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The cause of the ongoing worker shortage

By November 14, 2022February 21st, 2023No Comments

The United States hiring crisis

Stories of worker shortages have dominated the news cycle for more than a year—and recent data from the US Chamber of Commerce confirms that the hiring crisis in the United States isn’t changing anytime soon. Indeed, as of October 2022, there are 10 million job openings in the United States but only around 6 million unemployed workers. As Stephanie Ferguson, director of Global Employment Policy at the USCOC put it, “if every unemployed person in the country found a job, we would still have 4 million open jobs.”

Warning signs of the so-called worker shortage first made headlines in the fall of 2021 as workers began to voluntarily quit their jobs right as employers began to ramp up hiring and regain confidence in the pandemic economy. As we approach 2023, employers are continuing to report extraordinary challenges finding workers to fill open positions— a phenomenon that traverses industries, affecting for-profit businesses and nonprofit organizations alike.

Why is there a worker shortage?

At the peak of the pandemic, more than 120,000 businesses temporarily closed, leaving 30 million workers unemployed. In January 2020, the labor force participation rate—which measures the share of people in the labor force who either are employed or who are not employed but actively seeking work— sat at 63.4%, the highest participation rate in the country since 2013.

In April 2020, it fell to 60.2%— representing millions of workers who were forced to “drop out” of the labor force due to the realities of the pandemic.

In 2021, as the economy began to recover and pandemic safety measures were dropped, employers added a record 3.8 million jobs to the labor market and were quickly met with the reality that there simply weren’t enough available workers to fill the new positions.

As we approach 2023, this is still the case. During October 2022, the labor force participation rate sat at 62.3%—meaning three million fewer Americans were participating in the labor force in October 2022 compared to February 2020. The last time the rate was around that number (pre-pandemic) was for one month in September 2015, when it dropped to 62.4%. Otherwise, the October 2022 participation rate is the lowest seen in the country since the late 1970s.

According to the latest USCOC data, there would be 2.9 million more workers today if the labor force participation rate was the same as in February 2020.

What are the causes of the worker shortage?

 A few key themes emerge when economists discuss the reasons behind the labor shortage.

As of September 2022, a quarter million people of working age have died from COVID-19. In the third and fourth quarters of 2021, death rates among working-age people—those 18 to 64 years old—were up 40% over pre-pandemic levels.

Even before the pandemic, a lack of access to high-quality, affordable childcare was a nationwide issue keeping women and parents from the workforce. A May 2022 poll by the USCOC, which surveyed unemployed workers who lost their jobs during the pandemic to determine what is keeping them from returning to work, confirmed that a lack of affordable childcare is indeed the largest contributor to the reduced labor force participation rate.

More than a quarter (27%) of respondents said that the need to be home to care for children or family members has made a return to work “difficult or impossible.”

Women were more likely to say that staying home to meet caretaking needs is a barrier for them returning to work (36%, compared to 16% of men).

There’s also the reality that millions of working-age adults were forced into early retirement due to the pandemic. As of October 2021, 3 million adults have left the workforce to enter retirement, in some cases retiring many years earlier than planned.

“We 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,” wrote ING economists in October 2021.

COVID-19 and workers

Health and safety concerns spurred by the still ongoing pandemic are also seriously impacting the participation and recovery rate of older and disabled workers who fear contracting COVID-19 while at work—49% of survey respondents indicated they are not willing to take jobs that do not offer the opportunity for remote work, and 28% said they have been ill, and that their health has taken priority over looking for work. To that end, studies from the Brookings Institute suggest that the emergence of long-Covid, which currently affects 1 in 3 adults in the US (16 million working-age Americans as of August 2022,) could account for 15% of the labor shortage.

As employers rush to fill open positions, many are offering increased salaries and benefits to lure workers back into the workplace. Survey results confirm that the pandemic unleashed pent-up demands for better pay and more flexible working arrangements. Nearly one-fifth (19%) of survey respondents reported that wages for their industry are not competitive enough and that they are taking their time to return until pay increases.

If you need help with hiring and navigating the worker shortage, let us guide you through. 501(c) HR Services is a confidential resource available to help walk nonprofit organizations through difficult personnel issues. Whether urgent advice is needed, or you just need help understanding the latest legislation, HR Services is always available. We currently serve more than 3,000 nonprofits from across the United States and 34 other countries.

(Image by Isabela bela from Pixabay )

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