Of the constraints currently facing business leaders, few are as severe as the shortage of qualified workers.
Despite an unemployment rate of 5.7% – modestly higher than the pre-pandemic low of just 3.3% in 2019 – there are more job openings than job seekers, and hiring has become a notable pain point for most firms. Wages, up 9.0% from this time last year, are rising as a result of the tough competition for workers. However, overall costs to businesses are rising even faster as firms institute new measures to attract and retain workers, including one-time or signing bonuses, peripheral perks, and other non-traditional incentives.
There are some signals that pandemic-related disruptions, at least, are finally easing. The labor force participation rate is recovering from a mid-recession low of 60.0% and now stands at 62.3% – less than one percentage point below the pre-pandemic level.
Many businesses are awaiting relief expected to accompany the expiry of pandemic-era enhanced unemployment benefits. In fact, the resumption of in-person classes with the new school year may present an even bigger impact. Parents who no longer have to supervise their children's remote learning at home may be able to reenter the workforce. Many of these factors are coming to fruition around the same time, suggesting that there may be some easing of labor-force pressures late this year.
However, due to the severity of the labor market imbalance, we expect only moderate relief in the near term. The labor market imbalance existed before the COVID-19 pandemic and will not be resolved by a reversal in pandemic-related trends.
Solutions to the labor problem will vary by industry and by business. There not a simple, singular answer, but we can recommend a few strategies.
- First, understand what your specific labor force values the most. Align your offerings with what is most attractive to your targeted workers, whether that means prioritizing salaries, flexible work arrangements, company culture, or other benefits. It will be critical to compare your own offerings to those of any direct competitors, especially in geographic areas where the labor pool is small.
- Next, consider creative solutions to your staffing needs. Can you partner with local schools for a direct training program? Might there be an option for geographically distributed workers who do not live in your immediate vicinity? Consider new arrangements that may not have been practical before the pandemic.
- Finally, retention efforts are key. In this market, it is likely significantly less expensive to keep an existing worker who is already trained and productive than to identify, hire, and train a replacement.
As always, please reach out to ITR Economics if we can help refine your strategy!