According to the Bureau of Labor Statistics (BLS), as of August 2021, job openings increased to a series high of 10.1 million, while the number of unemployed workers stands at 8.7 million, which is equivalent to a 5.6% unemployment rate. By the numbers, there are more job openings than total unemployed workers to fill them. Due to continued declines in the labor force participation rate driven by discouraged workers exiting the labor force altogether, the United States is facing a deficit of 1.4 million workers.
As a result of surging consumer demand and an insufficient number of laborers, many manufacturing industries have exhibited signs of tightening supply chains. Concurrently, selling prices are rising due to limited production capacity and rising input prices. Now, due to monthly declines in the labor force participation rate, employers are finding they simply do not have enough labor to accommodate renewed levels of consumer demand.
Since suppliers are unable to keep up with reinvigorated levels of demand, they are raising wages to attract employees. It is no coincidence that the industries that exhibited the largest employment declines due to the COVID-19 (coronavirus) pandemic, accompanied by the largest demand rebounds in the third quarter of 2020, have exhibited the greatest upward wage pressure. However, increased wages are expected to result in higher prices paid by consumers and an overall increase in the rate of inflation.
Lumber as a microcosm
The lumber supply chain illustrates how rising wages and labor shortages are expected to increase the overall rate of inflation. Due to nationwide construction stoppages amid the coronavirus pandemic, demand for sawmill lumber as a construction input for residential home building declined, resulting in heavy layoffs and sharp declines in wages and real production of finished lumber. When the economy began reopening in the third quarter of 2020, demand surged, prices followed and wholesalers and retailers quickly ran out of finished lumber products. However, farther up the supply chain the situation is more optimistic. Logging operations limited layoffs and increased wages amid the pandemic, and as a result, the industry is currently positioned to reap the rewards of surging lumber demand by raising sawlog prices to sawmills.
Nonetheless, for lumber supplies to catch up with demand, both sawmills and loggers have increased wages to entice employees and ramp up production. In fact, data from the BLS demonstrates how the average hourly earnings for sawmill workers increased 10.0% between February 2020 and April 2021.
Round and around we go
It is likely that goods producers will raise output prices further to offset rising wage and other operating costs. Overall, consumers are expected to foot the bill for manufacturers offering increasing wages. However, the consumer price index for all goods and services has already increased 4.3% to date in 2021 begging the question how beneficial is a wage hike if selling prices rise in tandem?
