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Is it COVID? Is it the Kids? Understanding the Labor Shortage

Updated: Sep 21, 2023


‘Hiring Now’ signs are posted in every business, restaurants have open tables with not enough staff to serve waiting customers, subcontractors are nowhere to be found, and even the dog groomers are booking two months out.


What’s going on with the US labor market? Everyone has their theories: Are the kids just not working? Can we still blame COVID?


We’ll dive into the subject with published research, economic and demographic forecasts, and lived-in wisdom from the many employers Workforce Hope speaks to on a daily basis.



Setting the Table: Understanding the Shortage


The latest data from the US Chamber of Commerce shows that the US has 9.8 million job openings but only 5.9 million unemployed workers. If every unemployed person were to find a job and stay in it, we would still have a deficit of 4 million workers (Ferguson and Lucy, America Works Data Center).


76 workers for every 100 open jobs in the US

37 workers for every 100 open jobs in North Dakota




However, in speaking with our employer clients, the remaining 5.9 unemployed workforce is exhibiting high turnover.


In two previous calendar years, one company hired 162 times to fill 12 positions. That’s a 93% fail rate.


Q1 2023, prior to engaging with WFH, one company hired 39 times and is down one headcount.



In a practical sense, unemployment will never reach zero. Therefore, when Workforce Hope looks at the numbers, we simply see the 9.8M job openings.



Labor Participation Rates, Are the Kids Just Not Working?


Yes and no, but the no hardly makes for the labor shortage. It is true that the Baby Boomer generation is well known for having the highest workplace labor participation rate over other generations before and after them. Relatively higher participation rates follow the Baby Boomers as they age.


Gen Z is outpacing Millennials in the 16-24 age groups, but Millennials outpace the previous generation in the 25-44 age group (“Civilian Labor Force Participation Rate by Age, Sex, Race, and Ethnicity.” U.S. Bureau of Labor Statistics) The 16-19 age group pattern shows a steep decline in labor participation rate as compared to 2002 but climbs back close to par in the 25-34 age group.


Age Group

Participation Rate, 2002

Participation Rate, 2012

Participation Rate, 2022

Projected Participation Rate, 2032

16-19

47.4

34.3

36.8

30.9

20-24

76.4

70.9

71.0

67.8

25-34

83.7

81.7

83.2

82.1

35-44

84.1

82.6

83.0

81.9

45-54

82.1

80.2

81.1

80.9

55-64

61.9

64.5

65.2

68.4

65-74

20.4

26.8

26.6

29.9

Highlight showing Baby Boomers


The kids are working less, yes. But it doesn’t paint the whole picture.


Can we continue to blame COVID?


Overall labor participation rate is below pre-COVID levels. Sept 2023 is 62.8% versus 63.4% in Feb 2020. Contributing factors include early retirements, net immigration to the US at lowest in decades, lack of access to childcare, new business starts, and an increase in savings.


As industries grappled to weather the storm of COVID many businesses offered robust retirement packages, driving 3 million adults into early retirement. (Tanzi and Sasso. “Covid Early Retirees Top 3 Million in U.S., Fed Research Shows.”) However, as many as 1.5 million of those early retirees were compelled back into the workplace as employers are desperate for workers. (Bhattarai, Abha. “Millions Retired Early during the Pandemic. Many Are Now Returning to Work, New Data Shows.”)


The overall reduction in labor participation rates from COVID comes to 1.58M workers – not nearly enough to cover the 9.8M deficit.



Conclusion:

‘Kids today’ are not participating in the labor at rates seen previously, but their lessened participation does not account for the entire labor shortage crisis. COVID happened to come at just the time Baby Boomers began to retire and pushed many out into early retirement, among other factors. However, nearly half have rejoined the workforce in a different capacity. The difference in workforce participation rates from pre to post COVID—1.58M workers—also does not account for the workforce shortage.


It’s not just the kids, it’s not just COVID. It’s … complicated. But the long and short is - it’s the population.




Generational Birth Rates and Retiring Boomers


For a population to replenish itself naturally there must be a fertility rate of 2.1 births per woman for developed nations (Craig, J. “Replacement Level Fertility and Future Population Growth.”). US Birthrates have been below replacement rates since 2008 and have continued to slowly decline since. The current fertility rate in 2023 is 1.784 (“The De-Population Bomb.”).



(“U.S. Population 1950-2023.” MacroTrends)


While the Millennial generation is the largest generation in US history, they are not reproducing at a replacement rate. The generations following the Millennials drop off significantly and are not enough to fill the gaps left by retiring Baby Boomers.



(Zeihan, Peter. “The End of the World Is Just the Beginning Maps.” )


Though Baby Boomers are showing higher labor participation into their retiring years, the boomers are retiring. And neither the population nor the labor participation rates are there to ebb the deficit that the Baby Boomers leave. Boomers will continue to retire until approximately 2030, leaving larger and larger labor deficits in their wake each year.


Some predicted implications:

· As the US population continues to age, economists project growing deficits of healthcare workers to care for the aging population.

· As we trend towards a deglobalized future with unstable or broken international supply chains, economists are expecting manufacturing to continue returning to the US.

· As we continue to fight the fight over existing workforce, salaries are expected to rise competitively.



How Immigration Strategy Impacts the Population


In addition to birth and death rates, immigration clearly impacts overall population rates. Net immigration, recently a deeply sensitive political and social subject, is the lowest in decades. Contributing factors include political policies, long processing queues, and the pandemic. However, reductions in net immigration began prior to COVID in 2016 and have been declining through 2021 (Watson, Tara. “The Decline in U.S. Net Migration.”)



(Schachter, Jason. “New Population Estimates Show Covid-19 Pandemic Significantly Disrupted Migration across Borders.”)


2022 saw some increase over 2021.


The US population is still growing – but barely. The population growth rate in 2023 is 0.5%.


Overall population growth rates have been declining as the US experiences stability in life expectancy, decrease in birth rates, and decrease in net immigration.


Growth rates by region with contributing factors (Bureau, US Census. “Growth in U.S. Population Shows Early Indication of Recovery amid Covid-19 Pandemic.”)

· The South: 1.1% - positive net domestic migration and international migration

· The West: 0.2% - small growth despite net negative domestic migration

· The Northeast: -0.4% - negative net domestic migration

· The Midwest: -0.1% - negative net domestic migration


(“U.S. Population 1950-2023.” MacroTrends)


For an economy built for and accustomed to growth, this stagnation is becoming rather startling. With birth rates not supporting growth, or even replacement rates, the only way to sustain the population—and workforce—is through immigration.


“Only one policy can hope to effect long-term consequences. Immigration.”

Nicholas Eberstadt, Can America Cope with Demographic Decline


 

Workforce Hope provides end-to-end recruitment and immigration services to the United States and Canada, matching the needs of employers seeking workforce and refugees seeking security and work.






Sources

Bhattarai, Abha. “Millions Retired Early during the Pandemic. Many Are Now Returning to Work, New Data Shows.” The Washington Post, WP Company, 10 May 2022, www.washingtonpost.com/business/2022/05/05/retirement-jobs-work-inflation-medicare/.


Bureau, US Census. “Growth in U.S. Population Shows Early Indication of Recovery amid Covid-19 Pandemic.” Census.Gov, 3 Apr. 2023, www.census.gov/newsroom/press-releases/2022/2022-population-estimates.html.


“Civilian Labor Force Participation Rate by Age, Sex, Race, and Ethnicity.” U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics, www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm. Accessed 21 Sept. 2023.


Craig, J. “Replacement Level Fertility and Future Population Growth.” Population Trends, U.S. National Library of Medicine, pubmed.ncbi.nlm.nih.gov/7834459/#:~:text=In%20developed%20countries%2C%20replacement%20level,need%20to%20be%20much%20higher. Accessed 21 Sept. 2023.


“The De-Population Bomb.” YouTube, YouTube, 14 Sept. 2022, www.youtube.com/watch?v=uNdnlrkx-wg.


Ferguson, Stephanie, and Isabella Lucy. “America Works Data Center.” U.S. Chamber of Commerce, U.S. Chamber of Commerce, 11 Sept. 2023, www.uschamber.com/workforce/america-works-data-center.


Schachter, Jason. “New Population Estimates Show Covid-19 Pandemic Significantly Disrupted Migration across Borders.” Census.Gov, 12 June 2023, www.census.gov/library/stories/2021/12/net-international-migration-at-lowest-levels-in-decades.html.


Tanzi, Alexandre, and Michael Sasso. “Covid Early Retirees Top 3 Million in U.S., Fed Research Shows.” Bloomberg.Com, Bloomberg, www.bloomberg.com/news/articles/2021-10-22/covid-early-retirees-top-3-million-in-u-s-fed-research-show#xj4y7vzkg. Accessed 21 Sept. 2023.


“U.S. Population 1950-2023.” MacroTrends, www.macrotrends.net/countries/USA/united-states/population. Accessed 21 Sept. 2023.


“U.S. Population 1950-2023.” MacroTrends, www.macrotrends.net/countries/USA/united-states/population. Accessed 21 Sept. 2023.


Watson, Tara. “The Decline in U.S. Net Migration.” Econofact, 7 Mar. 2022, econofact.org/the-decline-in-u-s-net-migration#:~:text=The%20net%20number%20of%20people,some%20time%20(see%20here).


Zeihan, Peter. “The End of the World Is Just the Beginning Maps.” Zeihan on Geopolitics, 24 Aug. 2023, zeihan.com/end-of-the-world-maps/.




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