What Is Keeping Workers Out of the US Labor Force?

Labor shortages have been one of the biggest concerns for firms in 2021. Demographic trends are a key contributing factor. The vast baby boomer generation is retiring, and those workers will need to be replaced with younger workers. However, Generation Z is actually smaller than the older baby boomer generation.

Demographics are not the only problem. In the wake of the COVID-19 pandemic, a significant swath of the US labor force has delayed returning to work. For those workers, several factors have contributed to that decision, including:

• Health and safety concerns
• Lack of affordable childcare
• Wage competition and available jobs in different industries

Some potential employees are choosing to opt out of work entirely due to health concerns or to provide at-home care for their families, and some others are choosing to move on to new industries with potentially better hours or pay. It is no surprise, then, that attracting qualified workers has been a significant struggle for many businesses. This is particularly true for the manufacturing and wholesale trade sectors. Manufacturing Job Openings, at nearly 900k, are more than double the September 2019 level, and Wholesale Trade Job Openings are up 70.2% versus the same month in 2019. These industries are further impacted by a skills mismatch; autumn 2021 enrollment at public two-year colleges, which typically specialize in much-needed vocational skills for manufacturing, is down 14.1% from the autumn of 2019.

It is true that some of the factors impacting labor force participation are turning around. For example, the availability of the COVID-19 vaccine, first for adults beginning in early 2021 and now for children as young as five, is facilitating a return to in-person learning for children. The reopening of schools for in-person learning will likely facilitate an easier return to work for parents, as will safer work environments. However, most of the factors suppressing labor force participation are unlikely to change in the coming quarters and years. With this in mind, there are a few things to consider in your hiring practices moving forward.

How to Attract and Retain Workers in a Labor Shortage?

It is clear that wages are rising and that, in order to be competitive as an employer, you will need to consider wage increases; research wage growth for your specific industry to ensure you are offering competitive pay as the labor market continues to tighten. However, monetary compensation is only one aspect of the workplace that workers consider when deciding whether to join or remain at a firm. Focus on improving your workplace by bettering your management staff and ensuring the workday day is as engaging as possible for your workers. Consider asking your employees for anonymous feedback and be transparent about your efforts to fix any issues. Many industries are expected to expand throughout 2023, and businesses should be preparing their workforces to meet rising economic activity through at least 2024.

Last, and perhaps most importantly, you need to make sure you and your management team do not fall into the trap of thinking that either (1) nothing can be done or (2) you’ve done enough when it comes to solving the labor shortage issue. It is true that the challenge is immense. However, it is also true that there are many actions you can take to attract and retain labor to a greater degree of success than your competition. That is a truly valuable competitive advantage, and it is worth fighting for.