Before the COVID-19 pandemic brought the US economy to a near-standstill, businesses were locked in competition for high-skill workers. That struggle resulted from a labor market that was as close to seeing full employment as it has ever been. And at the time, analysts worried about how long the economy could withstand the crunch.
Fast-forward to today, and the problem has multiplied. After seeing record job losses during the pandemic, the US labor market rebounded fast. But it didn't revert to its pre-pandemic norm. Instead, the unemployment rate sits at 5.4%, with over 1 million more job openings than people looking for work. And they're not concentrated among the upper rungs of the economic ladder – they're at every skill and salary level.
Some economists insisted that the problem had to do with overly generous pandemic-era unemployment compensation. But the states that did away with the extra funding haven't seen a rebound in hiring. So what's going on? The answer, it turns out, is complicated. Here are some of the factors driving the current labor shortage and putting the squeeze on US businesses.
A More Informed Labor Force
Before the pandemic, there was growing evidence to suggest that American workers, particularly at the low end of the labor spectrum, were reaching their limit. In the retail sector, in particular, there were signs that the current situation was inevitable. To wit, turnover rates had ticked up from an already unsustainable 54.5% in 2016 to a staggering 69.7% in 2020. In other words, workers were already beginning to show signs of unrest.
During the early days of the pandemic, workers of all stripes stayed home as in-person operating restrictions took hold. And when that happened, many undoubtedly had time to take stock and realize that their jobs weren't worth the pay they offered. Free of the daily grind, they started to go job-shopping. Sites like Glassdoor and Company Reviews saw record traffic that indicates as much.
And armed with that new information, waves of workers began turning in resignations in search of more rewarding work. That single factor, as much as anything else, is what's causing the present labor shortage. But it isn't the only factor.
A Demand For Better Working Conditions
Another factor in the current labor shortage is a growing demand by workers for better working conditions. And it's showing up at all levels of the labor pool. On the lower end of the spectrum, the most obvious indicator of this is the fact that union enrollment grew in 2020 after decades of steady decline.
And in high-skilled professions, we can see the same demand playing out in the ongoing struggle over the future of remote work. In the tech industry, some workers are quitting their positions rather than accepting a shift to a permanent all-remote configuration. And at the same time, some are revolting against their employers' plans to go back to the pre-pandemic in-office status quo.
The takeaways here are that workers at both ends of the economic spectrum are beginning to challenge the notion that they shouldn't have a say in their working conditions. And it's leading to upward pressure on wages at the low end, and an increase in demands for flexibility at the high end.
An Embrace of Alternatives
The third major factor behind the current labor shortage is a rising tide of workers who have used the pandemic as an impetus to alter their careers. There are scores of stories of workers that demonstrate the trend in action. Lawyers are leaving large firms to start smaller, boutique operations closer to home. Reporters are quitting to become freelance writers. And bankers are departing six-figure jobs to pursue crypto ventures and NFTs.
Media reports are just starting to focus on this trend, referring to it as the YOLO economy. And there's reason to believe it's a trend with staying power, particularly among younger workers. The pandemic seems to have fed their growing unease with the pre-pandemic economy and created a new willingness to chart a different path post-pandemic.
A Reconfigured Labor Market
The bottom line about the current labor market conditions is simple. It's that as businesses continue to look for ways to meet their workforce needs in the coming months, they're going to have to recognize that things aren't going to go back to their pre-pandemic norms. Right now, workers have all of the leverage, and they're using it.
That means the business community is going to have to adapt sooner or later to what looks like a new employment paradigm with staying power. Those that find ways to accommodate worker needs should end up becoming magnets for the best candidates. And those that cling to their old ways of doing things are going to face a reckoning. In either case, it's looking increasingly certain that the pandemic has touched off a rare evolution in the relationship between businesses and labor – and only time will tell how far it's going to go.
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