Getting Back to Work

Key Takeaways 

• Pandemic unemployment benefits are ending.
• But problems persist, and people may not be able to re-enter the workforce.
• Employers may need to offer new incentives and create better jobs to bring workers back.

Many business leaders are facing labor shortages and struggling to fill critical roles in their organizations. But in order to get people back to work it is important to understand why so many are choosing to stay out, and the research on what motivates job seeking paints a complicated picture. Workers are struggling with problems made worse by a pandemic. If you have a leadership role in a company finding it difficult to fill positions, you may need to adjust your practices to meet these needs.

First, understand what won’t bring employees back. Last week federal unemployment benefits established under the CARES Act expired. This means the end of benefits like an additional $300 a week, extensions for long term unemployment and aid to gig workers and other self-employed people affected by the pandemic.

An estimated 7.5 million people will lose all benefits, with millions more receiving reduced assistance.

Ohio was one of several states that cut off these benefits earlier this summer, with many business owners hoping that doing so would help ease the state’s labor shortage. This is a very old, very common intuition surrounding unemployment benefits. Why would anyone work when they can sit at home and collect a check? Ending those benefits will, therefore, encourage job-seeking.

But the data reveal a more complicated story.

Some states cut benefits early while others did not, creating a natural experiment that could show the effect of pandemic benefits. Recent research shows a small temporary surge in job-seeking in states that cut off benefits. However, those economic effects were offset by a massive decline in consumption as households that lost benefits dramatically reduced their spending.

These findings suggest that the reduction in benefits were a net drag on local economies. This natural experiment fits in with previous research on the CARES Act. These studies have consistently shown that welfare has a modest to non-significant effect on willingness to work.[1]

There are obvious obstacles to employment in the middle of a pandemic. Some people may have been unwilling to risk their health, particularly in service jobs where workers come into close contact with customers (and fellow employees) who may not be vaccinated. Some may have been unable to return to work because of increased childcare responsibilities as schools and daycares shut down or are unsafe due to the spread of the virus.

Hopefully, those concerns will diminish with widespread vaccination, but the crisis has thrown a light on structural problems in the economy. The labor shortage is a healthcare shortage and a childcare shortage. Those problems will continue.

With that in mind, leaders need to adapt to meet these needs and make it easier for people to work. Fortunately, there is emerging data that show a way forward. One obvious solution for businesses is to increase compensation. It is notable that many businesses have thrived over the last few months by attracting workers with increased pay or better benefits.

Smaller businesses may not be able to match these increased wages but can offer other incentives. Workers may respond to more flexible hours or control over their scheduling, which can help them handle family responsibilities. Employers can use vaccine mandates and testing to make jobs safer (early indications are that employer mandates are extremely effective).

In a labor shortage, employers need to communicate with their employees, understand their concerns and try to work with them to make the job more inviting.

Government can make it easier on businesses as well. President Biden’s “soft” infrastructure proposal includes provisions that make it easier to work: funding for childcare, universal pre-school, elder care (an increasingly large issue in an aging society), etc. American workers have been relying on brittle arrangements to make life possible for decades.

The pandemic smashed those arrangements. What many of the proposed benefits have in common is they make it easier for people to work. These social welfare programs are not just a handout; they are a way for people to manage lives complicated by a pandemic.

It is far from clear that the president’s plan will become law. Ultimately, if you want to encourage people to work, you must make working more attractive. As employers compete for workers (and compete with gig outfits like Uber and Doordash) you may need creative solutions to make the job more appealing, either through better pay, better benefits, or better work environments.

Make it easier for employees to come back, and they will.