CLEVELAND—Charlie Braun long wondered whether paying higher wages would ease staffing shortages at his rubber parts factory, or simply push it into financial trouble. The Covid-19 pandemic provided a rare opportunity to experiment.

With an $879,000 forgivable loan from the federal Paycheck Protection Program as a cushion, Mr. Braun raised wages for some employees three times this year. Starting pay for machine operators, the toughest position to fill, jumped by $4.55 to $18.25 an hour, and to $19 for the night shift.

The early signs appear favorable, if initially bumpy. Custom Rubber Corp.’s head count climbed to 124 in July from 91 at the end of January. Profit margins hovered between 5% and 6% in recent months, roughly double the 3% the company had come to expect in a good year.

Labor costs, including taxes and benefits, now account for about 17% of sales, up from 12% eight years ago. But the extra labor has helped CRC to fill more orders, and sales...

Outlooks and Outcomes for the U.S. Economy With the release of the gross domestic product (GDP) data last week, we learned that the U.S. economy in the second quarter of this year transitioned from economic recovery to economic expansion.1 Given the catastrophic collapse in U.S. economic activity in the first half of 2020 as a result of the global pandemic and the mitigation efforts put in place to contain it, few forecasters could have expected—or even dared to hope—in the spring of last year that the recovery in GDP, from the sharpest decline in activity since the Great Depression, would be either so robust or as rapid. In retrospect, it seems clear that timely and targeted monetary and fiscal policy actions—unprecedented in both scale and scope—provided essential and significant support to the economic recovery as it got under way last year. Indeed, just recently, the National Bureau of Economic Research's Business Cycle Dating Committee determined that the recession...