There may be a method to President Joe Biden’s madness. Or maybe there’s just a madness to his method.
Employers are hiring again—or at least they’re trying to. But endless news stories reveal that employers can’t find enough workers—and the numbers back that up.
In March, the economy added 785,000 jobs. So economists were optimistic for April, predicting non-farm employment would grow by nearly 1 million new jobs. Instead, the Bureau of Labor Statistics (BLS) reported the economy added only 266,000 (later revised up slightly to 278,000). That has to be one of the biggest estimate misses we’ve seen.
Then in May, economists were estimating employment rolls would swell by 671,000. BLS reported 559,000.
More worryingly, the May labor force participation rate—the percentage of adults working or looking for work—fell slightly, to 61.6 percent. It was 63.3 percent in February 2020.
What could have happened in February or March that could have affected job growth?
Wait, I know, Biden signed the American Rescue Plan, which provided $300 per week federal unemployment benefits, on top of state unemployment benefits, through September.
Groups like the U.S. Chamber of Commerce, which hears a lot from business owners, are asserting that the enhanced unemployment benefits are discouraging unemployed workers from seeking work. “The disappointing [May] jobs report makes it clear that paying people not to work is dampening what should be a strong jobs market,” the Chamber announced.
Biden and Treasury Secretary Janet Yellen are discounting such claims, but the president has to know they’re true. So what’s going on?
The president may have tipped his hand in May when he responded to the poor jobs report by asserting, “People will come back to work if they’re paid a decent wage.”
Since it is very unlikely Biden will get his $15-per hour minimum wage proposal through Congress, he is trying to push wage increases through the back door. And he’s succeeding.
CNBC quotes Moody’s Analytics chief economist Mark Zandi, “It’s some of the strongest wage growth we’ve seen in a quarter century.” And he adds, “All the anecdotes we were getting in the last few months suggest it’s continuing.”
The problem with this strategy is that artificially increasing wages is inflationary. It pushes prices up for everything. And while some of the supply chain-related price increases may be temporary, returning to more normal levels when supplies increase, inflated wages won’t drop.
With the White House predicting only 2 percent economic growth under the Biden administration, there won’t be much wage growth in the future.
So while keeping enhanced unemployment benefits in an effort to push up wages may be bad policy, it may be Biden’s best—or only—bet for claiming wages rose on his watch.