Periodic complaints of labor shortages are not uncommon. In fact, throughout history, we have seen this condition repeatedly, from the Great Rising (Peasants’ Revolt) in 1381 to the massive labor shortages during World War II. Hence, you might wonder why all the headlines of labor scarcity are dominating the news lately?
What is different this time around is that we are experiencing labor shortages with elevated unemployment rates. Simply put, employers are struggling to find workers despite high levels of unemployment.
In this article, we explore why is there a labor shortage in the U.S, the implication, and strategies to overcome this global problem. We have gathered insightful advice on how leading experts attract high-quality talent in a tight labor market.
Is there a Shortage of Labor in the U.S?
A labor shortage means employers have difficulty recruiting applicants for job openings. To better understand the current state of the job market, let’s look at two key figures.
- Sky-high job openings- The most recent U.S. Bureau of Labor Statistics showed that job openings rose to 10.9 million, a near-record high. The same survey recorded 4.3 million people voluntarily leaving their jobs (also called “Quit Rate”), the highest level seen on records since 2000.
- High unemployment rates – Although there are significant improvements, the unemployment rate is still not back to pre-pandemic levels.
In February 2020, before the COVID-19 pandemic, the unemployment rate was 3.5 percent, and as of January 2022, it remains elevated at 4 percent.
The facts show the seismic impact the COVID-19 pandemic has on the economy, resulting in the so-called Great Resignation. The Great Resignation has caused profound problems across various industries, from restaurants struggling to find servers to hospitals that can’t find nurses.
Melissa Moseley, General Manager of Frontline Recruitment Group, comments, “State border closures and the lack of international travel, has heavily impacted our available staff base with regional and junior roles being hit hardest.”
So, you may wonder, what are the root causes of the labor shortage?
What is Causing the Labor Shortage?
The pandemic led many to reconsider where, how, and why we work. Some employees chose to retire early, and others stayed home to take care of children and the elderly, while some decided to start their own business or join the gig economy.
The current labor shortage is a complicated mix of changing economic factors, and there are several possible causes for it.
The early retirement of Baby Boomers seen during the pandemic created an unprecedented exodus in the labor market like never before. In fact, there are 3.3 million more retirees as of October 2021 than January 2020 (pre-pandemic).
Due to two years of travel and immigration restrictions, by the end of 2021, there were 2 million fewer working-age immigrants living in the United States.
According to IMF staff research, the second biggest cause of the labor shortage can be attributed to a mismatch of types of jobs available and the willingness of the people to apply for them.
Based on projections, the U.S. workforce will shrink even more in the next decade as more workers get to retirement age.
The unprecedented number of employees quitting without looking for another similar job is putting a strain on the economy. However, these workers are not simply quitting their jobs and staying inactive. Instead, they switch careers – even industries, leaving low-quality jobs and searching for better working conditions and benefits.
All of the statistics above signal a major discontent of American workers, even more, pronounced among low-wage and hourly workers. To sum up, employees leave the traditional workforce in droves and look for more autonomous or higher quality ventures.
What are the Implications of Labor Shortages?
Labor scarcity may leave severe and lasting consequences on the economy. Further, the current labor shortage is unlike past ones, affecting every worker, skilled and unskilled. All the facts point to it being a much larger problem and one that will persist for years with various short and long-term implications.
Short-term Implications of Labor Shortages
If the worker shortage persists, we can expect to see rising wages, inflation, and supply chain issues in the short term.
Additionally, the tight labor market has given workers more power, gaining leverage over employers. Companies need to answer demands for improved job quality, better conditions, and higher pay to fill positions in a worker’s economy. As a result, the Labor Department reported that the average wage increased significantly in 2021 – to more than $31 an hour.
While a higher wage is good news for workers, a slow-moving employment recovery could further fuel inflation and constrain economic growth.
Long-term Implications of Labor Shortages
In the long term, staffing shortages could slow down GDP growth, cause a recession, and hamper the growth of industries with predominantly blue-collar jobs and manual workers.
From Signature Home Services, Robin Burrill reflected on their experience attracting qualified workers in manual trades. They stated, “Our company is a design/build remodeler at the forefront of an industry that had labor shortages even before the pandemic. In recent years, manual trades like carpentry have faded in popularity, even with the 9% growth in single-unit housing in the last decade.
Now that homes have become people’s offices, gyms, and temporary schools and daycare in response to the pandemic, the need for skilled trade labor is enormous. Yet, the culture around the college route and the myth that only college grads earn decent money has turned a whole generation of kids away from skilled trade programs.
We have been hard-pressed to recruit talent fast enough to keep up with demand.”
It is clear that demand has recovered, but the willingness to go back to work has not, at least not, under the old conditions.
Therefore, the question arises – is raising wages enough to entice workers to return to their jobs? How can companies hire and retain talent during a labor shortage when workers have more choices than before?
For the most part, the answer is that employers must show their value and understand why workers opt out of the traditional labor force.
What Can Employers Do to Overcome the Labor Shortage?
When companies take no action to address the labor crisis, they risk facing severe consequences. Productivity loss, setbacks in achieving organizational goals, and high work pressure only further exacerbate the burnout in workers.
The typical financial incentives include offering sign-on bonuses, referral, and retention bonuses. However, as wage drift theory predicts, higher wages and other economic motives will spread to other companies and sectors, which will reduce their effectiveness.
Instead, proactive employers ought to take a human-centric approach and emphasize offering competitive worker conditions. For that reason, we see many companies offering hybrid and remote working options, expanding wellbeing benefits, and creating an overall more attractive work environment.
1) Focus On People, Brand & Culture
The most important reason many employees quit their job is their bad relationship with their boss. Successful organizations not only generate profits but also generate thriving employees. Hence, a positive work culture that provides meaning and empowers employees can recruit and retain outstanding talent.
As Karin Volo, CEO of Evoloshen, outlines, “One of the best solutions for dealing with attracting top talent is to work actively and strategically on creating a caring culture where your current employees and customers are raving fans. It’s what I call doing the “inner work” on an organizational level.
This includes having a clearly defined bigger purpose, high levels of trust, and genuine caring where people want to be a part of the company and feel they can contribute. Leaders need to understand the value of a great company culture first! This will help attract and retain great people on a long-term basis.”
2) Better Employee Benefits & Conditions
The simplest and most straightforward solution to attracting workers in a highly competitive job market is to create better jobs. Tracey Beveridge, HR Director at Personnel Checks, stressed that the key is to make people want to work for you. She stated, “In the highly competitive job market, there are a few things we have found have helped to have recruitment success:
- Promote flexible working: Switching to a hybrid working structure has been very successful for us and is now embedded across the whole organization. Those people are able to work between our award-winning office environment and work from home is a big selling point in our recruitment.
- Champion wellbeing: The business culture is changing for the better – with organizations openly supporting their employees to ensure their wellbeing is prioritized. Companies like ours are holding an improved focus on mental health and promoting physical activity to encourage happier staff – the end result is fulfilling their responsibility as an employer and increasing staff retention, and becoming more appealing for prospective applicants.
- Satisfaction: By keeping your current employees happy in their roles, you are already building a good reputation. They would gladly tell others about available opportunities if they are satisfied with their workload, personal growth, compensation, and environment. We have set up a scheme where we offer rewards to employees if they recommend a vacancy to a candidate who goes on to be successfully recruited.”
In the highly competitive job market, there are a few things we have found have helped to have recruitment success:
- Promote flexible working
- Champion wellbeing
3) Offer Opportunities for Development & Growth
Companies are lowering educational requirements, offering job training, career path guidance, or even funding education to bolster retention rates in blue-collar gigs.
Robin Burrill shared a new approach to recruiting by stating, “We’ve contacted leaders at trade schools. We want to connect with fresh talent to offer them guaranteed work with built-in training waiting for them.
We’re also funding two scholarships for kids enrolled in a local trade program we really love. We want to expand these scholarships to include an apprenticeship and some internships in the near future. This is all possible through the local organization that provides the trades courses, so we partner directly with them.”
Tim Walmsley summarized their experience at BenchOn, by stating, “The labor shortage problem is not just a recruiter problem. Businesses are trying to keep their employees engaged and productive so that they can reduce their turnover rate and invest in their staff for the long term.”
What Are Companies Doing to Find Talent?
In today‘s climate, employers must be creative to retain the right talent, upskill workers to fill critical gaps, and attract new applicants. Strategic workforce planning calls for organizations to analyze their labor force in terms of talents, skills, experience and match them with relevant tasks for optimal use. Mobility of employees, both inward and outward, is a crucial talent management strategy for combating worker shortages.
1) Shared Talent Pools
Tim Walmsley expressed the need to identify skills gaps and share talent. He stated, “BenchOn has been supporting businesses to link to each other to match supply and demand for specialist talent and tap into the independent contractor pool. Some of the most experienced and highly skilled people are already employed, so rather than staying on the ’employee poaching’ merry-go-round and perpetuating the problem, instead thousands of businesses are sub-contracting other companies to provide specialist staff for contingent tasks.
This allows them to manage the peaks and troughs of the business cycle, keep their employees working on interesting and varied tasks, and bring in new revenue for the business.”
2) Outsource Skills
Michelle Fotheringham, Werkling CEO & Founder, further affirms the sentiment of solutions based on outsourcing and collaboration. Michelle says, “Leaders and talent professionals are tapping into the on-demand talent pool (i.e., freelancers, independent consultants, corporate escapees) to access top talent in an extremely tight labor market. Many recruiters and organizations operate on the assumption of “talent exclusivity,” however, tapping into shared talent models opens new pipelines and changes talent preferences.“
3) Tap into Diverse & Unconventional Recruitment Channels
Robin Burrill highlighted a solution focused on seeking talent through unconventional and diverse channels to reach a wider audience. As Robin outlines, “We’ve gotten involved in local Facebook job-seeker groups. This shows so much opportunity that we can’t keep up because becoming an integral part of the group is necessary to build connections and find the people with the skills we need. So as a responsive strategy to that, we’re hiring a part-time recruiter who devotes time to connect with people in these groups. “
On a Final Note
Rising prices, global scarcity of essential materials, and labor shortages have all contributed to challenging the current state of the economy. Employees are the new source of competitive advantage for employers that have a powerful impact on organizational growth and success.
- The Employment Situation (bls.gov)
- Monthly job openings in the United States (Statista.com)
- Job Openings and Labor Turnover Summary (bls.gov)
- Why Jobs are Plentiful While Workers are Scarce (blogs.imf.org)
- Who is Driving the Great Resignation? (hbr.org)
- Moms, Work and the Pandemic (census.gov)
- State of the Global Workplace: 2021 Report (Gallup.com)
- 2018 Employee Experience Report (Udemy.com)
- Rethinking the on-demand workforce (hrb.org)
- Understanding America’s Labor Shortage (uschamber.com)
- Labor Shortages: The Disconnect and Possible Solutions (shrm.org)
- Has COVID-19 Induced Labor Market Mismatch? (imf.org)
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