My mother told me that one of the restaurants in her small Pennsylvania town closed on Mother’s Day due to a lack of workers. Several people from other parts of the U.S. have told me similar stories. I’ve also seen many posts about a labor shortage on social media.
Stories about businesses closing due to a lack of workers are no doubt surprising to many people. After all, the unemployment rate for people 16 years old and older in the U.S. was nearly 15% just about a year ago, according to the Bureau of Labor Statistics. The same report says nearly 10 million people remained unemployed at the start of April 2021.
I asked you all to share your thoughts about the reasons behind this labor shortage in the comments of a post I published on LinkedIn. You can read the replies by clicking here. Overall, the comments fell into a few categories. First, many people blamed increased unemployment benefits for making the available jobs unattractive to job seekers. Second, people said the pay these open jobs offered was far too low for people to survive. Third, many of the respondents raised valid points that people are still afraid of developing COVID-19.
Are any of these or are all of them the correct explanation for the labor shortage some people are reporting around the U.S.? I turned to Karin Kimbrough, who is LinkedIn’s chief economist, to find out.
What’s behind these reports?
Before we dive too far into the possible explanations for reported labor shortages, it’s important to note that the labor market is incredibly complex and can be influenced by countless factors. For example, think of all the variables that need to align for just one person to get one job. A person needs to be able to do the job. They must live in a place where they can do the job. The pay and benefits must also meet their needs. And those are just a few of the pieces that need to fall into place.
Similarly, a lot of forces are likely influencing the ability of businesses to find workers.
“We definitely are hearing stories from employers that it is a struggle to hire, both for talent with digitally advanced skills and for talent traditionally employed in the hospitality (restaurants, hotels) sector,” Kimbrough told me.
They’re skeptical of the argument that people are paid so much on unemployment that they aren’t bothering to look for work, she said.
Kimbrough said studies suggest “workers would prefer to have long term stable employment, return to work at the same rates no matter the level of compensation, and perfectly understand that the current benefits won’t last forever.”
Instead, one reason people may not be jumping back into the job market is that they can’t return to work until their children are back in school for the whole week. “Working parents can’t commit to a new job until they can be sure their children have a reliable week-day schedule for school and for the summer,” said Kimbrough.
Another possible explanation is that the fast reopening in many states quickly increased demand for workers and outpaced the supply of available people. “But it takes time for people to be fully vaccinated (35 days for a 2-dose shot) and most were not eligible for vaccinations until April or May,” she said. “If this theory is correct, this should resolve in several months.”
What else are economists seeing in the labor market?
Kimbrough said job seekers are applying for work at rates that aren’t much lower than pre-pandemic levels. However, those same job seekers aren’t necessarily accepting jobs when they get offers. “That may be due to workers assessing what’s right for them in terms of pay, flexibility, WFH vs remote, location and lingering uncertainty about how 2021 will play out,” she said.
There are two specific areas where economists are seeing increased competition for workers, though.
The first is in service industries, such as restaurants and entertainment. In those cases, the base pay for workers may not be attractive enough and ongoing occupancy restrictions can eat into any tips people would make from patrons.
The second area where there is competition for workers is for those with advanced digital skills, such as software engineers.
“We also see demand outstrip supply for workers with skills in supply chain management, logistics, recruiting, and retail. So there is tightness in many skill domains beyond tech,” added Kimbrough.
What should job seekers expect to see in the near future?
The good news is that economic indicators suggest people are returning to the workforce and the labor market will balance out.
Kimbrough said the recent uptick in the unemployment rate (from 6.0% to 6.1%) and a 430,000 jump in the number of people rejoining the labor force suggests more people are starting to look for work.
Source: Andrew Seaman, LinkedIn – Get Hired Weekly Newsletter