Newsom stimulus plan for CA economy runs into labor shortage

Marvin Maldonado, co-owner of the Federalist Public House in midtown Sacramento, generally likes the massive economic stimulus package proposed recently by Gov. Gavin Newsom.

He’d like it even more if Newsom could somehow find someone to work a busy shift at Maldonado’s beer-and-pizza emporium.

“If he could wave a magic wand and find folks to come back to work,” Maldonado said. “I’m hard-pressed to find anybody willing or able to work a Saturday night.”

Maldonado’s dilemma illustrates the unusual state of the economy, in Sacramento and across California, as vaccinations increase, more businesses reopen and the nation climbs out of the COVID-19 recession.

Unemployment is still high — 6.6% in greater Sacramento in April, the latest data available — and legislative leaders are rallying behind Newsom’s breathtaking $100 billion plan to get California “roaring back,” as the governor put it. The statewide unemployment rate is 8.3%.

Yet a big part of what’s holding back the recovery isn’t a lack of demand from consumers — the factor that traditionally strangles economic growth, said Chris Thornberg, founder of Beacon Economics consulting in Los Angeles. Rather, it’s the inability of restaurants, retailers and others to hire enough workers to serve the newly vaccinated customers who have cash to spend and are lining up at their doors.

“The idea that you need to stimulate the economy is laughable at the moment,” said Thornberg, who’s also director of UC Riverside’s Center for Economic Forecasting and Development. “You have some parts of the economy that are over-heated and desperately trying to man up.”

The California economy is clearly recovering. Employers statewide added 101,000 jobs in April, more than one-third of the nationwide total. California has recouped almost half of the 2.7 million jobs that disappeared last spring. Greater Sacramento has recovered more than two-thirds of the 128,000 jobs that vanished in the first month of the pandemic.

Despite the progress, the labor shortage is taking its toll, especially in the service industries that were hit so hard when the pandemic began and the first stay-at-home orders were issued. Entire supply chains got disrupted and haven’t fully recovered.

“It’s not just the restaurants,” Maldonado said. “Our linen service — they’re short of drivers. Our wholesalers — they’re short of drivers.”

In the first month of the pandemic last spring, 30,000 restaurant workers in Sacramento lost their jobs, along with 17,000 retail workers, temporarily ballooning the region’s unemployment rate to 14.4%.

Now that most of the stay-at-home restrictions have been relaxed, almost all of the retail jobs have returned. But only about half of the restaurant jobs have been recovered, and employers are finding it tough to find their former employees — or hire replacements. About 23,000 area residents have left the labor force since the pandemic started.

“It’s so hard to get people right now,” said Ben Cooke, who manages the Fleet Feet sporting goods stores in the Sacramento area. “It’s not like we’re being choosy; we’re not getting a lot of people raising their hand.”

Cooke said Fleet Feet is looking for sales associates, staff trainers and, for its Elk Grove store, a marketing specialist.

“We’re constantly hiring,” he said.

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Ben Cooke, who manages the Fleet Feet sporting-goods stores in the Sacramento area, said they’ve had a difficult time finding employees to staff their stores during the coronavirus pandemic. Daniel Kim [email protected]

Where have all the workers gone? Some remain hesitant to go back to a workplace where they could get infected with COVID-19.

“People are still scared to go out because of the virus,” said Colin Wong, a co-owner of MAC Hospitality Group, which includes Cafeteria 15L and Iron Horse Tavern in Sacramento.

Wong and others say the slow reopening of schools to in-person learning has left many parents stuck at home.

“You had parents, especially moms, with the added burden of child care, maybe elder care,” said Jed Kolko, chief economist at online recruiter Indeed.com.

He said many workers who got laid off last year realized the furloughs were temporary. As a result, they haven’t been flooding the job market with resumes.

Biden proposes ‘work-search’ requirement for jobless benefits

Then there’s the political issue: Many Republicans say unemployment benefits have been so generous that there’s little financial incentive to return to work.

It’s an issue that has been debated for much of the past year. Some business owners complained when the initial stimulus plan signed by former President Donald Trump last spring created an additional $600 in weekly unemployment compensation. That was later cut to $300 under a later stimulus plan Trump approved. Those additional payments have now been extended through September via the stimulus package signed by President Joe Biden.

As the labor shortage has intensified, Republican governors in several states have moved to slash unemployment benefits, saying it’s necessary to get people back to work. Democrats have rejected the Republican analysis, but the labor shortage has put Biden on the defensive. He recently told reporters that his administration would reimpose “work-search” requirements on those receiving unemployment checks.

Whatever’s causing it, the shortage is real. Kolko said California job postings on the Indeed website have jumped 20% since Jan. 1, about in line with the U.S. average. In the greater Sacramento area, the postings have increased 35%.

Wong said the inability to fill vacancies is hindering MAC Hospitality’s ability to serve a demand that’s growing quickly.

MAC Hospitality employed nearly 700 workers at Sacramento restaurants and nightspots before the pandemic. That was quickly reduced to a skeleton crew of about 30.

In the past few months, as stay-at-home restrictions have eased, Wong’s company is back up to around 500 people. But Wong said he’d hire another 50 people right now if he could find them.

“We’re still short at all our venues,” Wong said.

EDD: ‘We have had challenges like many call centers’

Even the public sector has been scrambling to fill vacancies. In a great bit of irony, the California Employment Development Department has struggled to hire call-center employees to cope with the unemployment claims backlog that’s plagued the agency since the pandemic started.

EDD spokeswoman Loree Levy said the department has hired 524 new call-center employees — out of a goal of hiring 987 workers at the end of May. “We have had challenges like many call centers with recruiting and retaining workers for these difficult positions,” she said in an email.

In their quest for workers, some employers are raising wages. Chipotle announced a pay hike the same day Newsom announced his stimulus plan. Amazon, which has emerged as one of the largest non-government employers in Sacramento, is hiring another 900 workers at its Sacramento-area facilities — and is offering $1,000 signing bonuses and will pay $2 an hour above its average nationwide starting wage of $15.

“Amazon, like other companies, is experiencing a certain tightness in the labor market,” said company spokesman Xavier Van Chau.

Yet some employers say it’s hard for them to offer pay hikes. “We’re not a fine dining restaurant,” said the Federalist’s Maldonado. “We can’t pay exorbitant salaries.” On Wednesday the Federalist posted two vacancies on Indeed.com — a server starting at $13.50 an hour and a prep cook at $13.50 to $21.50 an hour. Both jobs were listed as “urgently hiring.”

Jeff Michael, an economist at the University of the Pacific, said the labor shortage points out the flaws in Newsom’s proposal to spend billions reviving the economy.

“Additional stimulus isn’t necessarily needed to jump-start the economy,” Michael said.

Instead, he said the governor would be better off targeting more assistance to small businesses that have suffered mightily during the pandemic — and could use help coping with labor shortages and other costs of ramping up their operations.

‘Life has got to progress more towards normal’

An earlier stimulus plan signed by Newsom in February included $2 billion in grants for small businesses and nonprofits. The program awarded 198,000 grants but ran out of money with another 180,000 applicants waiting for help.

“That was totally under-funded,” Michael said.

Newsom’s new stimulus proposal would put another $1.5 billion into the grant program — enough to pay for about 150,000 more grants, said spokesman Chris Dombrowski of the Governor’s Office of Business and Economic Development.

Michael said the labor shortage will likely ease when, if all goes according to plan, most students are back in the classroom and parents can resume looking for work.

“Life has got to progress more towards normal,” Michael said. “It’s going to be an interesting and challenging summer.”

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Dale Kasler covers climate change, the environment, economics and the convoluted world of California water. He also covers major enterprise stories for McClatchy’s Western newspapers. He joined The Bee in 1996 from the Des Moines Register and graduated from Northwestern University.