From restaurants with temporary working hours to sky-rocketing inflation rates in grocery stores with not enough stockers, it has become evident that the economy is enduring a mass labor shortage.
Some have started referring to this crisis as “The Great Resignation,” citing not only a mass exodus of the working force but also workers demanding better conditions upon returning to the workforce. While the shortage has been exacerbated by the Covid-19 pandemic, the truth remains that many factors combined have led to the current climate.
According to CNBC, “Economists say changing demographics like aging and retiring workers are a factor behind the shortages, as well as border controls and immigration limits, and demands for better pay and flexible working arrangements.”
Economists believe that one of the largest impact points comes from the large number of workers opting for retirement. According to the CNBC article, “‘[w]e believe there is a more permanent loss of workers driven by a large number of older workers taking early retirement. The thought of returning to the office and the daily commute may seem unpalatable for many people and with surging equity markets having boosted 401k pension plans, early retirement may seem a very attractive option,’ they noted, adding that border closures will have curbed immigration and slower birth rates mean fewer young workers are now entering the workforce.”
According to CNBC, “There are more than ten million job vacancies right now spread across all sectors with a record proportion of companies raising pay to try to attract staff. Instead, it is a problem with the supply of workers, which is both holding back output and increasing inflation pressures in the economy.”
With the withdrawal of the older workforce comes an obvious need for the emergence of new workers to fill those positions. While this idea is simple in theory, the reality is much more complex.
First off, one of the largest discrepancies is the idea of why new workers are not filling jobs. According to The New York Times, “Conservatives have blamed generous unemployment benefits for keeping people at home, but evidence from states that ended the payments early suggests that any impact was small. Progressives say companies could find workers if they paid more, but the shortages aren’t limited to low-wage industries.”
It is also important to note that while American politics have worked their way into the labor shortage, many countries are experiencing similar circumstances.
According to CNBC, “[t]he problem is not just a U.S. one, with many countries around the world experiencing a shortage of workers. It matters because it’s exacerbating supply chain disruptions around the globe, with key industries struggling to regain momentum due to a lack of workers or raw materials.”
ING economists Carsten Brzeski, James Knightley, Bert Colijn and James Smith wrote in the CNBC article, “The lack of skilled workers is not only just another symptom of post-lockdown economics but also the result of more fundamental developments in the U.S., the eurozone and the U.K..”
As for the United States, many workers struggle to return to the workforce due to damage from when Covid-19 was at its peak destructiveness.
According to the Society for Human Resource Management, “SHRM also polled 1,000 unemployed Americans who were laid off or left their jobs during the pandemic—the majority of whom worked hourly jobs in industries heavily impacted by the health crisis, such as foodservice and retail. The top reason for remaining unemployed, cited by 42 percent of respondents, was not having received any responses to jobs for which they’ve applied.”
The study continued, “[a]dditional primary reasons for continued unemployment included fear of being exposed to COVID-19 (32 percent), being offered less pay than their previous job (29 percent) and preparing for a career shift (17 percent). Those who voluntarily left their job during the pandemic are more likely to say they are using this time to prepare for a career shift than those who were laid off from their jobs.”
In addition to the issue with obtaining workers, companies have been faced with many difficult financial decisions in order to continue to appeal to consumers.
According to the Society for Human Resource Management, “[n]early 90 percent of 1,200 employers surveyed said they were struggling to fill open positions this summer, and 73 percent said they’re seeing a decrease in applications for those hard-to-fill positions. About half of the organizations said they’re seeing an increase in the number of applicants failing to reply to a request for an interview. Businesses are having the toughest time filling hourly, entry-level and mid-level non-managerial positions, especially in sectors such as manufacturing, hospitality, food service and health care.”
It is also important to note that according to the study, “[j]ust 11 percent of respondents said the expanded unemployment benefits made it possible to be more selective about a new job, and 9 percent said they’re earning more through unemployment benefits than they would with a job.”
According to reuters.com, “U.S. companies have so far this year kept profit margins at record levels because they have cut costs and passed along high prices to customers.”
The article continued with a statement from Savita Subramanian, head of U.S. equity & quantitative strategy at BofA Securities, who wrote “COVID-related supply chain issues have spread beyond consumer goods. And longer-term signs of global friction are easy to find.”
In addition to issues caused by inhibition in the supply chain, wage inflation is another cause for concern in the American economy. Businesses are seeing an increase in costs towards salaries and wages as well as general operating expenses.
According to reuters.com, “Investors are weighing the impact of sharply higher energy costs on businesses and consumers after a recent surge in oil and natural gas prices. While higher energy prices should be a boon for energy producers, they are an inflationary risk for many other companies like airlines and other industries and cut into consumer spending.”
According to the Society for Human Resource Management, “To fill critical openings, 57 percent of employers surveyed by SHRM are offering referral bonuses, 55 percent are hiring external or temporary workers, 44 percent are upskilling and reskilling staff, and 43 percent are boosting pay.”
While the worker shortage remains prevalent and troubling, that is not to say it is without hope.
According to a statement from Gad Levanon, head of the Labor Market Institute at The Conference Board in New York City, in the Society for Human Resource Management article, “[. . .] labor shortages can be somewhat alleviated by using a mix of recruitment strategies such as adding or modifying employee referral programs, contracting with staffing firms, using new technologies to streamline recruitment and better target candidates, and shortening the recruitment process with fewer interviews and faster hiring decisions.”
Even with the effort of individuals and companies, the truth remains that while hope remains for the future, this issue is not going to dissolve anytime soon.
According to the Society for Human Resource Management, “[a] recent survey of business economists conducted by the National Association for Business Economics revealed that labor constraints aren’t likely to go away any time soon. Only 6 percent of respondents expect labor shortages to diminish by the end of 2021.”
The article continued, “But labor markets could become tight again in 2022 simply because a strong economic recovery and job growth will lower the unemployment rate significantly,” he said. “And for the first time in U.S. history, the working-age population is shrinking as many Baby Boomers are retiring.”