Why People Are Not Going Back To Work

    There seems to be a lot of talk in the public media about why there seems to be a labor shortage. Or, instead, why jobs in specific industries seem challenging to fill. All too often, I hear the phrase repeated that suggests federal efforts to stimulate the economy have resulted in a moral hazard [my words, not anyone else’s]. More specifically, I hear something like, “why are those people so lazy?” Yeah, it is usually about those people.

    First, one must place our economy in a historical context: Since the 1970s, we have effectively become a plutocracy. Over time the economy has explicitly been sculpted to benefit the wealthy. The economy has been designed to reward equity over labor. The net result of this transformation has been a transfer of something on the order of $47T from the lower 90% of the U.S. economy to the upper 10% from 1975 through 2018 (Price & Edwards, 2020). This has resulted in downward pressure on wages, particularly on the lower half of the economic spectrum. With the onset of the COVID pandemic, those on the lower end of this spectrum were placed at the most significant risk of contracting the disease. There was a well-documented racial bias to those data (Parker et al., 2020).

    Let us consider what the economy was during 2020: Individual median income in real dollars was $35,805 (Real Median Personal Income in the United States, 2020). What “median” means is 50% of individuals in this country earned less than this amount. These same data show the median income for child care workers was $25,460. This same source reports the median household income for 2020 was $67,521 (Real Median Household Income in the United States, 2020). What I find particularly interesting is the household income is less than twice that of the individual income. This suggests the following relationship for a two-income household:

P + S = $65,521

Where P  is the primary source of income and S is the secondary source. This relationship further suggests:

P + a*P = $65,521 where S = a*P

Solving for a:

a = 88.6%

So the secondary source of income in this hypothetical two-income household is:

S = $31,716

    The median yearly income for child care workers is $25,460 (Real Median Personal Income in the United States, 2020)[i]. Therefore, if you consider a median two-income household with several children, in the limit, one could argue the secondary source of income is effectively a net $6,256 per year.

    I discovered from these data that when these yearly figures are converted to a median hourly wage, the number of yearly working hours used is 2080. This number is what one gets when multiplying 40 hours per week by 52 weeks per year. In my world, we call this a full-time equivalent or FTE. In general terms, people working that many hours per year is seldom heard of because of holidays, sickness, vacations, etc. Nevertheless, this number is a helpful number of hours to use in order to find a common baseline for comparison purposes. However, the implication is the source of the secondary income in our hypothetical example is working for a net $3.01 per hour, in the limit.

    Let us ask the question again: Why are those people not going back to work? These data strongly suggest the answer:

why bother?

 

References

Parker, K., Horowitz, J., & Brown, A. (2020, April 21). About half of lower-income Americans report household job or wage loss due to COVID-19. Pew Research Center. Retrieved September 26, 2020, from https://www.pewsocialtrends.org/2020/04/21/about-half-of-lower-income-americans-report-household-job-or-wage-loss-due-to-covid-19/

Price, C. C., & Edwards, K. A. (2020, September). Trends in income from 1975 to 2018. RAND Corporation Objective Analysis. Effective Soltuions. Retrieved November 8, 2021, from https://www.rand.org/pubs/working_papers/WRA516-1.html

Real median household income in the United States [Data set]. (2020). Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/MEHOINUSA672N

Real median personal income in the United States [Data set]. (2020). Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/MEPAINUSA672N

 

 

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[i] This citation was corrected from the original.