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United States Labor Shortages

(Photo courtesy of deputy). “‘Help Wanted’ sign posted to door.”

Nicholas Ewing
Connector Contributor

The United States is experiencing a labor shortage in its economy right now, as characterized by low unemployment and a large need for labor to keep the economy running. This labor shortage is caused by behavioral changes induced by COVID-19 and structural changes in the economy due to the retirement of the baby boomer generation. Firms are responding to the labor shortage by increasing wages and allowing hybrid work to recruit and retain workers.  

A labor shortage in the U.S. nowadays means that there are not enough people to fill current job openings. UMass Lowell’s Professor Monica Galizzi, who specializes in labor economics, explained the general description of a labor shortage: “A very low unemployment rate, which means there are [a] low number of people actively looking for a job. At the same time, there is a large labor shortage, meaning there are not enough unemployed people that can fill the number of jobs available that employers can fill.” A small unemployment pool and a high need for skilled workers exist because there have been fundamental changes in attitudes among American workers and structural changes to the labor market.  

The attitudes of employees have changed because of COVID-19. Health concerns were a top concern for many employees who are staying at home and, in some cases, not returning to work. “People do not want to go back to work due to concerns for their health and safety. Those concerns were possibly always there, but people became more aware of such concerns, especially to those individuals who are at a higher risk of health problems,” said Galizzi. In addition to health concerns, attitudes and changes in the priority of work in one’s life have also changed. “After living at home for many months, people began questioning what their priorities were,” said Galizzi. “People after the pandemic do not feel any longer that work should be their priority and they have to sacrifice everything for the job, as it has always been the attitude among Americans.” The attitude and behavioral changes of employees are short-term problems that can easily be solved by the firms and the government, unlike the structural, long-lasting problem of the retirement of baby boomers. 

The retirement of baby boomers has negatively impacted the labor market. Historically, that generation made up a large share of the labor force, but unfortunately, the population of recent generations are not as large as the baby boomers to fill the job openings that the baby boomers left behind. “The baby boomer generation, born in the late 1950s and early 1960s, are all reaching retirement age and leaving the labor force. Now, we do not have enough Americans that followed the baby boomers to compensate for the large labor force that is now leaving,” said Galizzi. The retirement of baby boomers is a structural change that is happening now in the U.S. labor market; a problem that would not be easily solved unless the birth rates of the next generations can replace and exceed those of the baby boomers.  

Firms need to hire and retain employees, so their reaction to the labor shortage has been to increase wages and establish work-from-home policies to make their job offerings more appealing. However, each solution comes with challenges that these firms struggle to address. Such firms have increased the wages for their employees, but the wages have been diluted due to inflation. “Employers have been trying to offer higher wages, but the wages have stopped rising,” said Galizzi, and she also noted how the everyday goods that people purchase are getting more expensive, negating any benefit of increased wages. Inflation has been a problem for firms trying to retain employees, as well as encouraging productivity and teamwork collaboration when adjusting to hybrid work.  

More firms are allowing hybrid work schedules and routines for their employees, but some large firms are trying to mitigate hybrid policies because workers are not as productive when they are isolated at home. Galizzi said, “Employers have been trying to make their jobs more appealing by establishing policies where employees can work two days in the office and three days at home … but there is this big concern that the productivity of workers may not be as high when workers are at home.” Employers recognize that the commute is painful for many employees, which is the main reason why these employees prefer working at home. In response, the larger firms that can afford to do this are opening satellite offices to allow collaboration and productivity between all their employees.  

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