A Wisconsin Labor Shortage?

I talked briefly on WPR’s Here and Now yesterday, on the Wisconsin “labor shortage”. After making my obligatory comment that economists would not use the term  “shortage” to characterize Wisconsin’s situation, as there were (and are) no barriers to private firms to raising wages and benefits (see this post). However, supply could be constrained — either because of the presence of benefits (e.g., enhanced pandemic-related unemployment insurance), accumulated savings from the previous pandemic rescue packages, perceived increased disutility of work, or fear of illness. But higher wages and more flexible working situations could mitigate the high ratio of job openings to employment.

First, look at what real wages have behaved like:

Figure 1: Wisconsin average hourly earnings in total private industry for all workers, in 2020$ (blue), and in leisure and hospitality services (brown). Uses CPI for Midwest, n.s.a. NBER defined recession dates peak-to-trough shaded gray. Source: BLS employment situation release, BLS CPI release, NBER and author’s calculations.

Clearly, overall real wages (not adjusted for composition) have not risen to induce workers to take the jobs available. This is shown in the next graph — where it makes sense that there’s been an increase in openings as the pandemic has caused some workers to sort themselves into new positions.

Figure 2: Wisconsin Job openings rate, % (black, left scale), and Wisconsin average hourly earnings in total private industry for all workers, in 2020$ (teal, right log scale). Uses CPI for Midwest, n.s.a. NBER defined recession dates peak-to-trough shaded gray. Source: BLS JOLTS, BLS employment situation release, BLS CPI release, NBER and author’s calculations.

Wisconsin job openings rate rose from 4.7% in 2020M02 to a peak 7.4% in 2021M07 – a 2.7 percentage point increase. Nationwide the increase was from 4.4% to 7% in 2021M10. Rates have come down – to 6.6% in Wisconsin as of December. While still high, 5.7% would be the rate using the trend from 2009M06 to 2020M02.

I suspect that the structure of Wisconsin’s economy — a greater share associated with manufacturing — in a period of elevated demand for goods probably exacerbates the number of job openings. It takes time to sort labor/move labor to where the jobs are. However, over time competition for workers (via higher wages, benefits, improved working conditions) should shrink openings rates.