Worker shortages have stumped employers and economists since the pandemic began to slow down and people began returning to work. What happened to the expected flood of returning employees? And how were companies going to survive without the workers they needed to keep operations running smoothly? At the end of November 2022, Federal Reserve Chair Jerome H. Powell gave a speech that explained the issue at hand.
Where did they go?
The most pressing question in all of this is what happened to the workers. Where did they go? In a speech given on November 30, 2022, Federal Reserve Chair Jerome H. Powell explains, “recent research by Fed economists finds that the participation gap is now mostly due to excess retirements—that is, retirements in excess of what would have been expected from population aging alone. These excess retirements might now account for more than 2 million of the 3‑1/2 million shortfall in the labor force.” Simply put, more people retired earlier than planned, which startled economic analysts. An expected workforce of 2 million left a gaping need in the economy.
The question then becomes: why are so many people leaving the workforce early? What is motivating 2 million people and counting to retire earlier than planned? There’s a variety of reasons behind this sudden departure: the elderly community was at higher risk of health problems due to COVID-19; those with long COVID, or extended COVID symptoms, who were close to retiring anyway may have simply chosen to retire early and protect their health; at the beginning of the pandemic, layoffs were incredibly high, and some workers close to retirement did not want to put in the effort of finding another job when finding new employment would take so much time and energy; additionally, Powell explains, “gains in the stock market and rising house prices in the first two years of the pandemic contributed to an increase in wealth that likely facilitated early retirement for some people.”
How employers are combatting this issue
While many people retired early, the worker shortage doesn’t seem to have a quick fix. In his same speech, Powell discussed the possibility of retirees returning to work—which unfortunately does not appear to be a plausible solution to the problem. “The data so far do not suggest that excess retirements are likely to unwind because of retirees returning to the labor force. Older workers are still retiring at higher rates, and retirees do not appear to be returning to the labor force in sufficient numbers to meaningfully reduce the total number of excess retirees.”
Additionally, companies need to keep their workforce at maximum capacity at all times. There’s no opportunity to wait for the worker shortage to miraculously end. In order to increase pools of applicants, many employers are offering pay raises for open positions. These pay raises come in the form of overall hourly and salary rates and in the form of sign-on bonuses as well.
The economy is heavily impacted by inflation due to these worker shortages and subsequent pay raises. As you run your staffing agency, it’s important to keep ahead of the trends so you can ensure you are offering fair pay and so you can ensure you don’t fall victim to the worker shortages plaguing the economy.