The stories are everywhere. Retailers operating on shortened hours, restaurants formerly opened for lunch and dinner are now open only for dinner, factories are unable to find production line workers, shippers cannot have their ships unloaded because of too few dock workers, and not enough truck drivers to deliver goods, airlines cannot find sufficient crew members after reducing their labor force in recent years, shortages everywhere and prices rising.
Where did all the workers go?
There is so much economic data available, it is not difficult to connect the dots and understand where those workers went. Before the onset of Covid, there were about 152 million workers in the labor force, as reported by the U.S. Bureau of Labor Statistics. During Covid, in 2020, employment dropped to as low as 130 million with high levels of unemployment as businesses shut down. But in December 2021, with only 3.9% unemployment, employment reached only about 148 million.[1] What happened to the 4 million workers employed in 2019 but not unemployed or employed in 2021?
Where did they go?
Worker Retirement
First, many older workers retired. According to a Goldman Sachs report using government data, about 3.4 million workers 55 years or older left the workforce, meaning they were not employed or looking for work. 2.5 million are new retirements. In a normal year, about one million workers retire; apparently, another 1.5 million retired above normal last year, mostly taking early retirement.[2]
The reasons for early retirement are several. Many families actually made money during the pandemic, with enhanced government payments, a rising stock market, and months of saving and not spending out of concern for the future. They have a newly acquired nest egg to commence a life of retirement.
Many employees decided work during a time of Covid was just not worth it. Does $10 an hour and long workdays adequately compensate for risking illness and even death? Many clearly sad ‘no.’
Some older employees were laid off during the bad times and may have felt their ability to find another job was limited. Robbed of familiar tasks and procedures in a known and comfortable environment, some of these workers likely were unwilling to start a new one, especially at an advanced age. Rather than claim unemployment, socially, it may have been easier to claim retirement.
Some preliminary indications indicate that some of these early retirees are returning to the labor force.[3] The “un-retirement” rate was 2.6% in October 2021 compared to 2.4% in August 2021 and 2.1% in June 2020, during the height of the pandemic.[4] Evidently, inflation fears and stock market volatility are causing some to reconsider whether they have sufficient retirement savings. Thus far, the number of early retirees returning to the labor market does not appear sufficient to solve the labor shortage, but if inflation and stock market woes continue, more early retirees will likely return to work, easing the worker shortage.
Other Worker Shortage Reasons
While retirement appears to be the largest cause of a reduced workforce, there are other reasons. Recently the government reported a disappointing new jobs creation of 200,000 jobs compared to an expected 600,000 new jobs. At the same time, a separate household survey reported an unemployment rate decline to about 3.9%.[5] How can new jobs be lacking but unemployment be declining?
Most likely, many employees left the corporate workforce to form new companies, work from home, and start new businesses. Companies report employment statistics, but households report if members have jobs. Many people clearly found jobs in non-traditional places that some statistical data unreported.
With schools closed in many areas, moms (and sometimes dads) face the challenge of supervising children and cannot work productively. Pre-school and daycare are often hard to secure, and labor shortages in daycare exacerbate the lack of available daycare slots. According to a study at the University of California at Berkley, there are 111,000 fewer daycare workers now compared to February 2020.[6]
Parents who have children at home are more likely to drop out of the workforce until the schools are not subject to closing. This may explain why more women left the workforce during Covid (Feb. 2020 to Feb. 2021) than men, even though women make up less than half the U.S. workforce.[7]
Less Immigration = Fewer Workers
And then there is the issue of immigration. Total immigration (legal and illegal) has dropped dramatically since President Trump took office. In 2016 total immigration to the U.S., including legal and illegal, was about 1.2 million. By 2020, the last year of the Trump administration, total immigration had fallen to about 700,000. Similarly, the number of refugees admitted to the U.S, fell from about 85,000 in 2016 to around 11,500 in 2020.
Many factors influence immigration, but the administration’s immigrant policies clearly depressed the number of admitted immigrants. Typically, newly arriving immigrants take many lower-paid, less desirable jobs such as restaurant kitchen help, which are now in such short supply.
Germany, which is also suffering labor shortages, recently announced a need to admit 400,000 more immigrants annually if they are to fill the gap.[8] Immigration is so politicized in the U.S. that high levels of new authorized immigration seem unlikely.
With a diminished workforce, the demand for goods has increased dramatically. Pent-up demand and household spending responding to expectations of a better future have driven economic recovery. Goods from overseas, including China, have been delayed by Covid-related factory and port closures. American firms have struggled to meet the demand, but without workers or imported parts, they cannot move forward.
So, what can be done to replenish the labor pool?
- Older Americans must be given greater incentives to un-retire, including more pay and better working conditions.
- Schools must remain open and be sufficiently staffed so parents can resume work.
- Immigration must be increased quickly, especially to fill less desired jobs, and policies expanding daycare and pre-school and attracting workers back to these fields must be pursued. It’s not that complicated.
Without incentives and policies to restock the labor pool, expect continued shortages, increased prices and inflation, unfilled jobs, and limited future growth.
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Scott MacDonald is a retired CEO and author of award-winning books, including Education Without Debt, Giving back and paying it forward. More information about Scott is available at authorscottmacdonald.com.
[1] St. Louis Federal Reserve, Current Employment Statistics, January 7, 2022, https://fred.stlouisfed.org/series/PAYEMS accessed January 15, 2022
[2] Juliana Kaplan and Madison Huff, Goldman just figured out why the labor shortage will last for a long time… Businessinsider.com November 12, 2021, https://www.businessinsider.com/labor-shortage-millions-retired-early-pandemic-not-going-back-2021-11 accessed January 15, 2022
[3] Greg Iacurci, Retirees are ‘unretiring’ – and that’s good for the labor market, CNBC.com November 17, 2021, https://www.cnbc.com/2021/11/17/retirees-are-unretiring-and-thats-good-for-the-labor-market.html accessed May 23, 2022
[4] Ibid.
[5] U.S. Bureau of Labor Statistics News Release, The Employment Situation – December 2021, https://www.bls.gov/news.release/pdf/empsit.pdf accessed January 15, 2022
[6] Center for the Study of Childcare Employment, Child Care Sector Jobs; BLS Analysis, January 11, 2022, https://cscce.berkeley.edu/child-care-sector-jobs-bls-analysis/ accessed January 15, 2022
[7] Rakesh Kochhar and Jesse Bennett, Pew Research Center, U.S.labor market inches back from the COVID-19 shock… April 14, 2021, https://www.pewresearch.org/fact-tank/2021/04/14/u-s-labor-market-inches-back-from-the-covid-19-shock-but-recovery-is-far-from-complete/ accessed January 15, 2022
[8] The Economist, Espresso Morning Briefing, January 21, 2022
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