Labor Shortages Forecast to Persist for Years

By Roy Maurer (01/23/23)

Economists are predicting a slowdown in labor market activity in the U.S. in 2023 due to a likely recession, a continued battle with inflation, more layoffs and higher unemployment. But data shows the far greater concern lies in something that’s not so changeable: demographics.

“Demographic shifts and aging populations mean countries like the U.S. will experience an ongoing shortage of workers and hiring will remain challenging for years,” said Svenja Gudell, chief economist at Indeed. “Without sustained immigration or a focus on attracting workers on the sidelines of the labor force, these countries simply won’t have enough workers to fill long-term demand for years to come.”

She said that according to the World Bank, over the next decade, the number of people of working age (between ages 15 and 65) will decline in the U.S. by over 3 percent.

“And that trend will continue beyond 10 years,” she said. “It is a fundamental error to think that as COVID-19 recedes, hiring difficulties will evaporate. Deep-seated and long-term supply dynamics will continue to be a major force that creates a persistent gap between employer demand for new hires and the supply of candidates.”

Nela Richardson, chief economist at ADP, said that since 1990, the global labor force participation rate has fallen steadily, from more than 65 percent of working-age people to less than 60 percent, according to a World Bank analysis. “In the past, worker mobility and immigration helped even out differences as wealthy countries attracted skilled and unskilled workers in search of better pay and prospects,” she said. “Now the political winds are shifting on globalization and immigration. Physical mobility might be supplanted by remote work that allows people to stay put while their jobs migrate. The impact of this new dynamic on wages is uncertain and could determine how tight the global talent market will remain in the future.”

Bledi Taska, executive vice president and chief economist at Lightcast, a labor market data analytics firm headquartered in Moscow, Idaho, said that policymakers and employers can build up the diminishing labor supply by working toward immigration reform, especially attracting and retaining high-skilled foreign workers; finding ways to entice discouraged workers back into the labor force; and shifting to a skills-based hiring model instead of expecting people to go through traditional higher education.

Gudell said that offering more flexible opportunities will help make it easier to find talent in the face of labor supply constraints. “We’ve seen in the data that people with disabilities have been able to enter the workforce in much higher numbers when employers offer remote work,” she said. “Flexibility in areas such as work scheduling is also key to attracting and retaining older demographics as well as women, who must juggle jobs and child care responsibilities more often than their male counterparts. Being open to remote work also means that you can hire beyond your local radius and consider people from all over the country or across the world.”

Fair chance hiring is another solution. “The formerly incarcerated is a fairly large pool of people, and we’ve seen interest from job seekers from that population looking for new opportunities,” Gudell said.

Experts believe that job candidate expectations altered by the pandemic—in which job seekers felt more leverage to seek more flexibility, higher pay, better benefits, and support for health and wellness—will continue this year and in the years ahead.

“The employee voice has mattered more than in the past,” Gudell said. “Given that we are going to deal with an aging demographic and labor supply will remain tight, we will see quite a bit of bargaining power among job seekers, especially in certain in-demand sectors like health care or technology.”

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