For those of us in economic development or the world of workforce, the labor shortage isn’t a new topic. In fact, we’ve been talking about it long before COVID-19 disrupted our world. Before COVID-19, businesses were struggling to find enough workers to fill their open positions, with 70% of US businesses reporting a talent shortage, according to a Manpower survey from February 2020. But, once COVID came along, we got distracted from this issue. We started talking about lay-offs, lack of jobs, and increasing unemployment. The federal government increased unemployment benefits first by $600, then reduced the bonus to $300, with some states now choosing to do away with the extra unemployment benefits entirely. States that have done so have cited concerns that the extra benefits were causing workers to stay home and avoid work, and this is why positions continue to remain open. However, these lawmakers are forgetting that this problem existed long before COVID, and will continue to exist long after COVID.  Let’s breakdown some of the complex why behind that.

1. Baby boomers’ exit from the workforce accelerated due to COVID-19. After World War II, birth rates increased, hence, the baby boomer generation. During that time, advances in medicine, technology, and living conditions contributed to drops in infant mortality and increases in life expectancy, further contributing to a rise in population. When the boomers entered the workforce and women’s labor force participation rate increased, hiring norms changed. Workers identified themselves by their profession, and colleges regularly turned out predictably high numbers of workers. The boom in world population around that time shaped how we thought about the world, the workforce, and population, assuming that things would continue on like that for a long time. Now, with boomers exiting the workforce at a rate of 2 million exits per year (3+ million during COVID-19), millennials make up the largest portion of the workforce. This is complicated, because, where Baby Boomers were born into families with an average of four kids, Baby Boomers themselves only had an average of less than 2 children, less than the replacement rate. And because Baby Boomers were college educated, career professionals, they accumulated wealth much greater than that of their parents, allowing them more latitude in determining their participation in the labor force. This latitude allows them to exit the workforce at a higher-than-anticipated rate as a result of COVID-19, exasperating the problems that already existed due to population constraints.
2. The fall of the replacement birth rate to below 2.1 is setting us up for a future of a lacking workforce. The declining replacement rate has been slowly but surely setting us up for a drastic workforce deficit, and we’re now on the precipice of feeling its effects. One prediction showed that the US would see a shortage of 6 million workers, with 85 million unfilled jobs globally by 2028. It’s unsettling, but the population growth in the US from 2019 to 2020 was a mere 0.35%, the lowest rate ever recorded since 1900. Looking at the effects of this long-term, it’s likely that the working age population will drop to below 60% of the US population by 2100, which would be its lowest since the baby boom. However, the major difference between now and then is that during the baby boom, the dependents were children – whereas the in the future prediction, the dependents would be age 65+. By that time, predictions show that for every 100 working people, there would be 77 dependents (those under 15 and over 65). In real terms, this means that two-thirds of the US population will be depend on one third of the population for financial support by 2100. This has the potential to completely financially burden the country’s working-age population. How is this happening? Well, when the birth rate falls below 2.1, which is what is required for population maintenance, there are fewer young adults to enter the workforce. Some factors influencing the drop include things like industrialization (including the cost of raising a child to adulthood, $234,000), urbanization (urban areas have lower fertility rates), secularization (folks with strong religious affiliations are more likely to have children), the decline and delay of marriage (this is an obvious one), increase in women’s education and employment (less likely to solely pursue motherhood, increases the challenges of raising children), debt and college enrollment (makes it more difficult to financially support a child), and unemployment and economic uncertainty (a 1% increase in unemployment rate correlates to a 1% drop in births). This is a complex social issues requiring complex social solutions, which I do not have to present to you today.
3. With the lack of a workforce, workers now have the power to determine the market rate of wages, and have begun exercising their power in the market. This one is more obvious, but doesn’t receive the attention it deserves. As there are less workers in the workforce, this increases competition among businesses to increase wages and attract that worker. However, this unfortunately leaves some businesses behind. Businesses that can’t afford to increase their wages to keep up with the market rate will face unfilled positions. With COVID-19, this problem contributed to the perception that unemployment benefits alone were incentivizing workers to stay home. While this may be at least partly true, it certainly isn’t the whole story. Some argue that workers have ‘woken up’, and have realized their power in the market place. They have caught on to the problem of not enough workers and too many jobs, and now know they have the bargaining power to demand more. When businesses can’t get workers to fill their positions, especially during a time like this, it is easy to assume that the benefits are to blame. But, what we’ve just discussed, points to a cause greater than just that.