3 signs the labor shortage could end soon – and one major sign that it won’t, according to UBS

Popeyes sign now hiring
The labor shortage is hitting fast food restaurants.

  • UBS Evidence Lab economists said job openings and retirement peaks may signify an end to the labor shortage.
  • Job gains in leisure and hospitality are also promising signs that people are getting back to work.
  • But bottlenecks, which slow economic growth, could prolong the labor shortage, they said.
  • See more stories on Insider’s business page.

The labor shortage is tough on the economic recovery. Consumers are spending and employers want to hire, but jobs can’t get filled fast enough right now.

There’s several signs that suggest the labor shortage will end soon, according to a Thursday note by the UBS Evidence Lab. But there’s one big reason it might not.

UBS’s Andrew Dubinsky, Pablo Villanueva, and Samuel Coffin wrote in a Thursday note that the labor shortage might be ending soon, given the increase in job openings and decline in retirement rates, among other things.

According to UBS, here are the three signs that the labor shortage could be ending:

Job openings keep rising

The indicator that makes “the best case for continued strong job gains is job openings which have continued to increase through the end of May,” the economists wrote.

They also note a drop in quit rates, which could suggest stable hiring rates accompanied by the job gains in May and June. The latter month added 850,000 payrolls, in the clearest sign that the shortage may be easing.

Opening rates continued to climb while hiring was stable
UBS: Opening rates continued to climb while hiring was stable.

Insider previously reported that a factor behind the job openings could be workers holding out for higher wages, and given that a number of companies are beginning to increase wages to get people back to work, more jobs will likely be filled as a result.

Retirements may have peaked

UBS found that retirements may have peaked for those aged 70 and older, which could help explain why participation rates are low.

Labor force participation rates compared with retirement
UBS: Labor force participation rates compared with retirement.

Other factors, like fear of contracting the virus and disruptions to childcare, are temporarily limiting the return to the workforce, the economists wrote, but they are expected to improve in the coming months.

Service jobs added to the high level of job openings

The leisure and hospitality sector made up 40% of the total job gains in June, adding 343,000 payrolls, showing a promising sign for job growth in the service industry.

Depressed services contributed to job gain in May
UBS: Depressed services contributed to job gains in May.

Pay in the sector also jumped 3.6% over the past three months, and the correlation between increased jobs and increased wages is suggesting that higher wages work. For the month of June, wages shot up 7.1% from a year ago, the biggest gain for any sector.

But these promising signs for the end to the labor shortage could be jeopardized by one thing: bottlenecks.

Bottlenecks occur when an industry has to slow its growth because it cannot keep up with demand, and the economists wrote that if bottlenecks don’t fade, the labor shortage will likely persist. Job fillings remain slow from the bottleneck caused by the pandemic recession, but the drop in quit rates, along with wage gains, suggest bottlenecks might be fading, UBS said.

“If bottlenecks fade, openings and listings gains imply job growth trends should remain strong,” it said.

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Leisure and hospitality workers got a ton of jobs in June – and they got a raise

Restaurant server US
  • Leisure and hospitality added 343,000 payrolls in June, making up 40% of total job gains.
  • The June jobs report also showed higher wages for those workers, suggesting pay increases are helping hiring.
  • But wages in the sector are still recovering from the hit caused by the coronavirus recession.
  • See more stories on Insider’s business page.

The June jobs report added 850,000 payrolls, going beyond expectations as the economy continues to recover from the pandemic. A large chunk of the big jobs gain came from leisure and hospitality, and the reason for this likely comes down to higher wages.

Of the 850,000 payrolls added, leisure and hospitality made up 343,000 of them, or 40% of the total gain. Pay in the sector jumped 3.6% over the past three months, and the correlation between increased jobs and increased wages is suggesting that higher wages work. For the month of June, wages shot up 7.1% from a year ago, the biggest gain for any sector.

“The continued progress for the leisure and hospitality sector is excellent news. Continued payroll gains for these industries hit so hard by the pandemic is a sign that more workers can quickly return to work,” Nick Bunker, economic research director for jobs site Indeed, wrote in a statement. He added that 23% of gains added overall last month were from food services and drinking places.

Despite the fifth consecutive month of gains in the industry, leisure and hospitality is still 2.2 million jobs, or 12.9%, below pre-pandemic employment. However, Bunker told Insider that given the progress made in the industry, it looks like the pace of recovery is pretty quick.

Following the April jobs report that fell significantly below expectations, Insider reported that one of the possible reasons workers weren’t rushing back to work, despite a high number of job openings, was that they were holding out for higher wages.

Around the same time, major companies including Costco and Target have raised their minimum wages to at least $15 an hour, putting pressure on other employers to follow suit.

But, as Heidi Shierholz, a former Obama administration economist and now director of Policy at the Economic Policy Institute, pointed out on Twitter, wages for workers in leisure and hospitality “plummeted” last year during the recession, so even with the strong wage growth in those sectors this year, wages are not that much higher than if the pandemic had never happened.

“Over the last three months, leisure & hospitality has added 977,000 jobs-well over half of the 1.7 million total jobs added over that period,” Shierholz wrote. She added that these numbers “are just not signaling a big labor shortage.”

In an attempt to remedy the labor shortage, GOP-led states have been ending unemployment benefits early under the argument the benefits are disincentivizing the return to work. But June’s jobs data were collected before some of the cuts went into effect, meaning benefits might not have been the problem, rather, low wages were.

Betsey Stevenson, another former economist for the Obama administration, wrote on Twitter that the solution to finding workers is simply offering a higher wage.

“So it turns out that you can find workers, you just have to pay a better wage than in the past because wages of low-wage workers are going up.”

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Expiring unemployment benefits will boost job growth by over 150,000 in July and over 400,000 in September, Goldman says

A "now hiring" sign hangs in front of a Popeyes location
Businesses across the leisure and hospitality industry are trying to staff up as the economy reopens, but they’re having a hard time getting people to come work for them.

  • 25 GOP-led states are ending $300 weekly unemployment benefits early to get people back to work.
  • Goldman Sachs said it will boost hiring by over 150,000 in July and 400,000 in September.
  • BofA found the benefits are higher than average leisure and hospitality wages in those states.
  • See more stories on Insider’s business page.

Following an April jobs report that fell significantly short of expectations, 25 GOP-led states announced they would be ending unemployment benefits early to incentivize people to get back to work. Both Bank of America and Goldman Sachs partially agreed that doing so will ease the labor shortage, with Goldman projecting a resultant spur to hiring in the coming months.

Goldman’s Joseph Briggs wrote in a Friday note that the 25 states opting out of President Joe Biden’s $300 weekly unemployment benefits will boost job growth by 150,000 in July and over 400,000 in September.

Briggs cautioned that these job gains estimates are “highly uncertain” and “the peak monthly growth impact could exceed 800k if workers are as sensitive to generous benefits as prior academic studies estimate, or be as low as 100k if benefit reductions only modestly increase workers’ willingness to return to work.” 

Briggs noted that the states ending the benefits early account for only 29% of total outstanding job losses since the start of the pandemic, partly because those states imposed fewer economic restrictions during the past year, and the majority of outstanding job losses are in the states that haven’t changed reemployment incentives.

Goldman Sachs chart showing how expiring unemployment benefits could boost hiring in the coming months.
Goldman Sachs: UI benefit expirations could significantly boost hiring in the coming months, although the size of the impact is highly uncertain.

Given that the majority of job losses are in states that are not ending the benefits early, labor supply headwinds will stay in place until September, Briggs said, and since the earliest states aren’t ending benefits until after the June employment report reference period, the effect on official employment measures won’t be fully visible until the July report.

Goldman continues to expect the unemployment rate to fall to 4% by the end of the year.

Bank of America Research said states are ending unemployment benefits early in large part because the benefits are higher than leisure and hospitality wages.

BofA economist Stephen Juneau wrote in a Friday note that the benefits exceed the average weekly earnings for leisure and hospitality workers in all 25 of the states that are moving to cancel them, while as of April 2021, employment in that sector is down about 1 million from February 2020.

“Therefore, opting out of the $300/week added benefit could be enough to nudge unemployed persons back into the work force, alleviating some of the labor supply shortages, and helping to spur job growth over the coming months,” Juneau wrote.

Three charts from Bank of America: The first chart shows weekly UI payments compared to average leisure wages, the second chart shows average hourly leisure earnings, and the third chart shows a personal savings outlook.
Average weekly UI payments vs. average weekly leisure and hospitality earnings, via BofA Research.

Juneau also cited the growth in leisure and hospitality wages over the past few months and said that if those wages continue to rise, the incentive to stay on unemployment insurance would be reduced.

Insider previously reported that companies like Target, Starbucks, and McDonald’s have raised their minimum wages to help remedy the labor shortage and attract more workers to get back into the labor force, given that holding out for higher wages, along with pandemic health concerns, have been discouraging the return to work.

But while Juneau said ending the benefits early will help with hiring, Insider reported last week that the cuts have not gone into effect yet, and payrolls still sharply increased in May, suggesting the benefits are not as big a disincentive as Republicans argue.

Democrats have also disagreed that the benefits are a disincentive, even calling for continued unemployment benefits tied to economic activity beyond the pandemic. Vermont Sen. Bernie Sanders wrote on Twitter in April that we “don’t need to end $300 a week in emergency unemployment benefits that workers desperately need.”

But continued unemployment benefits are unlikely. Biden said in a speech last week that while the benefits have been effective thus far, “it makes sense” for them to expire in September.

“A temporary boost in unemployment benefits that we enacted helped people who lost their jobs through no fault of their own, and who still may be in the process of getting vaccinated,” the president said in brief remarks following the May jobs report. “But it’s going to expire in 90 days – it makes sense it expires in 90 days.”

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Only 4% of laid-off service workers will get their old jobs back, study finds

waitress
  • Workers in leisure, hospitality, and retail have been particularly hard hit during the pandemic.
  • A New York Fed analysis finds only 4% of workers will be rehired by currently closed small businesses.
  • And just 3% of the service businesses currently closed are likely to reopen.
  • See more stories on Insider’s business page.

Throughout the pandemic, service workers have had it tough. The ones that didn’t have to contend with massive layoffs have had to safely navigate customer-facing roles, while their industry has been radically disrupted.

And evidence is showing that the service workers who were laid off stand a slim chance of getting their old jobs back.

A new analysis from the New York Federal Reserve’s Liberty Street Economics looks at data from about 100,000 leisure, retail, and hospitality businesses – mostly small ones – and delves into the ones that have remained closed.

Of businesses active before the pandemic, 35% remain closed. The longer a business stays shuttered, the more likely it is it will never reopen, according to the analysis: For every extra week a business stays closed, the probability of reopening drops by 2%. Most of those businesses have been closed since the pandemic first hit.

Bad news for workers

For people working at those currently shuttered businesses, continued closures may bring bad employment news. The analysis found that just about 4% of workers laid off from those businesses will be rehired by them.

The longer the closure, the lower the chance of rehiring: For every extra week they remain shuttered, the number of workers rehired for reopening drops by 5%. Of course, that all hinges on if their employers do end up reopening. The New York Fed anticipates that just 3% of the closed businesses will reopen, and those that do will hire back 35% of their workers over the course of four weeks.

Service workers have been hard hit throughout the pandemic

To be sure, employment in leisure, hospitality, and retail has seen a major rebound as the economy has reopened.

In March, nonfarm payrolls added 916,000 jobs, and service jobs accounted for a third of those gains. Small businesses are also increasingly reopening, especially as vaccinations around the country ramp up and restrictions are lifted.

One hindrance is the so-called labor shortage, where employers are having trouble filling jobs. That could be for a few reasons, according to Insider’s Ayelet Sheffey, including COVID-19 health concerns and inability to access affordable childcare. A study from advocacy group One Fair Wage found that of the workers who never left service jobs, female workers experienced more harassment and lower tips during the pandemic.

A February McKinsey report separately found that food service jobs are in general decline over the long term, and over half of workers in low-wage jobs will have to find higher-paying positions post-pandemic.

“Last year, we started a relief fund for service workers; 240,000 workers applied for relief,” Saru Jayaraman, the president of One Fair Wage, previously told Insider. “And I can’t tell you the number of women waitresses who wrote to us and said, ‘I can no longer feed my children. The lines are too long at the food banks. I am now resorting to stealing food because I have no choice.'”

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Expedia and Marriott rise as stimulus checks and easing restrictions boost optimism for travel and hospitality

family travel road trip
  • Expedia stock ended Thursday’s session at a record high and Marriott gained as travel optimism grew.
  • The US will begin sending $1,400 checks after President Biden signed off on a stimulus package.
  • New York State will lift some travel restrictions starting on April 1.
  • See more stories on Insider’s business page.

Shares of Marriot and other hotel chains pushed toward record highs Thursday as investors anticipated that new stimulus checks for millions of Americans and relaxed travel restrictions will lead to more bookings.

Hotel names rode up alongside other consumer discretionary stocks, in turn drawing the Consumer Discretionary Select Sector SPDR Fund up by 1.5% at the close.

Online travel bookings site Expedia rose by 2.1% at end at a record close of $171.08. Marriott tacked on 1.6% to end at $148.83, a third winning session. The stock two weeks ago logged its all-time high of $159.98.

The S&P 500 closed at an all-time high Thursday, the same day President Joe Biden signed off on a $1.9 trillion fiscal stimulus package passed by Congress. With his signature, the government will begin sending $1,400 checks to most Americans with the aim of assisting them until the economy fully recovers.

Some industry watchers have said consumers having more spending money can help the travel sector recover from the coronavirus crisis, but hurdles remain. The pandemic is still not over and millions of Americans are still out of work, they’ve cautioned.

But COVID-19 case counts “continue to decrease every day,” as more people are vaccinated, New York Governor Andrew Cuomo said Thursday as the state lifted its requirement for domestic travelers to quarantine after arrival, effective April 1. International travelers will still be required to quarantine.

Among other travel stocks, Hyatt rose 1.6% and InterContinental Hotels Group added on 0.6%. Hilton had been more than 1% higher intraday before turning lower, ending down by less than 1%.

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Gap’s CEO says people will emerge from pandemic isolation and start ‘peacocking,’ in what could be a boon for retailers

CEO of Gap Inc. Sonia Syngal
CEO of Gap Inc. Sonia Syngal

Gap has high hopes for the country to soon return to normalcy as vaccinations pick up.

Gap Inc. CEO Sonia Syngal said she expects sales to grow as consumers dress to impress others after months of decreased socializing.

“We’re quite optimistic,” Syngal said in an interview with The Wall Street Journal. “We do think there’s going to be this peacocking effect that happens, as people emerge from Covid.”

Gap appointed Syngal as chief executive in March 2020, months after former CEO Art Peck’s sudden departure. Peck left the company after sales slumped in 2019 due to declining foot traffic from shopping malls. 

Syngal, the former CEO of Old Navy, said she planned to grow Gap Inc. by investing in the firm’s 60 million-person customer base to capitalize on a captive audience. 

But the COVID-19 pandemic upended retail shortly after Syngal took over. As Americans avoided malls and spent more time shopping online, Gap Inc. announced it would close 350 Gap and Banana Republic stores in North America – or 30% of its total locations – by the end of 2023.

Syngal told The Journal that online holiday shopping helped offset some losses. The firm reported online sales increased to 45% of total sales in 2020, up from 25% the year prior.

The chief executive added the firm will cut back on costs spent on making stores “safer” during the pandemic as vaccines become more widely available. 

President Joe Biden said he expects vaccines to become available for all Americans by May shortly after the Food nad Drug Administration granted emergency use authorization for Johnson & Johnson’s shot. The Centers for Disease Control plans to release guidelines on activities vaccinated people can safely do, which include some indoor gatherings.

Some retailers are banking on consumers spending money on new clothes as they going out after getting vaccinated. The menswear brand Suitsupply released an ad titled “The new normal is coming” with a photo of naked models kissing.

“Post-pandemic life is on the horizon,” Fokke de Jong, Suitsupply’s founder and CEO, told Insider’s Kate Taylor. “The campaign is simply a positive outlook on our future where people can get back to gathering and getting close.” 

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