The American labor market is in a constant state of flux, but over the last two decades, two definitive events have led to labor shortages: the Great Recession (2008-2009) and, more recently, the COVID-19 pandemic (2019-2020).
During the COVID-19 pandemic, there was a massive shift in supply and demand across many sectors, many of which continue to feel the strain today. Companies of varying sizes and industries still face the challenge of finding enough workers to fill open jobs, which can be traced back to a number of factors.
Why is America experiencing a labor shortage?
At the peak of the pandemic, more than 120,000 businesses were forced to close their doors, and more than 30 million US workers were unemployed. Fast forward to today, and while job openings have steadily increased, unemployment has slowly declined, as more Americans are participating in the workforce than before the pandemic; However, the overall share of the population participating in the workforce has dropped. This means there are still more open jobs to be filled, which has caused a labor shortage.
The current labor force participation rate is around 62.5%, down from 63.3% in the pre-pandemic period of February 2020 and down from 67.2% in January 2001. Although the pandemic has certainly impacted this rate, there are a few other factors that contribute to the overall labor shortage.
Early retirement and an aging workforce
The COVID-19 pandemic drove an estimated 3 million American adults into early retirement, where those 55 years old and over who were detached from the labor force due to retirement increased from 48.1% in Q3 2019 to 50.3% in Q3 2021.
Representation of older individuals within the US population is also increasing. This is likely due to the shift in younger generations having fewer children, resulting in an older, diminishing population.
Lack of access to childcare
A lack of access to quality, affordable daycare has plagued America for years, but a report by the US Chamber of Commerce Foundation and The Education Trust shows the COVID-19 pandemic created an even more unfavorable situation – to return to work people needed childcare, but the childcare facilities were facing their own challenges with forced closures and scale downs. The result created a vicious cycle, and recovery was not easy, as late as September 2021, employment in the childcare sector remained 10% lower than pre-pandemic levels.
The rise of working from home
For many employees, there is great appeal in working from home. This business dynamic rose in popularity and necessity during the COVID-19 pandemic, and many American workers continue to express a desire to work at least part of their work week from home, going as far as to indicate they would seek new employment if they were recalled to the office. For businesses that are unwilling or unable to facilitate this, employee turnover can be impacted.
Increased savings
Increases in unemployment benefits, stimulus checks, and a lack of being able to spend money during the COVID-19 pandemic all contributed to Americans adding to their savings accounts. This, combined with claims that people were earning more on unemployment than they did working, provided little reason for many to return to the workforce.
Which industries have been most severely impacted?
When reviewing the labor shortage across the different sectors, the education and health, and food service and hospitality industries continually stand out with higher job openings and quit rates.
Healthcare sector
The healthcare sector is currently projecting a shortage of 63,720 full-time RNs by 2030. The industry also experienced a decrease of more than 100,000 RNs from 2020 to 2021 – the largest drop observed in the past four decades. Factors that have had the most significant impact on this sector include:
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Baby Boomers are continuing to age out of the workforce.
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The aging American population requires significantly more healthcare facilities and resources than what is currently available.
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Nurses leaving the workforce from 2020 to 2021 were under the age of 35, leaving behind significant skill gaps.
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Nursing schools nationwide are struggling to expand capacity to meet the rising demand, including those that offer online ABSN programs.
Foodservice and hospitality sector
Jobs and roles that require 100% in-person attendance and lower wages, such as those in the food service and hospitality sector, tend to have a more difficult time retaining workers. Since July 2022, the accommodation and food services subsector has experienced a quit rate of 4 percent or above, while for other higher-paying and more ‘stable’ industries like finance or manufacturing, it has remained lower. Factors that have most impacted this sector include:
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The COVID-19 pandemic dealt a significant blow to this industry with forced closures and layoffs. Many businesses are still feeling the impact of this time, including struggling with staffing levels.
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Continuing changes in immigration policies have reduced the availability of workers willing to fill positions in this industry.
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Employee benefits in the industry are minimal, and with the rise of work-from-home as a desired offering, the appeal of jobs in this industry has lessened significantly.
The US workforce is expected to continue to face significant labor shortages over the next few decades. For businesses to thrive and survive, it is important that the key blockers to engage and retain workers are addressed, including access to childcare, work-from-home benefits, and the effects of an aging workforce, via a multitude of different solutions. It is only through a multi-faceted approach that we are likely to see a downturn in shortages, resulting in a more stable labor market that allows for increased wages, better job security, and more opportunities for career advancement.
