delong236_OLIVIER DOULIERYAFP via Getty Images_now hiring sign employment OLIVIER DOULIERYAFP via Getty Images

The Great Labor Market Shakeup

The COVID-19 pandemic has restructured entire industries and changed the way workers think about their jobs, especially in low-paid occupations and sectors. But a full recovery in employment is still possible: policymakers and employers need only offer workers the support they are demanding.

BERKELEY – Approximately 13% of low-wage jobs in Germany would not be viable if workers understood just how good their outside options truly are. That is the conclusion of a recent paper by Benjamin Schoefer, my colleague here at the University of California, Berkeley, and his co-authors, Simon Jäger, Christopher Roth, and Nina Roussille.

“When comparing workers’ subjective outside options against objective measures of pay premia from matched employer-employee data,” they note, “many workers mistakenly believe their current wage is representative of the external labor market – objectively low-paid (high-paid) workers are overpessimistic (overoptimistic) about their outside options.”

In plain English, the implication is that if something was to shake up low-wage workers’ false beliefs about how poor their outside options are, occupational and labor-market conditions would fundamentally change. The same basic insight surely also applies to the United States, only more so, because the US federal minimum wage is much lower, relative to average productivity, than Germany’s.

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