Fed’s Kashkari sees workers returning in the fall – when unemployment benefit ‘enhancements’ end

By John Phelan. He is an economist at the Center of the American Experiment. 

"I have commented a few times recently on the puzzle of elevated numbers of unemployed Minnesotans at a time when there are large numbers of jobs available. This puzzle becomes much less puzzling when we note that, with federal unemployment insurance enhancements of $300 a week added to Minnesota’s already high unemployment insurance, workers can earn the equivalent of $26 an hour by not working.

Evidence that these federal enhancements are a factor holding back employment growth has been accumulating: it seems to be an argument that Minneapolis Federal Reserve President Neel Kashkari sees merit in.

Last week, Reuters reported that Kashkari:

…expects recent high inflation readings will not last and Americans will return to the labor market in large numbers in the fall.

“We should see a lot more labor supply in the fall,” Kashkari said in a virtual event hosted by the Minnesota Council of Nonprofits and the Minnesota Council of Foundations, once the three main factors holding back labor supply – the closures of schools and daycare facilities, fear of the coronavirus, and extra unemployment benefits authorized by Congress – have faded.

The federal unemployment ‘enhancement’ in Minnesota is due to end on September 6.

He went on to say, however, that:

…in general he is a “big skeptic” of employers who complain of worker shortages, saying a large part of it is a reluctance to raise wages.

But employers are raising wages and benefits. And, there is an upper bound beyond which they cannot raise them. As I wrote a couple of weeks ago:

…businesses cannot simply yank the wages they offer up to any level they like. They will certainly not raise the wage they offer to a level above what they estimate the employee will add to turnover – if they did, they would be adding more to their costs than to their revenues, something no business would do: this is what I call the real iron law of wages.

So, if a Minnesota business thinks that a worker will add only, say, $20 an hour to their revenues, they will not offer them a wage above that. And, if that worker can make $26 an hour not working, many will, quite sensibly, choose that option and the hire will not take place."