What Will Close The Supply Gap?

Photo: Sander Gusinow
Thomas Potiowsky, director of Portland State University’s Northwest Economic Research Center

The senior advisor of the Northwest Economic Research Center outlines the factors — including labor issues  — driving supply shortages in Oregon. 

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Though unemployment is nearly 6%,  according to recent data from the Bureau of Labor Statistics, businesses across the state continue to report that they’re struggling to hire new staff. 

Labor isn’t the only thing in short supply: Oregon companies are also experiencing materials shortages, leading to higher operating costs — and higher prices passed on to consumers. 

Wooden pallets, for example, are essential for transporting products in bulk, but have spiked in price during the COVID-19 pandemic. Pre-pandemic, new pallets ran $9–$13 each. In May the same pallets sold for $24–$35, according to Jobhan Randhawa, operations manager for A-1 Pallets, a Washington company with a facility in Portland.

Tom Potiowsky, senior advisor at the Northwest Economic Research Center, explains what he sees as the driving cause of Oregon’s labor and supply gap, and how the issue will (and won’t) be resolved. 

RELATED STORY: Coastal Labor Shortage Highlight Bigger Problems 

Answers have been edited for length and clarity.

What factor, or factors, do you see as contributing to Oregon’s labor shortage?

Normally when you have an unemployment rate of 6% it isn’t difficult to find people to hire. There are three reasons for the shortage, I think, and they are all interconnected. 

One is the federal support for unemployment benefits. They dropped the requirement that you had to be looking for work, so you can get unemployment benefits without showing there was a job available to you. But states have begun to let that go. 

The second problem is child care. Children were out of school, daycare was difficult to find and women were mostly in charge of taking care of the children. The only choice was to stay home. 

Third is COVID-19 fear: “I don’t want to go to a place where there are lots of people working.”  

Many of Oregon’s exports, including timber, are down in sales. Are these labor shortages causing the shortages elsewhere in Oregon’s supply chain?

A little bit. If you look at log exports, they are down. It’s not that you can’t get logs, you don’t have enough mills running for the demand. The raw material is there, but there just aren’t enough mills running. 

You also had stimulus checks which made checkable deposits go through the roof. You have places opening up, people going out less afraid of the virus, but it’s taking manufacturers more time to open up. So you have demand rushing out faster than supply can keep up with it. 

We haven’t seen the demand floodgates opening up like this since maybe the end of World War II. 

Employers have reported having to raise wages to attract employees. Will wages stay high or do you expect wages to drop as the labor force returns?

The labor will come back, but wages tend to be sticky. You can’t really increase the wages for people and then say “hey, there’s more labor now so wages are going down.” That’s going to cause inflation. Then workers will start demanding higher wages to keep up with prices, which is called cost-push inflation.  

We aren’t getting inflation because of any sort of supply shock. Demand is what is pushing up prices, rather than a shortage of supplies, which is only low in relation to demand. 

What do you expect to happen if cost-push inflation happens?

There’s a possibility that wages will go up and then they will stay at a certain point. Prices will catch up and demand will go back to normal. Wages won’t be coming back down, but these prices that have jumped up won’t be coming back down either. 

The scary part for me going forward is if they go over that certain point. If employees continue to demand higher wages and prices keep going up because they can get away with it. 

Then you’re off to the races. 

If we get more news of the supply shortage and labor shortage going away, I would feel better about it. If supply chain problems get alleviated quickly we’re going to be okay. 

Why has this problem been so persistent? 

My major gripe is with our politicians. Republicans are pointing to states that have dropped the benefits and have lower unemployment rates, and claim that’s the only reason. 

Democrats completely discount that and say it’s the other two reasons.  

This always happens when there is an issue where there are multiple causes. They are interrelated and there is truth to all of them. But you only pick the one that’s in line with your political philosophy and you discount everything else. 

That gets you nowhere. That isn’t the way to solve an issue. Republicans and Democrats are both getting it wrong.

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