Why Is There a Labor Shortage?
It’s no secret that there is a labor shortage in America-- a skilled labor shortage, construction labor shortage, restaurant labor storage, fast food labor shortage, healthcare labor shortage, IT labor shortage, and the list goes on. Companies are struggling to fill positions, reducing their hours of operation, and even turning away business because of a lack of staff. The U.S. Bureau of Labor Statistics data from June 2021 reported that over 9.5 million Americans were currently unemployed and seeking work, while job openings hit a new record of 10.1 million. Statistically, there should be enough unemployed workers to meet all of these needs, so why are so many jobs going unfilled?
While economists are divided on the primary reasons for the shortages in the labor market, we do know that the answer to this question is multifaceted and complex. The pandemic is changing the way we work and the way we think about work, and the labor shortages are indicative of greater structural changes happening in the economy. High demand for labor force participation has shifted the economic playing field, giving employees the upper hand and enabling them to insist on better jobs, higher wages, and more benefits in exchange for their skills. The following are some of the factors that may be playing a role in driving the shortage of workers in the labor force.
Unemployment Benefits
Much attention has been given to the relief bills passed by Congress and the enhanced weekly unemployment benefits provided to offset the financial strain of the pandemic for unemployed workers. The extended unemployment benefits expired on September 6, 2021. There is disagreement on the level of impact these benefits have had on labor shortages. Some say they have caused fewer people to look for work, as enhanced benefits may be a deterrent for job seekers whose unemployment benefits are higher than their paychecks. Other experts argue research shows little evidence that this is a significant factor in the worker shortage. They worry the expiration of these unemployment benefits will eliminate vital financial support for Americans who are already struggling.
Need for Higher Pay
Minimum wage has been slow to rise, even as the value of the dollar has dropped. In 1968, the federal minimum wage was $1.60. Taking inflation into consideration, the current federal minimum wage would need to be $12.38 in order to be the equivalent of what it was in 1968. Instead, it is $7.25-- just over half of the wage growth which would be required to keep up with the inflation rate. For an employee working a 40-hour week, this equates to $290 per week or $15,080 annually. Employees are looking for better compensation, particularly in low-paying jobs such as food services, retail, and the hospitality sector, which often carry high stress from dealing with difficult customers and involve greater health risks due to increased contact with the public. Although some employers are raising pay and adding sign-on bonuses and other perks to attract more applicants, so far many are continuing to experience a shortage of workers. Experts are also keeping a close eye on the potential for inflation, as increases in business costs such as rising wages are often reflected in the price of goods and services.
Need for Better Working Conditions
Some historically low-paying positions are also highly stressful, requiring working with difficult, rude customers or demanding bosses. Some employees have even been willing to put up with sexual harassment in the workplace, unfair employment practices, or abusive managers for fear that they will not be able to get a better job if they quit or are terminated. Public-facing positions have carried additional health risks since the pandemic, putting these workers at a higher risk of exposure to Covid-19. With the worker shortage giving them more bargaining power, employees feel secure in turning down high stress/low paying roles or demanding better working conditions. They are confident that they can negotiate better terms of employment or find another job that will meet their requirements. Some of these professionals would rather not work at all than take a job that leads to constant stress and may put their health at risk.
Lack of Remote Work Options
The pandemic forced many businesses to conduct an impromptu experiment in the effectiveness of remote work. Some employees have embraced this and are reluctant to return to the office. They may feel more productive at home with fewer distractions from co-workers. Some want to avoid a long commute or appreciate the flexibility of remote work if they are responsible for caring for children or a family member. Others are concerned about being exposed to Covid-19 and becoming ill themselves or subsequently exposing vulnerable family members. Remote work options or hybrid work options are currently in higher demand than supply, as not all work can be performed remotely and some employers are urging a return to the office.
Lack of Child Care/Family Responsibilities
With many schools, daycares, and programs closed due to health and safety concerns surrounding the pandemic, some parents and caregivers have been forced to choose between work and family responsibilities. Those with school-aged children may need to supervise or assist students engaged in remote learning, while those with young children may no longer have reliable child care. Others have adult family members who need care. Juggling work with family responsibilities can be challenging, leaving some parents/caregivers unable to return work until services such as schools and daycares reopen.
Health Concerns
Since the beginning of the pandemic, concerns for health and safety have been at the forefront of many people's minds. Individuals who are immunocompromised or who live with someone with health concerns are cautious to avoid exposure to Covid-19. Some of the industries most in need of workers are also public-facing roles such as retail, leisure, and restaurants. These employees may be unwilling to accept a job that doesn't allow them to work remotely or puts them in an environment where they may be exposed to the virus.
Skills Mismatch Between the Current Labor Market and the Workforce
Even before the pandemic, experts were concerned about a growing skills gap in the workforce. Businesses have struggled to find qualified individuals to fill in-demand roles in skilled trades or positions requiring strong technical or digital skills. Meanwhile, some skilled workers who were laid off from their jobs are unable to find employment suitable for their experience, and are unwilling to accept a position outside of their field in industries that have many openings but often lower pay, such as retail or restaurants. Employees new to the workforce are also more likely to have a college degree, leaving more openings in industries typically only requiring a high school diploma. With this mismatch between the skills employers need and the skills employees have, filling these roles could become a much longer-term problem for the labor market.
Other factors in the skills gap include the automation or elimination of some roles. As hiring becomes more difficult due to qualified workers being scarce or rising hiring costs, employers may turn to long-term solutions that will be less expensive, including automating processes where possible or even eliminating some roles altogether, such as self-checkout lanes replacing cashiers. Some businesses may be required to reduce their hours of operation, eliminating positions or reducing them to part time. This will result in fewer unskilled labor openings and cause those who have filled these roles to seek other careers or compete for fewer job openings.
Supply Chain Delays
Supply chain issues add another complication for businesses already struggling and employees who can't find jobs requiring their skill sets. Because of material or product shortages, some businesses are unable to accept new projects or expand their businesses, reducing opportunity for economic growth and potential job creation. If the supply chain issues become a long-term problem, they will give businesses fewer reasons to hire new employees or expand their operations, resulting in more unemployed workers.
More Workers Quitting or Changing Careers
The pandemic has shaken many people's lives and given them the chance to rethink their priorities and explore new job openings. Some used this opportunity to quit their current job or change careers completely, while others reprioritized work-life balance, spending more time with family, volunteering for charity work, or focusing on hobbies or side businesses. Some are only looking for remote or hybrid job openings that allow flexibility or jobs that are less physically demanding or better paid. Others who were laid off because of the pandemic are looking for positions that are less vulnerable in times of economic crisis. Front-line workers such as healthcare professionals and teachers are experiencing high burn-out rates, causing some to search for a less stressful career. Other workers prefer freelance or "gig" style jobs where they can dictate their own schedule and not be beholden to an employer.
High Retirement Rates and a Shrinking Workforce
The number of working-aged people shrank by .01% in 2020, the first decline in decades. A slowing birth rate, reduced immigration, and increased retirement rates are some of the factors contributing to a shrinking workforce. Although the exit of the baby boomer generation from the workforce was expected in the coming years, retirement rates among older workers have been accelerated by the pandemic. Some of the older workers who were laid off chose to retire early rather than seek new employment. For others, concerns about Covid-19 made continued employment not worth the risk to their health. As the pandemic caused many to reassess their priorities, some with the financial stability to do so chose early retirement to focus on family, hobbies, travel, or other projects.
Relocation & Job Availability
The "Great Migration" of 2020 saw many workers relocating from urban centers to suburban or rural areas as lockdowns, closures, and health concerns caused by Covid-19 made city life lose some of its advantages. This has created a disconnect in some areas between the available workers and the open jobs. Some professionals find that the towns they have moved to lack job opportunities in their field, while there is a shortage of these people in other areas which have plenty of positions to fill. While remote work options can solve this problem for some, so far there are insufficient remote roles to meet the demand. Increased populations in suburban and rural areas have also created greater demand for workers in service industries such as hospitality, leisure, and retail, but the skills mismatch between the available workers and the available jobs means many of these openings go unfilled. In urban areas where employees have quit in order to move, there are increased job openings, but too few job seekers and applicants.
Reduced Migrant/Immigrant Workforce
Another outcome of the coronavirus pandemic was the reduction of the migrant workforce in the labor market. Border closures intended to prevent the spread of the virus also prevented migrant workers from filling seasonal roles, causing labor shortages. Immigration was also reduced, resulting in fewer new workers joining the workforce. Many employers who rely on this labor force are struggling to find enough workers to get their work done.
Changing Expectations
The pandemic has changed many people's mindset about work. The measures many companies adopted to address the health crisis gave employees more flexibility and options, and the current labor shortage has put power in the hands of the employees to demand those options continue to be available, as well as better working conditions and benefits. One survey even found that employees would turn down a $30,000 raise in exchange for the ability to work remotely. Low-wage workers are using the labor shortages to demand better pay for their work, pushing employers to offer higher wages and provide incentives to fill openings. Rather than feeling compelled to accept any job, employees now have the confidence and leverage to demand better pay and benefits or hold out for a job that will give them what they need.
The reasons for the labor shortages are varied and complex. It is increasingly clear that there are many factors involved, including the Covid-19 pandemic and a skills mismatch between the available labor supply and in-demand roles. Some of these factors have been in play for some time, but have been accelerated or exacerbated by the pandemic, while others are a direct result of the pandemic itself. Some experts believe that increasing wages or implementing new programs will help fill available positions, while others point to the need for workforce development and training to put more skilled employees in the industries that need them most. Reduced business hours, long delays for products and services, and numerous hiring signs all emphasize the need to address the labor force issue in the current job market.
One positive sign we have seen in the New York Capital Region is the drop in unemployment, with the Albany/Schenectady/Troy, NY area seeing the unemployment rate fall from 10.4% in June 2020 to 4.7% in June 2021. To continue to address the labor issue, businesses need to shift their mentality when it comes to recruitment. Positioning your organization as an attractive place for employees with benefits packages that meet their needs or remote work options where possible can help your business attract the candidates you need to fill vacancies and grow.