Before the pandemic, demographic trends started to tighten the U.S. labor market. Now — more than two years after COVID-19 dealt a blow to the economy and workforce participation rates — the labor market continues to be squeezed. Employers struggle to find qualified workers to fill crucial openings, preventing businesses from reaching their full potential.
The Committee for Economic Development, the public policy center of The Conference Board (CED), issued a Solutions Brief, The US Labor Shortage: A Plan to Tackle the Challenge. As detailed in the report, prior to the start of the pandemic, a series of long-term, troubling demographic trends formed a perfect storm that left countless businesses struggling to fill staffing vacancies. The notes the pandemic only further constricted the labor supply. Even with the economy reopening and rebounding, labor force participation rates have not returned to their prepandemic levels.
Key insights from the Solutions Brief include:
- The US workforce has shrunk due to the country’s demographic trends:
- Baby Boomers are aging out of the workforce, as the share of Americans aged 65 and over has increased from 12 percent at the turn of the century to 16 percent.
- The working-age population, those 18 to 64, will barely grow through 2030.
- This is caused by the aging population and a declining national birthrate, which is lower than at any point in U.S. history.
- Workforce participation has been declining since 2000 when it peaked at 67.1 percent. As of February, it stood at 62.3 percent.
- Net migration has declined since 2016 because of more restrictive immigration policies. Immigration has the potential to supplement and complement the existing U.S. labor force with additional skills and talent, but the slowdown has limited that effect.
- The tight labor market stems from a combination of factors:
- From 2017 to 2019, the United States averaged 6.8 million job openings per month, a figure that fell sharply at the onset of the pandemic and then started to rise once vaccines became available.
- The quits rate has more than doubled since 2009, rising from 16.1 percent that year to 32.8 percent in 2021. This “Great Resignation” has been attributed to:
- Workers who were already planning to leave their jobs delayed doing so until they had greater certainty around the pandemic
- Widespread COVID-related turmoil caused other workers to quit
- Lockdowns and remote work prompted some Americans to re-evaluate their priorities and opportunities
- Changes in spending habits, as well as government stimulus payments, gave some Americans the financial flexibility to change jobs
- Tight labor market made job-switching profitable for many workers.
- Each major industry group posted a higher job openings rate in the fourth quarter of 2021 than the average in the three years before the pandemic.
In its new Solutions Brief, CED offers two overarching recommendations for addressing the supply of labor, each with multiple action steps for business and government. They include:
- Increase and support American workers’ participation, by:
- Increasing public-private training
- Adopting skills-based hiring practices
- Diversifying talent pools
- Reviewing and reforming occupational licensing requirements and reducing regulations
- Expanding and increasing the Earned Income Tax Credit
- Expanding workplace flexibility for workers with dependent care responsibilities
- Supporting older workers who wish to remain in the labor force
- Creating incentives for the unemployed, underemployed, and nonlabor force participants to upgrade their skills
- Expanding learn-and-earn apprenticeships
- Reform immigration to supplement and support the US labor force, by:
- Improving the H-1B visa program
- Increasing visa offers of permanent residence for skills needed in the economy
- Piloting a “fast-track” entry program for top international recruits
- Setting aside an annual allocation of “place-based” employment visas
The new Solutions Brief, The US Labor Shortage: A Plan to Tackle the Challenge, can be accessed here.