Business has been good at Rita’s Cantina.
The East Village restaurant opened in the summer of 2020, but thrived during the pandemic with its large, outdoor patio. It’s a popular spot this summer too, owner Jeff Bruning said, enough so that he had to install misting fans to keep customers cool.
“When it hit 100, it was a little too warm to be out there,” he said. “But people just rave about that place.”
Bruning says all of his eateries in the Full Court Press restaurant group are doing well, some seeing record numbers. The only problem? He’s short-staffed, and no one is applying.
“Being understaffed and doing really good numbers, it’s okay for a little bit, but long-term, that’s just not how we can sustain it,” he said.
The U.S. Bureau of Labor Statistics reported Friday that 943,000 jobs were added in the month of July and the unemployment rate dropped to 5.4%. The gains exceeded expectations from economists, and President Joe Biden touted them as a success. But employers in Iowa and nationwide are still struggling to fill positions as thousands of people have left the labor force.
“I wish I was a ‘now hiring’ sign salesman, because I would be very well off,” Bruning joked.
Where did the workers go?
Iowa State Economics Professor Peter Orazem said in a Friday report that “the rapid rebound in unemployment rates disguises a relatively weak recovery of jobs.” Because unemployment rates only measure people who are unemployed and actively seeking work, the percentages do not include those who stopped seeking a job and left the labor market.
“Right now, the biggest concern is that labor force participation rate,” Orazem told the Iowa Capital Dispatch. “In the most recent report, it barely changed at all. And it’s hardly changed since early on in the pandemic.”
The national labor force participation rate — the number of people 16 or older who are employed or actively seeking jobs — was 63.3% in February 2020. It fell to 60.3% in April, then climbed to 61.4% in June 2020. The rate has hovered around there for over a year, with a July 2021 rate of 61.7%.
That means although employers are adding jobs and the unemployment rate is declining, there are fewer people total in the workforce — and therefore fewer people to fill the wave of new positions.
Why aren’t people rejoining the labor force?
Orazem believes people are slow to return to the labor force due to a combination of factors.
First, some older workers decided to retire during the pandemic — sometimes collecting unemployment on their way out. Orazem estimates that makes up about one-third of the missing employees.
Others may have been shut out of their industry during mandatory closures, dropping from the labor force.
Orazem said the final 40% of missing workers are “a real puzzle,” but he believes unemployment benefits are a significant factor. Iowa ended the additional, $300-a-week unemployment payments in June, but some federal programs allowed people to collect benefits for far longer than the usual 26 weeks.
“You still have the extension of the benefits over a long period of time,” Orazem said. “And if you’re being paid half of your previous wage, plus you have the full use of your time, that’s not insignificant.”
Orazem predicts Iowa will show a surge in employment in July due to the removal of the additional $300 benefit. He expects that there will be a national boost in the autumn as the $300 payments and extended benefits end entirely.
“Until we get past September when some of the extended benefits run out, I think we won’t have the full labor supply response,” Orazem said. “But I think we’re going to start seeing even larger moves into employment.”
Did cutting additional unemployment benefits work?
Iowa was one of the first states to end its participation in additional federal unemployment benefits. Gov. Kim Reynolds joined Republican governors nationwide in ending the program early with the intent to bring people back to work.
Orazem believes Iowa will see a boost from the change. But nationwide, it’s not a one-to-one correlation between ending the benefits and improving the economy. Orazem noted many of the states that ended the benefits early were also the states that reopened businesses and lifted restrictions sooner — and the states that were already on the path to a stronger recovery.
Other states keeping the benefit in place until it expires in September have faced longer lock-downs and largest overall reductions in employment.
“The states that are maintaining the $300 surplus payments are the states that have more of a problem to begin with,” he said.
Iowa hospitality industry offers higher wages, other benefits
Jessica Dunker, president of the Iowa Restaurant Association, said many Iowa hospitality businesses are bumping up wages to entice people back to work. They’re also offering more benefits, like paid sick time and vacation.
“There’s nobody paying minimum wage and having any employees right now,” she said.
Bruning said he’s offering new hires at Full Court Press wages 10% to 25% higher than before.
Orazem said hospitality and leisure wages in the U.S. were up 13%. Weekly wages increased by 19%, indicating that not only are people being paid more per hour, but they’re also working longer hours.
Orazem says the higher wages are an effective tool to bring people back, but they also could lead to inflation. As businesses pay their employees more, they have to jack up the price of their products, and in turn, wages will need to go higher.
“If we don’t start getting a faster employment response, or a labor supply response to the rising opportunities, I think you’re going to start seeing even more upward pressure on wages, which will start factoring into more rapid inflation,” he said.
While that happens, employers are fighting on another front: keeping their current workers in a highly competitive market.
“We’re starting to see retention bonuses,” Dunker said. “Rather than having people sign on, they incent people to say.”
Full Court Press gave employees a bonus recently, which Bruning said was a thank you for sticking by them through the pandemic. And the entire restaurant group shut down operations on Monday for another morale-booster: a company trip to Adventureland.
“We pretty much were all over the waterpark, our whole company,” he said.
What comes next for Iowa?
Iowa Workforce Development will release July employment numbers later this month. Orazem does expect to see an increase in people working due to the end of the enhanced unemployment benefits.
But the delta variant could stop recovery in its tracks. Biden on Friday emphasized that, despite promising numbers, the top priority was avoiding another COVID-19 outbreak.
“My message today is not one of celebration. It’s one to remind us we have a lot of hard work left to be done, both to beat the Delta variant and to continue our advance of economic recovery,” Biden said in a Friday address.
Orazem said Americans who refuse to be vaccinated amid the delta outbreak could complicate recovery in Iowa, especially if businesses need to shut down again.
“My worry is that, through basic pigheadedness, we’re not going to be able to retain the pace of the recovery,” he said.
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