Economic reports about employment rates, labor shortages, and the state of the market can be hard to navigate. They might appear in dense press releases or jargon-heavy articles that don’t clarify what’s going on and how it affects you.
But you don’t need to be an economic expert to learn about the labor shortage. And doing your research can help you understand its repercussions — some of which you might already be feeling.
Keeping tabs on the state of the market and its effects on the industry you work in gives you the tools to navigate potential issues in or around your workplace.
So why is there a labor shortage, and how will it impact your job potential, industry outlook, or business health?
What’s the definition of a labor shortage?
A labor shortage is when there are more job vacancies in the labor market than available workers. As a consequence of this difference, employers have trouble finding and hiring staff.
According to the Bureau of Labor Statistics (BLS), there were 9.9 million available job openings at the end of February 2023. However, the current unemployment rate is just over half the number of job openings.
As of February 2023, the BLS reported 5.9 million unemployed workers actively looking for work, according to self-reported status on the Current Population Survey. People who don’t work for other reasons — like school, family, or ability — aren’t counted in this number.
That means there are around 4 million job openings in the U.S. with nobody to fill them. According to the World Economic Forum, recruiters around the world also report difficulty staffing. The study reveals that job seekers are looking for positions with higher pay, career growth opportunities, and work-life balance, and they’re declining job offers that don’t meet their standards.
What’s causing the labor shortage?
While there are nuances to the labor shortage depending on the industry and region, shortages stem from a few common causes. Here are a few reasons why there’s a labor shortage in the U.S.:
1. COVID-19 and the Great Resignation
Sudden unemployment, evolving work-from-home dynamics, and time to self-reflect about the future of work-life balance have disrupted the dynamic between workers and employers in a post-COVID-19 world.
Although the current unemployment rate is nearly the same as pre-pandemic levels, workers are generally asking for more from their employers, which means they might not take jobs that don’t meet their standards.
Many American employees want better flexibility, growth opportunities, and managers and organizations that treat them with respect and empathy. These are only a few reasons for the general discontent among American workers that led to the Great Resignation, an ongoing phenomenon of workers voluntarily quitting their jobs.
In 2022, quit rates went through the roof, causing the Great Resignation with 46.6 million voluntary departures. Employers need to replace those workers.
2. Aging population
According to the BLS, less than 10% of the labor force will be made up of baby boomers by 2030, the lowest percentage in decades.
Their growing absence in the labor market becomes more severe when the population isn't growing as quickly — the number of workers between 16–24 will decrease by 7.5% by 2030, according to the same BLS statistics. That means there will be fewer new workers to replace people aging out of the labor market.
With fewer people entering the workforce, there will be long-term impacts on the labor market. According to the U.S. Census Bureau, the American worker’s median age has grown by 3.4 years since 2000 38.8 years old, and will likely continue to rise. When older workers age out of the workforce, it could make the shortage worse.
3. Skills shortages
According to a 2021 survey by McKinsey, 87% of global employers claimed that they had a serious skills gap or would face a skills gap within a few years. Workers with strong technology skills are amongst the hardest to find.
And tech workers' frustrations with wage growth despite receiving consistently higher wages continue to contribute to the shortage of skilled workers.
This challenge presents an enormous opportunity for tech talent during salary negotiation. Tech workers can ask for better pay and working conditions, but it lengthens the hiring process and makes it harder for companies to find talent that matches their resources.
4. Changing expectations
In 2016, millennial workers became the largest generation in the US workforce, and they have workplace demands unlike previous generations. Low salaries are a top concern: real wages have barely budged since the 1980s, and where they do rise, they benefit high earners instead of the entire workforce.
Beyond wage increases, millennials seek higher quality healthcare programs and want more remote work, sick days, and extra employee benefits like elder care or child care. When employers can’t offer an employee value proposition with the right perks, they won’t be able to hire as many workers with in-demand skills.
How the labor shortage impacts you
Prolonged labor shortages can disrupt the regular economic cycle, impacting the lives of workers, managers, and consumers. They’re positive for some and negative for others, which is why it’s important to keep track of the numbers and their effects.
Here are a few ways a prolonged labor shortage could impact you:
Inflation
Businesses might start paying people more without bringing in more profits. But paying employees higher salaries brings financial pressures that force them to raise prices for consumers, contributing to inflation.
Depending on the industry you work in, your salary might not feel like enough to keep up with the rising cost of living.
According to Business Insider, the food services and hospitality industry is the only sector to see real wage increases since early 2021, and most industries don’t pay enough to match inflation.
Higher interest rates
Governing bodies have to find solutions to the labor shortage and the inflation that accompanies it. In the case of the Federal Reserve, inflation typically means increasing interest rates and other borrowing costs for consumers and businesses.
This makes it more difficult for people to invest in their businesses or take out a personal loan or mortgage.
Bargaining power
If you have highly sought-after skills, you can leverage their value against lots of open jobs and be more selective with the positions you accept. Not only can you negotiate higher pay and better raises, but businesses will need to build strong employee value propositions to keep you satisfied.
If you’re entering the job market or planning a career change, consider pivoting your skillset toward in-demand jobs to take advantage of this power.
Remote work
Almost 90% of workers accept remote and hybrid work set-ups when given the opportunity, and employers. According to the same survey, 32% of American workers spent their entire weeks working from home in 2022.
Employees enjoy remote work, and many employers widen their pool beyond local applicants to attract high-quality staff. This means it might become easier to find remote work or negotiate hybrid work set-ups in your current position.
Job opportunities during the labor shortage
A labor shortage intensifies the demand for the types of jobs that might already need more workers. If you’re looking for a new position or starting your career, researching high-demand jobs can help you build the skills employers want and find openings that offer the perks you value most.
According to the 2023 ManpowerGroup Employment Outlook Survey, here are the three most in-demand fields that can expect better career mobility in the coming years:
1. IT and data services
The evolution of AI, big data, and cloud technologies will open doors for people with tech skills. Businesses wanting to stay competitive might try to keep up with new technology, increasing the need for computer and information technology occupations.
According to the BLS, the industry is projected to grow 15% from 2021–2031, over three times the average growth rate.
2. Engineering
Engineering is a highly specialized field, and engineers working in sectors like health care, supply chain, and software will see the most growth. If you’re looking for an engineering position or want to hone your skills, going in one of these directions will help you find a better job.
According to the BLS, engineering occupations in general will grow by just 4% from 2021–2031. However, bioengineers and biomedical engineers, industrial engineers, chemical engineers, and software engineers will all experience double-digit growth with pathways to six-figure incomes.
3. Sales and marketing
Marketing and sales professionals are the bridge between consumers and companies. As online consumption and evolving technologies encourage businesses to pivot toward digital strategies, marketing will grow faster than average and remain an in-demand job.
Marketing and sales are wide-reaching industries with job opportunities for several skill sets and personality types, from the teamwork-oriented manager to the focused data analyst.
According to the BLS, those who combine tech skills with marketing expertise are among the highest earners in this field. Marketing professionals that work with information technologies have a median salary of $163,360 for manager positions.
What are employers looking for?
The labor shortage doesn’t impact the whole economy in equal measure. As you saw above, in-demand fields vary, and not everyone will have the upper hand when it comes to negotiating salary and benefits. It all depends on your industry, experience, and skillset.
The ManpowerGroup Employment Outlook Survey also reports on the skills employers look for across industries. Here are some sought-after soft skills that most recruiters and hiring managers are looking for in candidates:
- Independence: Remote and hybrid work means that managers must adapt how they stay on top of their team's productivity. They’ll increasingly need workers to be self-sufficient, disciplined, and reliable.
- Drive: As the world adapts to an uncertain future, resilience, adaptability, and strong motivation will be more important than ever.
- Critical thinking: Labor shortages put extra pressure on organizations to increase productivity and efficiency, and hiring managers want to find employees who can think critically to improve processes. They’ll value workers with strong reasoning, problem-solving, and analytical skills.
- Innovators: Crisis drives creativity to stand out in difficult markets. Workers who are creative, original, and have the self-efficacy skills to advocate their ideas stimulate important cognitive diversity that helps organizations thrive.
Use the shortage to your advantage
Whether you’re a business owner, manager, or worker, take the time to analyze your skillset and opportunities in your industry. Now that you have the tools to understand why there’s a labor shortage, you’re in a better position to strategize healthy outcomes.
If you’re looking for a job, try finding skills that employers are looking for to find the post position for you. If not, keep tabs on the numbers and make informed decisions as your career path continues.
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