Why pay raises are subdued amid the labor shortage

Yahoo Finance’s Rick Newman breaks down the lack of rising wages amid the labor shortage.

Video transcript

ALEXIS CHRISTOFOROUS: You may have seen help wanted signs are up all over the country-- businesses keep saying they can't find enough workers. But there is a missing piece in the nation's so-called labor shortage, and that is rising pay. Our Senior Columnist Rick Newman here now with more on this. So, Rick, what is this all about? I had heard that businesses were actually raising pay to incentivize workers. What gives?

RICK NEWMAN: That's a pretty good question, Alexis. There are some puzzles in the labor market these days. One of them is if companies are raising pay the way we hear about-- we've heard big companies like Chipotle, and Best Buy, and Costco all kind of advertising the fact they've boosted starting pay to $15 or more, why are more people not taking these jobs? And why do we still have seven million unemployed people?

And the thing is when you dig into the data, there's a difference between what you hear anecdotally and what the data shows. So the Atlanta Fed tracked some very interesting data. They tracked the same group of workers over time, and they're able to follow people who change jobs, and how their pay changes, and people who stay in the same jobs. And for people who have changed jobs recently, their pay went up by about 3.6%, which might sound like it's pretty good, but that's actually lower than the average before the pandemic.

So pay raises for people changing jobs is lower than it was before the pandemic, which suggests that people are not taking new jobs because they're getting lured away by higher pay. And then for people who are staying in the same jobs, there's really no change. They're not getting bigger raises than they did before the pandemic. So that really suggests there are no unusual pay raises. People are getting raises, but they're just more or less the same as they were before the pandemic or, perhaps, even a little bit lower. So there is not a huge boost in pay going on.

KRISTIN MYERS: I think that would probably explain why we've just seen survey after survey-- and, in fact, Alexis and I will be talking about one in the next hour-- about why so many workers are willing right now to quit their jobs and try to get new ones-- probably because they're not getting boosts in pay from their employers right now. I do want to ask you, just because we saw so many millions of Americans really struggling throughout this pandemic-- k-shaped recovery-- of course, some did very well. Others, however, did not. What do these pay raises and some of these boosts in earnings really say about some workers really being made whole, so to speak, throughout the pandemic after they've been struggling?

RICK NEWMAN: Decent question, Kristin. I would go back to something you said before-- we know that the so-called quit rate is very high-- close to record highs. But we don't know that people are quitting to take other jobs. They may be quitting just because they're staying out of the labor force for a little while. We do know there are still a significant number of people who are concerned about getting the coronavirus on the job.

We know that the pandemic has really distorted the picture for working parents who can't find child care, or can't afford child care, or who are home with kids who are doing remote learning. That's probably as big a factor as anything. And there could be other reasons. The critics of the jobless aid would say federal jobless aid is keeping people home, although that probably is not a reason people would actually quit their jobs.

It's going to take some time to sort this all out. The federal jobless aid does expire at the beginning of September, probably will not be renewed. So we will at least be able to remove one variable. But this is a very complex situation. And you cannot really apply one single explanation to the work choices that millions of Americans are making.

ALEXIS CHRISTOFOROUS: All right. Rick Newman, thanks for that report. We appreciate it.