The Washington Post had an interesting piece that looked at the lives of several people who quit low-paying jobs in a restaurant in Arkansas since the pandemic began. There are three interesting points that come out of this story.
The first is the headline item (actually, subhead) that although the quitters’ mental health improved, their finances were not necessarily better after they left their jobs. There is an obvious point here that people should recognize. It is unlikely that, even in a good labor market, people who leave near minimum wage jobs will suddenly find themselves flush with money.
If someone is earning $10 an hour, even a 20 percent increase (in excess of inflation) only gets them to $12 an hour. That sort of increase likely means a big difference in their standard of living, but still leaves them far short of a comfortable middle-class existence. In some cases, the modest gains from the tighter labor market may give them the ability to get additional education or training that will let them enter a higher paying occupation, but we shouldn’t expect that a tight labor market alone will mean that workers in the lowest paying jobs are now financially secure.
There is an important qualification to the stories of the people discussed in this article. The piece starts with the early days of the pandemic when the restaurant was losing business due to the shutdowns. In 2020, we did not have a tight labor market. Instead, we had very high unemployment.
It has only been in the last half-year that we could say that workers were getting the upper hand and had their choice of jobs. The picture for these workers might look qualitatively better if they were quitting jobs today, and the labor market remains tight.
The second point is that the article portrays the restaurant owners as very sympathetic people. The restaurant is owned by a young couple who are pursuing a dream. They work hard alongside their staff, struggling to keep the restaurant open. While some of the former employees (the restaurant closed) may disagree with the article’s portrayal, the reality is that many low-wage employers are not assholes. They are struggling to make a business work, and that can mean that they can’t afford to pay decent wages to their workers. Of course, this story does not apply to the Walmarts and the McDonalds of the world.
The third point is that the restaurant closed. This means that no one is working there. That is the story of how whatever labor “shortage” we are now seeing gets resolved. Businesses that cannot afford to pay workers the prevailing wage go out of business. In many cases, this may not be pretty. Business owners, like the couple in this story, see their dreams shattered. But that is the way a market economy works.
When uncompetitive businesses shut down, their workers look for employment elsewhere. This process will bring the demand and the supply of workers more into balance. The closing of the restaurant described in the Post article is part of this story.