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May 17, 2022

Labor shortages have become a fact of life in America. It’s not just the case that millions of jobs are open, it’s the fact they remain open month after month. In fact the US is experiencing the biggest worker shortage since the end of the Second World War.

The reasons workers are staying away are well documented, but now it’s becoming apparent this situation may last for a very long time.

There are four key structural reasons for this:

1) Long social distancing

A recent survey shows that several million workers will choose to stay unemployed indefinitely, mainly because they fear getting ill. Despite the availability of vaccines and a very low mortality rates, more than 10% of Americans who worked in 2019 say they will continue social distancing and will avoid shopping, eating in restaurants, and working, ‘for the foreseeable future.’ Another 45% plan to engage in limited forms of social distancing. This phenomenon is called “Long Social Distancing”. People that continue social distancing have lower labor force participation than those who plan a complete return to normal life as it was before COVID. Long social distancing is now estimated to lower labor force participation by about 2.5%, effectively removing about 3 million workers from the labor force.

2) Men aren’t working

Making the problem worse is the fact many of the unemployed are doing little to maintain their skills.

Surveys by the Bureau of Labor Statistics show unemployed men watch TV for more than 2,000 hours a year. To put this in some sort of perspective, that’s the same amount of time as having a full-time job. Unemployed women meanwhile, report spending seven hours a day in “leisure” or activities that are dominated by entertainment.

The problem is especially acute amongst men. Only about 88% of men of prime working age (25 to 54 years) are now either working or looking for work. This is down from 97% in the 1950s. Nearly 7 million men in this category are unemployed and specifically not looking for work. That’s four times as many as are considered formally unemployed.

3) Government benefits aren’t helping

The increasing availability of government benefits, especially disability benefits, has made it easier to avoid working. The majority of men of prime working age that are not in the labor force receive income from one of the federal disability programs such as SSDI (Social Security Disability Insurance) or SSI (Supplemental Security Income). About 70% live in a household that receives one or more disability benefits.

Disability benefits often make a person eligible for other benefits, such as subsidized housing, heating assistance, and food stamps. Altogether, it’s no longer difficult to have a work-free lifestyle.

4) There is a decline in marriage

During the last 50 years labor-force participation has declined by 4% for college graduates; by 14% for those with only a high-school diploma, and by 16% for those that didn’t finish high school. One crucial factor likely to be driving this is a decline in marriage.

Married men are much more likely to be employed or looking for work than those who have never married. The former have a labor-force participation rate that is 10% higher than the latter. Though causation is not obvious, one can speculate that having a family pressurizes men to seek employment, and a lack of one makes it easier to have a work-free lifestyle.

The ramifications are big

The problem is, all four of these trends will not reverse anytime soon, and for some these problems are getting worse.

For instance, government benefit programs continue to expand both in their availability and the ease of obtaining them. Stimulus payments and expanded unemployment benefits paid out during the pandemic are an illustrative example. Payments continued long past the point where they were necessary. Marriage rates continue to decline, having dropped by 30% over the last 50 years for the prime working age population.

The impact on employers is huge. Around 50% of businesses now have job openings that they are unable to fill and 95% of them have no or few qualified applicants. While employees’ incomes are rising (employers spent 4% more on wages and benefits in the last year – an increase not seen in 20 years), persistent high inflation has effectively wiped out any real gains.

It’s no surprise that CEOs cite worker shortages as the greatest threat to their businesses in 2022.

But the only conclusion one can really come to is a stark one: significant labor shortages are here, and here to stay.