Labor Shortage in the US Approaching All-Time High

Since the pandemic hit, American companies have been scrambling to find enough workers to fill their ranks. They’ve offered high salaries and attractive perks, while employees have taken advantage of the opportunity to shop around for better offers or simply walk away from their jobs. But now, layoffs are increasing, job openings are decreasing, and the economy is slowing down.

With the Federal Reserve raising interest rates at an unprecedented pace, the balance of power in the job market should be shifting back to employers. Strangely, that’s not the case. Despite all odds, workers still hold the power, and a significant shift in the labor market could ensure that they keep it forever.

This shift can be attributed to demographics. Following World War II, the baby boomer generation provided a seemingly endless supply of workers for companies to tap into. If someone didn’t like their job, it didn’t matter; there were countless others waiting to take their place. This surplus of workers made them inexpensive and easily replaceable.

However, the baby boomers are now retiring en masse, leaving companies without a steady stream of available workers. Jay Denton, the chief analytics officer at LaborIQ, predicts that the current labor shortage is here to stay and may even worsen. The labor market is heading towards a “Forever Labor Shortage”.

Unfortunately, the boomers didn’t have many children themselves. The introduction of birth control pills and the legalization of abortion caused fertility rates to plummet from 3.7 babies per woman in 1960 to 1.8 babies by the mid-1970s. While the influx of women and immigrants into the workforce kept the labor pool growing for a few decades, the rising supply of female workers peaked around 2000. Adding to that fact that immigration declined during Donald Trump’s presidency.

These factors resulted in a shortage of new workers just as the first wave of baby boomers began to retire.
The COVID-19 pandemic exacerbated the labor shortage. Immigration slowed down, more boomers opted for early retirement, and the retirement wave gained momentum. Aaron Terrazas, the chief economist at Glassdoor, explains that the demographic tidal wave, which has been building up for years, is finally reaching its peak.

In April, the unemployment rate reached its lowest level since 1969, indicating a scarcity of available workers. Contrary to popular belief, there is a higher percentage of employed individuals aged 25 to 54 today than before the pandemic. This labor shortage is only just beginning. The Congressional Budget Office projects a meager 3.6% growth in the potential labor force between 2022 and 2031, which is one-eighth of the growth rate in the 1970s. The following decade is expected to see an even slower growth rate of 2.9%. Consequently, employers will face a stagnant labor pool for decades to come.

What does the Forever Labor Shortage mean for workers? Firstly, they can expect higher salaries. In April, average hourly earnings increased by 4.4% compared to the previous year. Jay Denton, the chief analytics officer at LaborIQ predicts that wages will continue to rise above the pre-pandemic annual growth rate of 2%.