"The good from this is we've seen low-wage appreciation without the government having to come in and raise the minimum wage through more rules and regulations."
That's Republican Rep. James Comer of Kentucky's 1st Congressional District describing how the labor shortage is benefitting his state. As long as pay doesn't spiral out of control, Comer said the shortage can accomplish what Congress hasn't agreed on for 12 years: a new minimum wage.
The labor shortage has been a nationwide phenomenon in 2021, but it's been especially intense in Kentucky. A first-of-its-kind report published in October indicated the state had the country's highest quits rate and one of its highest job-openings rates. Kentucky is still at the epicenter of the labor shortage months later, and the unusual hiring trends are expected to linger through 2022.
Insider spoke with more than a dozen Kentuckians to uncover what's powering the shortage and how it could be solved, and spoke to representatives from both the Democratic and Republican sides of the aisle for the heavily conservative state. We also interviewed Comer's Democratic colleague John Yarmuth, the retiring chair of the House Budget Committee, whose district includes all of Louisville.
Comer said the labor shortage could represent a turning point for his district's economy. Recent wage hikes "probably needed to happen," he said, particularly for low-income areas. He also has strong thoughts on how the free market should solve unemployment, but it shouldn't be allowed to run so free that those wage hikes turn into an inflation crisis. Still, he said the state has has been in a "workforce crisis for many years" and bemoaned abuse of Social Security disability benefits. As his district borders Tennessee, he especially highlighted how intrastate rivalry weakens the job market.
Like all members of the House, Comer is up for reelection in November 2022.
Here's a transcript of Insider's interview with the representative on the labor shortage, Kentucky's hiring challenges, and how the tug-of-war between employers and employees is shaping up. The interview has been lightly edited for length.
Kentucky's labor-force participation rate has been falling for most of the last two decades. What drove that, and to what extent has policy played a role?
Kentucky has been in a workforce crisis for many years. One of the primary reasons is that there are certain pockets in and around Kentucky where a large percentage of the population in certain counties has been declared disabled.
If you go back to when Bill Clinton supposedly reformed welfare in Kentucky, there was a big transition from welfare to disability. Being declared disabled became the new welfare.
In Kentucky, the rules are lax — and they always have been — to be able to draw welfare and extended unemployment. The rules benefit the people who really want to game the system.
(Editor's note: As of 2019, Kentucky was the state with the third-highest percentage of residents receiving disability benefits via Social Security, Insider calculated, whereas neighboring Tennessee was ranked eighth. Various studies support Comer's claim about disability aid, which is paid through the federal Social Security program.)
Those unemployment programs got a pretty big boost during the pandemic. How has that affected already low workforce participation?
It made a bad situation worse.
Gov. Beshear totally botched the extended unemployment programs. Employers called our office every day complaining that they had called their employees back to work after that one- or two-week government shutdown and the workers wouldn't come back because they didn't have to. They could make as much money on unemployment as coming back to work.
A lot of employees drew unemployment for nearly a year when in fact they should've drawn unemployment no longer than 10 days.
It's always been abused. My district is on the Tennessee border. It's much harder for people to go in and draw unemployment in Tennessee than it is in Kentucky.
If you drive through eastern Kentucky, every other billboard is an advertisement from a law firm telling you to call their number to be able to get on disability. It's an industry in certain counties in the state. It's a fraud that's developed into a massive industry.
(Editor's note: Beneficiaries in Tennessee must provide "detailed contact information" for at least three prospective employers every week; Kentucky's program requires beneficiaries to report only one job contact each week.)
When you talk to businesses in your district about how they're trying to hire during reopening, what have you been hearing? How has this jobs recovery been different?
It's a dire situation. People assume it's just the low-wage restaurant workers or travel-industry workers. It's everyone. It's manufacturing. It's financial services. Even the construction industry.
The biggest complaint was they didn't have as bad of a labor shortage before COVID, and once COVID happened and the federal government allowed for extended unemployment … people in Kentucky drew it as long as they could. It's just been real frustrating.
Now some of these workers that gamed the unemployment system are starting to go back to work, and they've realized that there's such a shortage of workers that employers are offering sign-on bonuses.
That's the next big problem that has faced a lot of employers. You've got a lot of musical chairs happening. You've got employees that are working somewhere until they get that sign-on bonus and then going to another place and getting another sign-on bonus. It's a civil war among Kentucky employers trying to hire and retain workers.
The latest data points to the labor shortage lasting well into 2022. What will it take for that to end?
As big as the labor shortage is in America now, there shouldn't be very many unemployment claims being paid out. I think the federal government should temporarily suspend the unemployment program, temporarily suspend any type of benefit it's given to people who can't find work.
The Democrats in Washington have been talking about raising the minimum wage ... Well, the market has.
Many of the workers we've been speaking to see this as something good in the economy, pointing out that they have more options and that the shortage is driving wages higher. Do you agree that there is some good coming from the labor shortage?
The Democrats in Washington have been talking about raising the minimum wage, and conservatives would come back and say, "Let the market determine the wage."
Well, the market has. You've seen a huge increase in pay for the low-wage jobs, which probably needed to happen for people to be able to work. The good from this is we've seen low-wage appreciation without the government having to come in and raise the minimum wage through more rules and regulations in the private sector.
Something we've heard about from some Kentucky workers is the need for childcare support. What does Kentucky need to do to solve that problem?
It's always been a huge challenge finding childcare. It's a challenge at my house. One of the things that made that a bigger challenge were the states and the counties that extended virtual learning and didn't have in-person learning. If the kid has to stay home from school, somebody has to watch them when there are no childcare options or people can't afford childcare.
The shutdown of in-person learning in public education had a detrimental effect on the employment situation in Kentucky because parents had no choice but to leave the workforce and keep their young children at home.
You mentioned that the labor shortage is the way for the market to solve the minimum-wage problem, but you've also raised concerns around people not returning to the workforce. Where do you think the middle ground between those two trends is?
Hopefully the market will work itself out. It's a win for low-wage workers, because I don't know anywhere in my district now that's offering a beginning salary anywhere around minimum wage. Everything I know is at least 30% above minimum wage. McDonald's and the lowest of the low-wage jobs are now way past the minimum wage.
I've always said that the minimum wage wasn't a living wage, especially if you're an adult and have a family. So this has been a help to a lot of low-wage workers in America.
The problem when wages go up this much is it leads to inflation. We're seeing inflation every day. So a lot of the gains that low-wage workers are going to have are going to be offset and then some by increased inflation.
Are there other hiring barriers in Kentucky that you think are ignored in the national conversation around the labor shortage?
Kentucky is a very red state, and if you call my district, one of the biggest issues is border security. There's a huge disconnect on amnesty between the average Kentuckian and the employer.
The employers want workers. They see all these people coming across the border illegally, and they see an opportunity to hire workers.
The average worker in Kentucky is appalled that we don't have border security. So we get calls from employers wanting amnesty and wanting more H-2A workers.
We got calls when they announced they were sending some of these Afghan refugees to Kentucky. Several employers called me and said, "Do you think you could hook me up with somebody and see if I could use any of these people as workers?" That's how desperate the employment situation is, that the employers are bucking the conventional wisdom in Kentucky with respect to amnesty and border security.
My position is to secure the border, and I'm not supportive of amnesty. I am open to more H-2A and H-2B workers, because there's always been a shortage of workers in agriculture and construction and things like that.
(Editor's note: H-2A visas are issued to foreign seasonal agriculture workers when US workers aren't available; H-2B visas are similar but pertain to industries outside of farming.)
Has the average Kentuckian's stance changed on border security because of the labor shortage?
They're opposed to amnesty and having any type of policy that would allow anyone in this country illegally to legally work somewhere. If you poll it, it's 99% in my district.
The 1% that's open to it is the employers right now. It's that bad.
What do you think the media's getting wrong about the labor shortage and the situation in Kentucky specifically?
When I say there are too many people on disability, people go, "Oh my God, that's politically incorrect!"
Kentucky has an industry to get people on disability who are very able-bodied. I don't think the media understands it. When they hear me say that, they think, "Oh, that's a hard-hearted person."
But I'm the one member of Congress that grew up and still resides in Appalachia. So I have a broad section of the state, and I can tell you that's had as big an impact on the worker participation rate as anything.
You've got counties in Kentucky with populations of 15,000 people that couldn't fill 25 jobs right now if a new industry moved in. One of the biggest reasons why is the disability industry.
It's frustrating for me because most of my district is on the Tennessee state line and it's just very difficult to compete against Tennessee. They don't have an income tax. They have tighter unemployment rules, which leads to less fraud and cheating. They don't have a disability industry.
I'll give you another example. Thirty percent of Kentucky is on Medicaid. Thirteen percent of Tennessee is on Medicaid. How in the world can two states that have everything in common have that big a difference?
If you are eligible for Medicaid in Kentucky and you go to work, you'll lose your Medicaid. And there's no better health-insurance plan than Medicaid.
These things sound hard-hearted. But if you really want to dive into the problem, it's the Medicaid systems abused in Kentucky, unemployment systems abused in Kentucky, and the SSI disability system abused in Kentucky. That is the reason we have the lowest worker-participation rate.
Now, Yarmuth will disagree with that. Buddy, I am right, and he is wrong.
(Editor's note: Kentucky adopted the Medicaid expansion under the Affordable Care Act that widened eligibility to any individual without insurance earning less than $17,609, and Tennessee did not.)