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Pay’s Role in Attracting (and Keeping) Workers to Fill Open Jobs

In a recent report on the employment situation, the U.S. Bureau of Labor Statistics reported continued strong job growth, with 517,000 jobs created in just the most recent month. Painting a similar picture, the national unemployment rate was 3.4%, the lowest since 1969 (53 years ago). Finally, until recently, the percentage of private sector jobs that are open/unfilled never went above 5.1%. Now, however, it continues to hover near 7%, which translates into millions more unfilled jobs than we have ever seen previously. (You may have experienced the consequences of these unfilled jobs as a customer, employee, or manager.) One response by employers to such worker shortages is to pay more. We have, in fact, seen this, as average hourly earnings increased by 5.7% in 2021 and by 4.4% in 2022. That contrasts with the previous 10 years when the median increase was 2.3% and never exceeded 3.1%. Walmart is an example of a company that is increasing wages. Walgreens is using a signing bonus of up to $75,000 for pharmacists in some markets. (The bonus payout requires staying in the job for a certain amount of time.) 


Discussion Questions: 

  1. Provide examples from your own experiences (as customers, employees, or managers) of labor surpluses and/or shortages, and their consequences (e.g., scaled-back hours/services). What changes in wages and/or benefits have you experienced or heard about? Do these changes seem to be working?  (Remember to consider what would have happened without these changes in wages and/or benefits.) 

  1. Will workers be better off due to these wage increases?  

  1. What has the inflation rate been? Are firms increasing wages enough to keep up with inflation? Why or why not? What does this mean for workers? 

  1. What other suggestions do you have for how firms can attract and retain workers? 

  1. How else can (and do) firms respond, especially over the longer run, to worker shortages and/or higher labor costs?  


Note for Instructors: The most recent annual inflation (prices) increase was 7.0% in 2021 and 6.5% in 2022. Ask students what happened to workers’ standard of living, given that their wages went up 5.7% in 2021 and 4.4% in 2022, which are both less than inflation. Beyond wage (and/or benefit increases), other ways firms respond to worker shortages and/or higher labor costs include outsourcing (including offshoring), automation (substituting technology such as robots for workers), deskilling jobs so that more people are qualified, or lowering hiring requirements. It might be interesting to ask students if they believe current worker shortages/rising wages seem likely to be temporary or lasting and how that influences how firms will choose to respond to worker shortages and/or higher labor costs. 

If students say that increases in wages and/or benefits are “not working” (e.g., because hiring/retention is still not where desired), consider helping them understand that the situation would perhaps be even worse if increases in wages and/or benefits had not been implemented. 

Included in sources are articles that provide examples of several of the ways (see above) employers can respond to high labor costs/worker shortages. 


Data on job creation, unfilled jobs, inflation, and wage growth come from the U.S. Bureau of Labor Statistics, specifically: The Employment Situation, Consumer Price Index, and Job Openings and Labor Turnover Survey (JOLTS). Employer response examples: Christopher Mims. The ‘Roboeconomy’ Is (Finally) Coming. Wall Street Journal, October 15-16, 2022. Liz Young. Warehouses Add Perks to Attract Employees. Wall Street Journal, October 12, 2022. Sarah Nassauer. Walmart to Raise Starting Hourly Wages to $14. Wall Street Journal, January 15, 2023. Austen Hufford. Employers Rethink Need for a Degree. Wall Street Journal, November 28, 2022. Lindsay Ellis. U.S. Accountant Shortage Has Firms Looking Overseas. Wall Street Journal, January 19, 2023. Sharon Terlep. Walgreens Steps Up Bonuses to Druggists. Wall Street Journal, August 12, 2022.