being paid. I’ll give my former employer as an example. When I worked at KFC there were 3 pieces of equipment that would have greatly increased efficiency of the employees.  The drive through speaker was a fixed item, meaning the person working drive through was held hostage and couldn’t move.  Virtually every other fast food company had wireless headsets so that the order taker could pack orders while talking. We also didn’t accept credit cards.  Cash transactions slow down the speed of transactions. The third problem was the menu.  The menu was complicated and had far to many items.  A combo was the chicken with a side and a drink, while a meal was the chicken with 2 sides and no drink.  There were also probably north of 50 total menu items or combinations.  This caused customer confusion and greatly increased the time for orders.

Offer flexible scheduling: The time for a low hourly wage job to be able to dictate 100% of employees schedule is gone.  Employers must become well versed at scheduling employees flexibly. We can get on Uber, Lyfft, Doordash, Grubhub, and Shipt and work whenever its convenient.  These restaurants have to work with people and be flexible.

Employers must hire teenagers: In Michigan you can hire teenagers at 14, with some restrictions: They can’t work between 9pm and 7 am, can not work over 6 days in a week, longer than 8 hours per day on average, or more than 48 hours combined between work and school.  They must have a 30 minute break after 5 hours of work. In the summer 14 year olds can work up to 48 hours a week across 6 days and can work 13 hours week during a typical school week of five 7 hour days.

In Michigan there are 747,000 10-14 year olds and 719,000 15 to 19 year olds. dividing the 1,466,000 people across 10 years gets us 146,600 people in each age group.  That’s 146,000 14 year olds, 146,000 15 year olds, 146,000 16 year olds, and 146,000 17 year olds.  That’s almost 600,000 potential employees, 12 times the number of extra people on unemployment.  Extraordinarily few 14 and 15 year olds hold jobs.  I would advertise specifically to this age group, focusing on:

  • providing training
  • flexible scheduling to work around transportation issues, school, and sports
  • Teaching Kids (and their parents) how to open a Roth IRA and how much money they will have. Earn $6,000 this summer, invest it in a Roth IRA and by 67 that $6,000 will have grown to over $1 million!  And that they can also use their Roth IRA for a home down payment in the future.


Employers must cater to retirees:  Many baby boomers saved nothing and are living off of Social Security. They need to actively recruit these folks and tailor positions for them that are easier on their bodies. They need to specifically advertise these positions.  Drop the generic “lift 50 pounds” and replace with 20 pounds, provided other employees can do the heavy lifting.

Employers must innovate: If your business model won’t allow you to pay a higher wage and you are unable or unwilling to recruit 14 year olds and 70 year olds, then you must innovate solutions that require fewer people.

Train people: Look through the job postings on indeed.com. They are filled with employers looking for people who are already trained.  I found several jobs requiring forklift experience.  For the record it takes well under a shift to learn how to drive a forklift.  Even at the most anal retentive safety conscious nuclear power plant on Earth, I was qualified to drive an articulated fork truck in under a week. with less than 2 hours a day focused on the fork truck (and only about an hour was actual drive time).

Offer benefits: Many of these employers don’t offer substantial benefits, or at least don’t advertise that they do.  Offering a Roth 401K with 5% matching to a 14 year old is an amazing deal.  But many of these jobs don’t offer a 401K and those who do don’t offer them to those under 18 or even under 21.

Compete: If there are 4.5 million people employed in your state, and you think because 45,000 people are receiving more unemployment benefits than normal that they are the problem, then you suck at math and competition.  It isn’t the 1% on unemployment why you can’t succeed, it’s because you can’t attract the 99% of other employees that work for your competitors.  Recruit your competitors employees aggressively.

Adjust arbitrary child labor laws: Our child labor laws are laughable. The governing law of Michigan child labor was written in 1978, but verbiage sounds as if it was copy and pasted from a hundred years prior.  “The minimum age for employment of minors is 14 years, except that a minor 11 years of age or older may be employed as a golf caddy, bridge “caddy” or sports referee and a minor 13 years of age or older may be employed in certain agricultural service operations or as a trap setter. The department may approve exceptions for minors employed by performing arts organizations. ” 

How weirdly specific is it that a 13 year old can be a trap setter?  Also, setting traps for the fur trade is way more dangerous than 99% of todays entry level jobs; perhaps there is a different definition of a trap setter? Anyways, these laws were written when children were swinging hammers in coal mines, dodging rotating machinery in looms, working in agricultural fields, and hand stitching in sweatshops.  The nature of work has vastly changed. I think the age limit should either be repealed or dropped down to a realistic age, like 7.  My 9 year old is an insanely good worker.  He pays attention to directions, does everything he’s asked and more, watches for hazards, and has a good attitude while he does it. If I could hire him to work at the nuclear plant with me I would do it in a heartbeat.  We have a major economic engine that we don’t tap, and that’s child labor.  We could absolutely have 12 year olds waiting tables and cooking fries.

10 – 16 year olds are the perfect employees for these jobs.  In our culture this age group is rarely expected to contribute to household bills, so they don’t need the money and will be willing to work for the minimum wage jobs over their intermittent parental allowances.  They can also save 100% of their income because they have no expenses, unlike the situation they will be in in their late teens and twenties; and the contributions to retirement accounts have a ton of time to compound.

If we can arbitrarily change the laws for unemployment compensation, what businesses can be open or closed, who has to wear a mask and when, then we absolutely can change our outdated child labor laws.

Change Social Security laws: While we are at it, let’s stop penalizing Social Security recipients for working.  This is batshit crazy. If you claim Social Security benefits early, like most people do, then every dollar you earn over $18,960 reduces your Social Security benefit by 50 cents. This goes back to the true original design of Social Security: to get older people out of the workforce.  Now with an aging population we want to go the opposite way. Eliminate this economic deadweight loss.

What do you think of the current “labor shortage”? Do you think we need to change child labor laws? Would you be OK with your 14 year old, or your 10 year old working at a restaurant?

John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. John is the author of the book For My Children's Children: A Practical Guide For Building Generational Wealth.

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