The economy is booming. Why isn’t employment growing?
Payrolls have risen 1.6 million in the last three months and are up 1.7% this year through May, which in normal times would be impressive. But these are not normal times. The economy is reopening rapidly, consumers are full of federal stimulus cash, and retail sales, factory orders and housing are booming. Inflation-adjusted gross domestic product increased 5.3% through May this year, according to a monthly series calculated by IHS Markit..
The gap between GDP and employment is explained by the vertiginous increase in output per worker. The United States is in the midst of a productivity boom. That’s a good thing for wages and inflation because higher incomes can absorb rising wages without companies raising prices. It’s not great news for the job landscape if employers conclude that they can meet sales targets with less hiring.
In recessions, employers are often slow to cut jobs as sales plummet, causing productivity to decline. When sales pick up, they take time to add jobs and productivity picks up. The pandemic has broken that pattern. Hourly business output has grown in three of the last four quarters. In the January-March quarter of this year, it was up 4.1% over the previous year, the fastest in a decade.
Some of this reflects the unusual patterns of this particular recession. Losses suffered by low-productivity, low-wage sectors such as leisure, hospitality, and other face-to-face services artificially boosted global average productivity.
But the pandemic may also have pushed companies to change their business models and step up their use of technology to get more sales from the same workforce. Industries that account for a third of job losses since the start of the pandemic have increased production, including retail, information, finance, construction, and professional and business services, said Jason Thomas, head of global research. from the private equity manager Carlyle Group.
“This recession took on a life of its own by leading to more remote work, a greater reliance on technology,” said Thomas. Executives began asking “tough questions: Why do we have so much floor space? Are we sure our cost base makes that much sense? Why were we taking so many trips inside the office? This experience just revealed how ignorant he was about the frontiers of the technology he could exploit. “
“This recession took on a life of its own by leading to more remote work, a greater reliance on technology.”
In fact, software investment increased 10.5% adjusted for inflation in the first quarter from a year earlier, as companies invested money in cloud computing, collaboration software and e-commerce.
One of the beneficiaries is CardFree Inc., which designs and operates online and mobile ordering systems for foodservice operators. CardFree apps allowed restaurants to better anticipate and regulate incoming orders to better match staffing and capacity, said Chief Executive Jon Squire.
Monty’s Good Burger first adopted the CardFree platform to protect the health of customers and staff. Customers could order from their phones instead of waiting 15 to 45 minutes online at one of the company’s four restaurants in the Los Angeles area. “As the application began to take hold, our business performed phenomenally well,” said Bill Fold, one of its partners. About 40% of the company’s revenue comes from the app, allowing staff to spend much less time on customer service and more time on food preparation. As a result, employees per store are at the same level as before the pandemic, but sales increased 10%. Without the app, “our sales would have dropped.”
At Silver Diner Development, which operates 20 restaurants in the Washington, DC region, takeout went from 20% to 80% during the pandemic.
CardFree streamlined the takeout process by allowing customers to pay by text message or by scanning a QR code, a type of barcode, with their phone, said John Huddle, chief information technology officer. “What was a process of two or three trips to deliver to the curb, we do it in one trip. That’s a huge labor savings. “
Silver Diner doesn’t want to downsize. As restrictions are lifted, takeout has dropped from 30% to 40% of orders and is struggling to fully staff its restaurants. But technology like CardFree allows you to use existing staff more effectively, Huddle said. “We will make more sales with the same level of people.”
Eventually, high-performance servers can take orders on mobile devices, increasing the number of tables they can handle, but the technology is only now getting practical, Huddle said. By increasing worker productivity, technology helps the chain adapt to higher wages arising from the tight labor market and rising local minimums.
For the moment, the lack of supply, not the lack of demand, is holding back job growth. Job openings jumped 1 million in April to 9.3 million, the highest level since records began in 2000. Hourly wages are growing rapidly. The fact that there are so many job openings when unemployment is still close to 6% suggests that many workers are falling behind, either because they are still worried about the virus, because they may earn as much or more from unemployment insurance, or because their job expectations have changed.
Some of those restrictions should ease in the coming months as the pandemic recedes and improved unemployment insurance expires. There are clearly limits to the extent to which technology can replace staff. Despite the hype, robots are not yet replacing cooks. They are not even replacing the waiters.
However, the longer the shortage persists, putting upward pressure on wages, the greater the incentive for companies to turn to technology to save labor, and the longer it will take to recover jobs.
Write to Greg Ip at [email protected]
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