Ultimate magazine theme for WordPress.

Opinion: If the labor shortage persists, the US economy will not be able to recover

According to a September survey by the National Federation of Independent Business, the majority of small businesses (51%) say they have vacancies they cannot fill. The Conference Board’s CEO Confidence poll found that the percentage of companies reporting difficulty attracting skilled workers increased from 57% in the second quarter of 2021 to 74% in the third quarter. And the ratio of job openings to new hires, a proxy for the average time to fill positions, is series high, according to the Bureau of Labor Statistics, as is the rate at which workers voluntarily quit their jobs, as is the labor supply limit. Some people delay getting back to work because they are still afraid of contracting the virus and becoming terminally ill. The federal mandate for large private employers to require weekly vaccinations or tests from workers may put a new strain on the labor supply as some workers will not be ready to receive the vaccine. In addition, the labor force participation of older Americans, which measures the proportion of a population that is either employed or looking for work, declined significantly during the pandemic. And there are no signs of recovery, either because older workers are at greater risk of becoming extremely ill from contracting the virus or they feel financially prepared for retirement given the surge in stock and property prices in recent years.

Additionally, many working-age Americans are more selective about the jobs they might want to consider or have chosen to quit their jobs altogether. How selective people can be, of course, depends on how long they can survive without a paycheck. And in the past 20 months, a significant portion of households have increased their savings due to lower spending, improved government support, and a sharp rise in home and stock prices. But these savings won’t last forever. The most likely scenario is that many Americans will return to the labor market in the coming months, which will ease some of the labor shortage.

However, there is a significant chance the labor shortage will continue through 2022.

When companies struggle to recruit and retain workers, pay rises follow. According to the September job report, the average hourly wage has increased 6% per year over the past six months. That’s more than double the average rate in the decade before the pandemic. Such wage acceleration will weigh on corporate profits and can lead companies to raise prices. In addition, not only did labor costs accelerate dramatically in 2021, but the inability to find workers also impacted the operations of some companies and contributed to lower profits. Meeting the demand for 3 million to 4 million additional workers as the U.S. economy opens further in 2022 will be a major challenge.

The US must find ways to increase the number of workers through broader and more economically motivated immigration policies and higher labor force participation. For example, the federal government can include the labor market needs for certain skills more closely in immigration policy. And companies should try to recruit more workers from demographics who are typically less employed.

If we don’t address these issues, ongoing labor shortages would pose a serious risk to the inflation and economic growth outlook in the US in 2022. First, hiring wages will continue to rise rapidly. This, in addition to the rising cost of living, will increase wage growth for workers who remain in their jobs. In general, higher annual salary increases and special adjustments to retain employees are likely to further increase the total labor costs of companies.

For the first time in decades, the scenario of a wage-price spiral, in which higher prices and rising wages feed each other and lead to faster growth in both, could actually hamper economic growth. In such an environment, the Federal Reserve will be forced to hike rates several times in 2022 and slow GDP growth much more than is currently projected.

Without policymakers, business leaders and thought leaders more clearly understanding the current dangers of labor shortages, there is a risk that the US will not fully recover economically from the pandemic in the next few years.

Comments are closed.