The Short and Long of the U.S. Labor Shortage

“Millions are out of a job. Yet some employers wonder: Why can’t I find workers?” reads a recent NPR Morning Edition headline. Post-COVID, some industries are thriving and eager to hire. After the loss of 22 million jobs over the course of the pandemic, with only a little over half of those since recovered, one would think that workers would be clamoring to fill those remaining employment openings. Employers are certainly looking to hire; NPR cites Labor Department statistics showing jobs openings are at a five-month high. So, why the labor shortage? Where have all the workers gone???  

Dave Gilreath, Innovative Portfolios CIO, isn’t asking the question “Where have all the workers gone?” In fact, Gilreath views media-dubbed “shortage” as more of a short-term dislocation in the labor markets. True, the employment picture presents a paradox, with many people “looking” for work, while, as recent news indicates, 8 to 9 million available jobs continue to be unfilled.

Media sources posit a number of causes for the current labor shortage:

• In-person “poison”?
  Much of the labor shortage is in industries requiring in-person work, such as construction, delivery services, warehousing, hospitality, heating and air conditioning, and food services. “There’s a huge gap between the kinds of conditions under which people are prepared to work,” NPR quotes a ZipRecruiter labor economist saying. Even today, as pandemic mandates are being eased, there’s a fear of getting sick and infecting family members. That widespread fear will prove a temporary factor, Gilreath is confident, essentially gone by the end of this summer due to our vaccination initiatives.
• Government benefits?
  Many opine that the unemployment benefits offered by COVID relief packages are what is allowing workers to make a choice to stay home. While there are criteria to be met to qualify for those subsidies, they represent one possible factor influencing the labor shortage. Meanwhile, a number of states have announced their intention to end accepting the subsidies. The combination of a stoppage in government payments plus ongoing reopening should continue to drive the recovery in U.S. job creation numbers, Gilreath predicts. In fact, he notes, the Fed itself is very interested in seeing employment numbers get better and have said they won’t raise rates until that has happened.
• Child, elder, and sick care conflicts?
  For both those working from home and for the unemployed, the value of staying at home is enhanced by the savings in childcare costs. Undeniably, staying home avoids the need to pay for daycare or the cost of hiring professionals to care for elderly or sick family members.
• Employers’ fear of wage “fairness”?
  Ironically, employers may themselves be contributing to the labor shortage. How? For employers with some flexibility in setting wages, they may not raise wage offers to new hires because internal equity then pressures for raises to incumbents and that reduces their profit, a New York Times article posits.
• Globalization of labor?
  “The volatility in global markets in the past month was largely a result of developments in the U.S. labor market,” Gad Levanon ventures in The Conference Board. “Labor market conditions are translating faster into upward pressure on wages.” At the same time, the globalization of labor, with numbers of people in Asia and Africa willing to work for a lower wage, will keep a lid on the pressure to raise wages here in the U.S. Gilreath agrees—the globalization of labor could keep a lid on labor costs for many years to come.
• Automation?
  To a certain degree, as robots, kiosks at fast food joints, and other forms of automation proliferate, lower-skilled jobs will continue to be replaced and the demand for certain categories of labor will naturally decrease, Gilreath adds.

Will the labor shortage negatively impact the stock market in coming months?

So far, the big, headline-grabbing, price increases are mostly limited to commodities, lumber, and items where stimulus-boosted demand is outpacing supply, Gilreath points out, with the upward pressure mostly unrelated to labor costs. With the 10-yr. Treasury still at 1.5%, he notes, the bond market doesn’t seem to be anticipating big inflation anytime soon. Gilreath tends to agree with Moody’s chief economist Mark Zandi that there’s no cause for alarm, and that any inflationary pressures caused by labor shortages will ease as the economy returns to normal.