Employers, Prepare for a Wage Jolt

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Over the years, the refrain of businesses complaining about how hard it is to find workers has become a bit like the boy who cried wolf. But now the wolf actually may have arrived.

He is asking for a fatter paycheck.

The Labor Department on Tuesday reported that the number of unfilled job openings in the U.S. rose to a record 8.1 million on the last day of March, lifting the job-openings rate—job openings as a percentage of the total number of open and filled jobs—to 5.3% from 5% a month earlier. Before the pandemic, the highest the job-openings rate had ever hit in the 20-year history of the data was 4.8% in 2018.

If anything, the job-openings rate is higher now. Data from jobs site Indeed.com show that as of May 7 job postings were a seasonally adjusted 23% above their Feb. 1, 2020, level. That is up from the end of March, when postings were 16% above that pre-pandemic level.

Stories about businesses struggling to find workers were a constant feature of the years leading up to the pandemic, but since wage gains were middling throughout that period, they began drawing scoffs. If you really need people so badly, why not pay them more?

The extreme level of job openings now, plus a mountain of anecdotal evidence, shows businesses really are facing severe labor needs, while last Friday’s disappointing April jobs report suggests that even with millions of people out of work, filling positions won’t be easy.

There are disagreements about why hiring is so hard now: Some people point to the continuing lack of child-care options, for example, while others lay the blame on enhanced unemployment benefits lowering the incentive to work. The reality is probably that, in the wake of an unprecedented crisis, there are many things happening at once.

Some people may view high-contact jobs as riskier than before, for example, while others may be more focused on the opportunity, post-vaccination, to see family after a year’s absence. There could be mismatches between where job openings are located and the places unemployed people are. With demand for workers looking likely to intensify, many realize that they can be picky.

Whatever the reason, if the disincentives to work are higher now, then the way to overcome them is by raising the incentives. The biggest one is pay. Doing so might not be the easiest thing for employers to stomach. Companies face investor pressure to maintain profit margins, while many smaller businesses have experienced financial strains as a result of the pandemic that give them less room to maneuver.

Nevertheless, to keep pace with demand in a quickly growing economy, businesses are going to need to add workers. If higher wages are the only way they can do it, wages are going higher.

Write to Justin Lahart at justin.lahart@wsj.com

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