Moneybox

What’s *Really* Going On With Inflation and Jobs

A woman and child wear face masks while walking past shuttered storefronts.
A woman and child wear face masks on April 4, 2020, in Los Angeles. Mario Tama/Getty Images

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The consumer price index currently shows costs rising, for everything from lumber to used cars. The monthly jobs report showed that the U.S. only added 266,000 new jobs in April, far from the expected 1 million. Republican governors are blaming extended unemployment benefits for Americans not returning to work, and 19 of them begun the process of cutting off these benefits—even though there are lots of explanations for Americans staying home that involve what their local governments have failed to provide for them, including vaccinations. On Tuesday’s episode of What Next, I spoke with Jordan Weissmann, Slate’s senior economics and business correspondent, about what kind of economy COVID is leaving behind and why the recovery isn’t going as smoothly as hoped. Our conversation has been edited and condensed for clarity.

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Jordan Weissmann: It’s important to remember that jobs numbers can be a bit erratic on a month-to-month basis. Maybe something funky happened in April. Who knows? But things will likely recover a bit in May. You don’t want to look at one month in isolation and treat that as the big picture unless there’s some really time-sensitive reason that you need to, like legislation that has to be passed immediately. It’s good to get more data and let things evolve a little bit.

If you looked at which industries were actually adding jobs, the hospitality industry did OK. It added a lot of people. It could have added more in an ideal world, but it didn’t do terribly. All the other industries just stopped adding jobs, like in manufacturing. And you saw a bunch of jobs lost in messenger and courier services, you saw grocery stores lay a bunch of people off, and that also weighed on the total number.

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My takeaway is, yeah, this suggests maybe there is some kind of issue with labor supply, but it would be good if we could all take a breather and wait for a hot second just to see how things play out for one more month.

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Mary Harris: Is there an argument that employers are not doing enough to recruit workers by simply raising their wages?

It’s clear that a lot of employers are increasing pay, like in hospitality. There are also some funny stories of this business that magically discovered that when it raise its minimum wage from like $7.25 to $15, all of a sudden more people want to work for it, like with that ice cream parlor in Pennsylvania.

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But it’s not always that simple. If you’re working from the assumption that we just spent all this money trying to save small businesses and we’d prefer them not to run into trouble now, then saying “too bad if you can’t find any workers” is not exactly a satisfying answer.

There are also these structural barriers to people going back to work. I was listening to a call-in show, and someone who worked in theater called in from New Jersey and said she was worried about child care, and the fact that the bus that would have gotten her into work in Manhattan doesn’t exist anymore. All these things have been trimmed back during the pandemic. That’s happening in all sorts of ways throughout the economy.

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Child care has been so underdiscussed when it comes to rehiring. Only about 50 percent of school districts are fully in-person right now. Parents need to be at home at times and are dealing with weird hours for their kids. And when you’re talking about the service industry, you’re talking about a lot of moms who are typically employed there.

That’s part of what’s disconcerting to me about the decision by a lot of Republicans to cut off unemployment benefits. It’s not just that they may be forcing people back to work before they’re comfortable because of COVID. It’s also they may be trying to force people back to work before they really can because they’ve got a kid who’s staring at a screen at home and need someone to watch them.

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If someone is staying home because they haven’t been vaccinated yet or because their state has only vaccinated one-third of the population and they’re worried about being cramped in a kitchen—that’s someone staying home because of the pandemic, even if unemployment benefits make it a little easier to do so. At the same time, if someone is staying home because they have child care issues and they have unemployment insurance available to them and they would like to work, the major reason they are not working is because they have a kid to take care of. That is someone who is staying away from work because schools haven’t reopened. I think a lot of Republicans have decided that they don’t care why a person isn’t getting a job. They just care that they haven’t.

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Is the cost of everything rising?

Broadly speaking, some prices are rising across the economy, but some prices are rising a lot faster than others. Last month, used cars alone were responsible for like one-third of the increase in prices overall. What economists are trying to figure out is how much of the inflation we’re seeing now is just a delayed response to the pandemic. And there’s something else: the “base effect” of inflation. Inflation is calculated year over year, which means we’re measuring ourselves against the beginning of the lockdown, when the economy was going haywire. But even if you take, you know, the base effects out of the picture, right out of the equation and you look at month-over-month changes, prices are still going up a bunch and pretty quickly, in part because we have all these weird issues with supply chains. And this was something economists were widely expecting.

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I’ve heard it described as a kind of mismatch, like, there are these things people want now and there’s just not enough of them available.

Right. I think we can come back to the example of used cars. There are three different factors that are intersecting and driving up prices. The first is that we have a shortage of new cars—U.S. automakers are not able to keep up with demand for new trucks and sedans. The reason for that is that there’s a worldwide shortage of semiconductors, and specifically, there’s not enough for the auto industry.

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So there are not enough new cars. As a result, people are going to buy used cars. There’s more demand for used cars at the same time there aren’t enough—there’s also a unusual shortage of used cars, and that’s because of problems in the rental car industry. A lot of rental car companies liquidated their fleets at the beginning of the pandemic: They sold off a bunch of vehicles to raise cash because no one was renting cars anyway, since no one was traveling. As a result, they don’t have enough cars, so they can’t sell any cars to U.S. dealers right now.

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There’s one more factor: the stimulus. You have a boost in demand because we gave people money. And when you give people money, oftentimes they go and buy big-ticket items and consumer durables like washers and furniture and used cars.

The question with inflation is: Do you have these weird stories like the used car situation repeating themselves throughout different industries? Or is it strange hiccups that are causing prices to rise? This is the sort of thing we’re going to find out over a series of months. My feeling is it’s probably mostly strange supply chain issues that are repeating themselves throughout the economy, and eventually we’ll get the engine running smoothly.

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