Executive Summary

Since the employment crisis at the height of the COVID-19 pandemic in 2020, with over 30 million Americans unemployed, the US job market has steadily recovered. However, labor force participation rates have dropped significantly since pre-pandemic rates. This brief will explore the implications of the US’ current labor shortage and the impacts on various American industries. 

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Overview

Pointed Summary

• Ongoing US Labor Shortage
• Post-Pandemic Recovery 
• Low Labor Force Participation
• Embracing Immigration 

Relevance

Today, the 2024 US job market is facing significant challenges; however, they are the complete opposite of those the US faced in 2020 during the pandemic. The unemployment rate during the pandemic reached a peak of almost 14%, but has since died down to just under 4%. In 2022, the US job market made a strong recovery and added an unprecedented 4.5 million jobs. However, the strong job market is not necessarily a good thing for the American economy, as there are not nearly enough Americans willing and able to fill these jobs. In total, while there are more Americans participating in the labor market, the labor force participation rate has dropped. According to the US Chamber of Commerce, if we returned to pre-pandemic labor force participation rates, we would have two million more Americans in the workforce. There are several factors contributing to this lower rate, like early retirement and an apathy toward returning to an in-person workplace. One key factor is a mismatch between the skills employers are looking for and those of the unemployed. With the advent of technology and AI transforming the workplace, the skills and knowledge that businesses are seeking are often not compatible with older generations who are specialized in manual skills. New jobs in high-skill industries do not help the economy if no one can fill them posing a problem for the United States.  

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History

Current Stances

COVID-19 resulted in millions of deaths and illnesses while also causing substantial job market shortages. However, these labor shortages have given remaining workers the leverage to receive pay gains and improved working conditions. Despite a rebound fueled by vaccinations and federal aid, hiring slowdowns persist, with fears of an impending recession looming. Additionally, the tight staffing situation was exacerbated by layoffs among the aging workforce during the pandemic, where some returned to work while others opted for retirement. Many employers are still desperate to hire more employees even though layoffs have been piling up. Even so, people have remained steadfast in their jobs, seeking better work-life balance, opportunities, or even new careers. This has closed the gap between the lower and higher-paid workers since bosses have to incentivize their remaining workers to stay by giving them more benefits. An increased labor supply, driven by high participation rates among younger worker cohorts, could help alleviate shortages. 

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Tried Policy

At the start of the pandemic, the Trump administration made numerous attempts to ease unemployment numbers. One of the major policies implemented was the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act was a $2.2 trillion economic stimulus bill meant to provide emergency assistance to Americans and their families and low-interest loans to small businesses, among other healthcare responses. In total, 37.6 million workers applied for unemployment insurance through the CARES act. The Paycheck Protection Program (PPP) was also established under the CARES Act, implemented by the Small Business Administration, which gave small funds to pay up to 8 weeks of payroll costs, including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities, helping people keep their jobs. After the pandemic slowed, the Biden administration eventually rolled out a worker training program in response to many employers facing unfilled jobs. This program is part of the 2021 American Rescue Plan that provides more aid to the unemployed, schools, and businesses. State and locals have been granted $11 billion for worker training and must spend the money by 2026. The document encourages state and local governments to use apprenticeship programs, with the starting salary for those who complete the program being $80,000. These measures have provided temporary relief to Americans looking for jobs but were struggling because of the pandemic. 

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Policy Problem

Stakeholders

‍Since the pandemic, jobs with lower wages and more in-person work have had a tougher time retaining workers. Retail and hospitality have quit rates hovering just above 4% compared to finance which has a quit rate of just 1%. There are a multitude of factors that explain this difference, but the pandemic-era risks of these manual jobs deterred concerned employees, even after 2020. At the same time, hiring rates are elevated across most industries, further emphasizing high turnover rates. Since November 2020, the hiring rate for hospitality has remained between 6% - 19%, while the quit rate has stayed stagnant. Traditionally, turnover has been higher in higher-paying sectors, but quit rates and hiring rates in minimum-wage industries have deviated from their white-collar counterparts even more during the pandemic and in its aftermath. 

Nonetheless, the manufacturing industry has not recovered post-pandemic as easily. 1.4 million jobs were lost during the pandemic, and there’s a projected 2.1 million unfilled jobs by 2030. Whereas service workers are more easily replaceable due to the transferable nature of the skills learned in those industries, manufacturing jobs often require niche skill sets that are only honed through years of work. Efforts to attract more diverse workers to the field may help to close this gap. Initiatives like the National Association of Manufacturers STEP Ahead Awards is one program that aims to bring more women and people of Color to the field by honoring and recognizing underrepresented groups in manufacturing. 

‍Risks of Indifference

‍The scale of the labor shortage varies across industries, but one thing is sure: if it continues, it may have long-term effects on the entire world economy. If companies cannot recruit adequate talent, they may be forced to downsize or halt operations altogether. Specifically in the manufacturing industry, if companies are forced to hire under-qualified employees, the risk of workplace industry goes up, and so do depreciation costs, if employees are unfamiliar with how to use equipment. Across the board, prices may go up as well if companies raise wages to attract more workers. In the long run, inflation would increase as prices increase, and the resulting economic policy would be contractionary- meaning that the Fed would theoretically have to lower interest rates to combat inflation. Even Americans whose jobs are unaffected by the labor shortage will feel its effects through rising grocery prices and gas prices, and eventually, higher interest rates, that are a reflection of higher wages. In short, labor shortages ripple through most aspects of the economy, and it's important that companies fill their labor force to curtail this cycle. ‍

Nonpartisan Reasoning

‍Both sides of the aisle are concerned about the labor shortage and its implications for the economy. Republican Congressman Dave Joyce (OH-14) introduced the Commission on the American Workforce Act to the House of Representatives, meant to create an intersectional forum to deeper understand what policymakers can do to close the employment gap. The commission will explore issues ranging from remote work to the skills gap, with hopes to eventually build actionable policy.  Additionally, the left is combining labor policy with changed immigration laws and other progressive ideas. June 2023’s Dignity Act suggests that granting undocumented people legal rights and allowing them to work will fill many of these vacant jobs, as well as improving their quality of life. In conjunction, the US could also broaden its immigration policy to account for more critical roles. 

Policy Options

While there is no single solution for an issue as multifaceted as the labor market shortage, solutions focusing on immigration, automation, and more competitive wages/benefits can mitigate the gap. 

A more lenient approach towards immigration can help form a robust bedrock for industries such as manufacturing that are worst hit. The current stances on immigration policy are primarily political, making it a complex issue. Immigration accompanied by incremental access to resources would equate to an expansion in the abilities and aspirations of the workforce. The use of additional human capital to maximize productivity and entrepreneurship leads to a diverse labor force. The innovation that labor markets of destination countries experience is characterized by an increased presence of job-seeking immigrants contributing to innovation by transferring their knowledge, ideas, and capabilities to the native population. An example of this is manufacturers in Nebraska who provide impetus to migrants through training and capacity building. It is imperative for policymakers to carefully consider where immigration can play a role in meeting labor needs and calibrate it with other essential policy responses, such as workforce development, raising wages, and improving productivity. The necessity for improved collaboration and coordination among immigration, education and training, labor, and other policy portfolios to pursue a comprehensive talent strategy is paramount. Impediments that exacerbate labor shortages, such as skills mismatch, disincentives for local workers to take up some jobs, and demographic decline, must be tackled effectively. A proactive and dynamic approach will be helpful in anticipating future labor market needs, including the impact of globalization, technological developments, and the evolving knowledge economy on jobs and skills valued by employers. To ameliorate the labor shortage issue, which has adverse ripple effects on inflation and supply chains, there must be checks and balances in place that streamline the immigration process and implement necessary market-driven reforms to the immigration framework.

With the advent of automation, technological advances have immense potential in minimizing monotonous tasks, thus increasing production subsequently. This can help address the labor shortage issue by streamlining manufacturing activities in various industries. Experts at Davos 2023 also concur that automation is a viable solution to addressing labor shortages. Considering the safety hazards associated with the manually intensive nature of manufacturing jobs involving time-bound deadlines and complicated machinery, robot-led automation can bolster safety for employees tasked with such strenuous duties. Automation-led manufacturing can encourage enterprises to recruit a workforce and channel that talent in new avenues by offering them more engaging work that utilizes their full potential and equips them to upskill themselves. Overall, automation can be beneficial in creating a long-term, cost-effective, consistent, competitive, and efficient production chain that is a sustainable investment for manufacturing firms — provided that it involves strategic planning and workforce development.

Lastly, worker incentives are a determining motivator for higher productivity, and employers must augment pay hikes, provide competitive benefits, and offer feasible work hours and conditions with remote work options. 

Conclusions

The US job market in 2024 is facing significant challenges due to job shortages in key sectors. Though the job market has had a strong recovery since the pandemic, the low labor force participation rate is a result of a number of factors and has the potential to significantly impact the broader American and global economy. Addressing these shortages will require a concerted effort from policymakers, businesses, and individuals to invest in education and training, support workforce participation, and adapt to the changing nature of work. 

Acknowledgment

The Institute for Youth in Policy wishes to acknowledge, Eli Solomon, Anagha Nagesh, Nolan Ezzet and other contributors for developing and maintaining the Policy Department within the Institute.

References

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