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Will welfare cuts fix staff shortages?

Some governments are trying this tactic. But it doesn't seem to be working.

The Covid-19 pandemic upended the world of work. As governments ordered businesses to shut their doors for months on end, companies had to decide what to do about their staff. Some were able to keep employees working remotely. But many were not. After all, many types of work - bartending, say - can’t be done from home. And even at companies where remote working was possible, plenty were experiencing plummeting demand from customers and other pandemic-related financial whallops. The obvious response for many was to cut down staff numbers - wages are often one of businesses' biggest overheads.

All over the world, millions of people lost their income and were unable to replace it. Millions more were at imminent risk of ending up in the same situation as pandemic restrictions dragged on and many businesses continued to struggle. Clearly, this was a Big Problem - many people rely on their job to pay their bills and feed their families.

In many countries, including Britain and the USA, governments responded by attempting to replace a chunk of people's lost wages with state revenue. In Britain, the government promised employers that they would pay the majority of their staff’s wages if they furloughed them but kept them employed. The USA’s federal government went a slightly different route and gave money to lower-income people directly. More people were made eligible for unemployment benefits, which were also increased by $600 a week. And lots of households were sent one-off stimulus checks of around $1000.

Fast forward several months, and both the UK and the USA have started reopening their countries after successful vaccination programmes. Both, however, are now facing a new problem: substantial staff shortages. These are particularly acute in the newly restarting hospitality, retail and construction sectors. Without enough workers, these sectors will struggle to rebound. Without staff to make stuff and facilitate customer spending, less money will be put into the economy, hampering its post-pandemic recovery.

Some people think the problem is that the unemployment benefits that were made available during the pandemic replace work to such an extent that the people who are receiving them don’t see any need to return to the 9-5. After all, most of us probably prefer to spend time on our hobbies or with our loved ones over time in our workplace, and hospitality and retail are notorious for having particularly unpleasant working conditions.

However, society as a whole isn’t generally interested in subsidising people to not work just because they’d rather not. A common gripe is that the money the government uses to pay for benefits largely comes from taxes, which are charged to everybody, and more people using unemployment benefits may mean those taxes have to go up. Other people are bothered that government revenue is being spent on this rather than causes they think are more deserving - such as education or healthcare or even more generous unemployment benefits for people who cannot work. And of course, without service sector staff, lots of the things that give people joy, from going out to dinner to splurging at Selfridges, become harder to do.

Some American states have tried to fix the problem by cutting their pandemic benefits. But so far, this doesn’t seem to be having the desired effect. Maybe it will just take more time for things to become financially dire enough that people who’d rather not work will begrudgingly go back. After all, lots of people were able to save money during the pandemic and so may be able to afford not to work for a while.

But another explanation is that it isn’t about money at all. It may be that people are still worried about Covid, and unwilling to risk their health at almost any price. It could be that as education continues to be hugely disrupted, parents have no choice but to remain home to provide childcare. Or it could be that the desirability of service sector jobs has plummeted so much that most workers are determined to work in other fields.

Overcoming these obstacles may mean having to increase average pay for unpopular roles to the point that people are willing to overlook the risks and flaws (and can pay for childcare). That would be good news for a lot of formerly low-paid workers. But it might also mean the prices of everything from slingbacks to Singapore Slings is going to rise significantly, as shops pass the extra costs onto their customers.

Read our explainer on: what motivates us to work?

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