The U.S. economy is benefitting from one of the longest economic expansions in history, with more than 118 months of sustained growth, extending the longest employment expansion on record. As a result, labor market conditions have tightened in recent years, with shortages of qualified workers reported among multiple trades and occupations.
There are more jobs available now than there are workers looking for them, as the unemployment rate has dropped to nearly record lows across the country. Many businesses are complaining of worker shortages, stating that they would build and sell more if they could find the labor.
The last time the unemployment rate was this low occurred late in the Clinton presidency, when year-over-year wage growth was about 5 percent. It is currently between 2 to 3 percent. Wage growth, however, has not increased much for the past several years, even as the jobless rate has declined to historically low levels.
In economic terms, there’s a shortage when the demand for goods and services exceeds the supply. A surplus is defined by the supply of goods and services exceeding demand. If a current labor shortage truly exists in the U.S., wages would be skyrocketing and many employers would be going out of business because they are unable to operate without a sufficient workforce.
Additionally, the term “labor shortage” does not necessarily mean a lack of available workers, but it might instead describe an abundance of available workers that employers would rather not hire, and/or workers who are choosing to remain unemployed.
Whichever way you choose to interpret the term “labor shortage,” a tighter labor market should result in stronger wage gains at some point. That is already true in some industries with very low unemployment rates.
With monopoly power growing in sectors from hospital systems to e-commerce and rental car companies, the impacts have resulted in higher company profits, slowing economic growth, increasing inequality and suppressed wages. Workers have fewer employers to choose from, and employers have more power to set workers’ wages at lower levels.
Listed below are the top six industry sectors that have been impacted the most with regard to labor shortages, according to numerous reports.
Shortages among several specialty trades have impacted construction contractors in recent years, limiting the level of construction investment and volume of new projects. In particular, reported shortages among homebuilders have restricted the supply of new housing, leading to higher home price appreciation in many areas of the country. A tightening labor market has created difficulties among small-to-medium-sized building firms as jobs go unfilled, complicating the goal of delivering projects on time.
A shortage of the necessary highly skilled and skilled workers for manufacturing operations has created difficulties within entire supply chains. This is exacerbated by a lack of science, technology, engineering and math skills among required workers, in addition to a negative perception of the manufacturing industry among younger generations. This business sector has experienced a significant rise in job openings in recent years, including high levels of open positions in both the durable and nondurable goods subsectors.
According to a recent Federal Reserve report, the level and volatility of labor supply constraints tends to be greater in durable goods manufacturing versus nondurable goods industries. In a recent Deloitte study, an estimated 3.5 million manufacturing jobs will be needed over the next decade as the result of baby-boomer retirements and an expanding economy. The skills gap, unfortunately, is expected to result in 2 million jobs remaining unfilled.
U.S. retailers have reported increased difficulty in hiring and retaining workers, as potential employees seek positions with more flexible hours and higher pay. Most retailers hire employees primarily on a part-time basis, so workers have been discouraged from taking retail positions due to the lack of benefits that are typically given to full-time employees in other business sectors. A shortage of these workers and the increase in online sales has exacerbated the decline of brick-and-mortar stores, as retailers have struggled to provide the customer service necessary to effectively compete against e-commerce operators.
Hospitality and food services
Revenues for these business sectors have risen strongly over the past several years as a result of heightened consumer spending. However, in spite of positive consumer demand for hospitality and food services, this sector has struggled with a significant level of job openings.
Similar to the retail sector, food service workers earn low average wages and often do not receive benefits awarded to full-time employees in other sectors. As a result, workers have increasingly pursued positions in other fields with better pay, contributing to a rise in available positions. Tightened labor conditions across food service industries have been further exacerbated by the recent crackdown on undocumented workers, leading restaurants to become increasingly wary of hiring low-wage employees from the nation’s undocumented workforce.
Food service companies have increasingly turned to automation, with popular restaurant chains such as Panera, Dunkin Donuts, Wendy’s and Arby’s implementing labor-saving technologies like self-timing ovens, automated dishwashers and self-service kiosks to reduce the number of employees required behind the scenes.
Healthcare and social services
Rising healthcare expenditures and shifting demographics have enabled the healthcare and social services sector to expand steadily over the past several years. As the demand for healthcare services has risen rapidly amidst an aging population and expanding health care coverage, employment within this sector has struggled to keep pace.
Currently, a nationwide nursing shortage has negatively impacted this sector, which can be attributed to both an increasing number of experienced nurses entering retirement age, and the number of new nursing graduates falling short of what is necessary to replenish the workforce. In an effort to avoid risking patient safety or closing down departments, hospitals have begun offering lucrative incentives, such as large bonuses, free housing and tuition in order to assist in recruiting and retaining nurses. The result is lower profit margins for these businesses.
We continue to hear about a massive shortage of truck drivers across the country, with companies like Walmart and Amazon expanding their shipments of goods throughout the U.S. The driver shortage is already leading to delayed deliveries and higher prices for goods that consumers purchase. The American Trucking Association predicts that this is likely to get worse in the coming years.
Many trucking companies are so desperate for drivers, they are now offering signing bonuses and pay raises. There is currently a shortage of approximately 50,000 drivers, and freight forecasts predict that there could be a shortage of 300,000+ drivers by 2024. In order to address this issue, companies will need to be thinking more strategically about untapped workforces, and continue to offer comprehensive benefits and competitive wages.
While some employers have responded to a tightening labor market by increasing salaries and compensation packages, wage growth has remained sluggish and rising inflation has diminished domestic workers’ recent pay gains.
With fewer people entering the labor force because of lower birth rates and the approaching retirement of the baby boomer generation, this could cause employers to slow their pace of hiring because they cannot find enough skilled workers to fill open positions.
Even though the unemployment rate is currently in the low single digits, it has not recovered to levels seen before the last two recessions. There is still slack in the labor market, with hundreds of thousands of workers sitting on the sidelines.
The labor shortage trend is expected to drive up wages over the long term, which will have a significant impact on business operations for the industries that are most affected. When companies cannot fill positions even after raising wages significantly, it may be an indication of a real labor shortage and feel like a very good thing for the workforce.