As the national economy rebounds and businesses reopen their doors, there is one buzzword that seems to be everywhere: 'labor shortage.' Businesses struggling to find new employees is undoubtedly a trend, as nearly half of all businesses could not hire enough staff in August of this year. This hiring slump runs parallel to enormous job creation in the U.S., with an estimated 450,000 jobs being created in the U.S. in October. If there is a worker shortage crisis, what are the causes, and why hasn't it been fixed?
The installment of public health lockdowns due to the COVID-19 pandemic in early 2020 brought with it a 14.8% unemployment rate, the highest since the Great Depression of the 1930s. Although an unprecedented number of people were involuntarily made unemployed because of COVID-19, the unemployment rate was as low as 4.6% in October 2021. While still not quite as low as pre-pandemic levels, the unemployment rate shows that most people seeking jobs have found employment opportunities.
For a more nuanced image of the economy, we can look at the labor participation rate. The labor force, either employed or have recently looked for a job, dropped over 3 points from 63.3% to 60.2% in April 2020 and has only climbed back up to 61.6% as of October 2021. The U.S. labor force currently numbers around 160 million adults, so this marginal change is enormous. Though extra unemployment benefits and the national eviction moratorium have expired, two frequently cited incentives for labor force exit, Americans remain uninterested in looking for jobs. Even within the employed population, some statistics show the degree to which the job market is entirely turning around. In August alone, 2.9% of the entire workforce quit their jobs, strong evidence of a new emerging job culture that has de-emphasized job loyalty in favor of finding joy at work.
The COVID-19 pandemic and the break from work that it caused has generated an upheaval of worker expectations. After a year defined by newfound free time and self-reflection, many working-age people have decided that working the job they once had does not provide the same satisfaction as it did before. Spending extended time away from the office has also contributed to work becoming less critical in individuals' personal identity, decreasing the bond between working individuals and work.
It is clear that workers in America are, generally, fed up with their jobs. Businesses have felt this more than anyone, leading to them improving their standards to be better employers. Median wage growth has leaped from 3% to 4.2% since May 2021, reaching its highest point since 2007, right before the Great Recession.
If this statistic rises a few more fractions of a percent, it will surpass any wage growth rate since 2002. This is right in line with what workers have been protesting and is a sign of progress towards working conditions that this new work culture will accept. Although this is excellent news for many workers, there are many reasons for workers to hold off applying to jobs. Purchasing power based on wage has barely changed since the 1960s, and besides, many workers are unhappy with the working conditions of the specific types of employment that are needed most right now (e.g., service workers). In a scenario where American workers will not fully return to their jobs for an indefinite period of time, other options are being considered to aid businesses and support economic growth.
Photo Courtesy: Tom Brenner/Reuters
One such proposed solution has been the labor of immigrants. The United States needs roughly 10 million people to fill job openings - a number that will not be reached easily. In an average year (using pre-COVID data), around 750,000 new immigrants will join the labor force. Rather than convincing Americans who left the labor force to join up again, the country could - albeit relatively slowly - expand the pool of working-age adults.
On its face, expanding our immigration system seems like an excellent band-aid for our current employment economy. However, a quick fix could be antithetical to the entire point of the so-called 'great resignation'. For example, suppose businesses can employ supplemental workers and thus ignore those already disaffected from the worker pool in America. In that case, they are no longer held accountable for improving the working conditions that younger workers have deemed unacceptable. This would disincentivize improving working conditions, hence doing nothing to foster a labor market that would eventually bring disaffected Americans back into the worker pool and boost the economy. These conclusions are valid but are only half-true under an immigration-based approach.
It is unlikely that immigration would be an all-encompassing solution, let alone one that allows businesses to stagnate working conditions once again. With the current configuration of the U.S. immigration system, there is little chance that the number of wage workers brought in will alleviate the U.S. worker shortage. The entire world is still going through a pandemic, not just the U.S., so it will be many more years before we will see a return to pre-COVID immigration numbers. Although this approach would not be perfect, there is reason to believe it would not be effective. Studies show that low-wage immigrants have little to no impact on greater wages when they enter the labor market, evidence that labor force supplements would not hinder the improvement of working conditions in the U.S. Furthermore, the industries with the most significant increase in job postings 2019 to 2021 (Construction, food services, and transportation/warehousing) are all industries that already rely on huge numbers of foreign-born workers (25%, 21%, and 21% respectively). Thus, immigrant workers will undoubtedly be vital to the revitalization of the job economy as we begin to move beyond the pandemic.
The process to bring more immigrant workers into the U.S. to support our industries is relatively straightforward, albeit limited. H-2 visas and green cards would be the primary avenues to allow more workers into the country. The H-2 visa is a seasonal work visa that the Department of Homeland Security can grant anywhere from 66,000 to 110,000 workers per year, with 88,000 being granted by the Biden administration in 2021. Similarly, up to 140,000 green cards can be granted per year, which gives permanent residence to the recipient. Even in the unlikely event that one or both of these numbers are raised by congressional legislation, they are minuscule compared to the number of U.S. jobs available.
Although immigrants are a valuable part of our economy and can significantly ease the labor shortage, there is no escaping the reality that businesses who want to fill jobs will have to directly win back the same people who have left the labor force. In a new work culture that demands the better treatment of workers by both employers and customers, the most logical and direct way to a normal hiring parity is through a genuine recognition of and response to the worker grievances realized during the COVID-19 pandemic.