NOT WORKING OUT - A LOOK AT THE LABOR CRISIS
Written by: Alex Cate
Alex Cate joined Colliers in 2020 as a research analyst working directly with the Director of Research, Loren DeFilippo. Alex works with advisors, third-party data sources and other members of the office to provide daily database management, conduct market analysis, and provide research and reporting for the company. Check out his post on Colliers Knowledge Leader here.
Normally, when looking out across the palm tree-lined shore of Long Beach, California, you get a wide, unobstructed view of the crystal blue horizon of the Pacific. More recently, that view has instead been blocked by a record 73 massive cargo ships waiting to enter the Port of Los Angeles and unload 500,000 containers full of goods. Like so many other things these days, the routine cycle of economic activity has been disrupted by the COVID-19 pandemic. The sectors responsible for supplying and delivering goods have struggled to keep up as consumers in quarantine went from the storefront to one-click, online ordering. The unprecedented cargo ship traffic in Los Angeles is just one example of the strained and crippled global supply chain. To make matters worse, when those cargo ships finally do see a loading dock, there is a dangerous scarcity of dockworkers to unload and distribute those goods, as well as a lack of truck drivers to transport them. At the heart of this supply chain debacle, is a labor crisis that spans countless aspects of our economy and could fundamentally affect the way we live going forward.
A rise in unemployment is not a new phenomenon to the U.S. economy. In large-scale shocks like the Great Financial Crisis of 2008-2009, millions of workers lost their jobs. Not long afterwards, those same workers were eagerly ready to re-enter the workforce, leading to job openings getting snatched up and the unemployment rate cascading downward. In the case of our pandemic, that playbook has been thrown out. The economic power switch was abruptly shut off, and we can all vividly remember the headlines of massive layoffs and furloughs around the country. But contrary to normal recessions, people are not coming back to work in droves like we are accustomed to seeing. Instead, they are waiting, watching, and negotiating despite increases in both job openings and wages. In an analysis of 103 metros done by The Business Journals, the average difference between employment growth and labor force growth was 11.3% between April 2020 and July 2021. In some metros like Louisville, Lexington, and Toledo, labor force growth has in fact been negative. Why does this gap matter? If the growth of the labor force cannot match the growth of employment, the economic growth we have enjoyed thus far post-pandemic will grind to a halt.
There is an underlying mismatch between workers and jobs. Why is this happening? Many economists and politicians have argued that extended jobless benefits have dissuaded eligible workers from taking jobs. More recent data suggests otherwise – the 26 states that withdrew federal assistance prior to the national September deadline saw no significant decrease in unemployment or increase in labor participation. The factors influencing the labor mismatch are rooted far deeper in the fabric of our society’s transformed norms and beliefs. As the following case studies will illustrate, fears about COVID-19 and vaccines, along with a lack of childcare, job flexibility, and wage growth are threatening our economic recovery.
In our first example, the labor issues plaguing the Texas oil drilling industry are dominated by COVID-19 vaccination skepticism and wage disparities. Truckers, rig hands, and roustabouts are voicing their frustration at a looming vaccine mandate or the threat of frequent testing for unvaccinated employees. Many would quit before getting a shot. The vaccination issue, however, is merely fuel to the fire that is the growing difference in wage expectations. In the warehouse and logistics sectors, low-wage workers have seen their hourly pay jump in recent months from $13/hour to $19/hour. If that wasn’t steep enough of an increase, Amazon warehouse workers in some markets are now seeing $22/hour, not to mention numerous health benefits and even college tuition programs. Workers in oil and drilling as well as a multitude of other industries are fully aware of this dynamic. With the option to simply quit and join the e-commerce giants, workers are demanding higher pay. For the oil-field companies, these problems are beginning to mount. Not only are they having trouble retaining workers grappling with a vaccine mandate and higher wage demands, but are also desperate to find new, qualified workers in this era of low labor force participation.
In another case study, we turn to an entirely different subset of the labor force: working mothers. About 3.5 million mothers lost their jobs, took leave, or completely left the labor market when the COVID-19 pandemic first hit, according to The Wall Street Journal. However, as job openings and opportunities have soared, many working women have delayed their re-entry into the workforce due to concerns about childcare. A U.S. Chamber of Commerce Foundation survey found that 50% of parents view direct support for childcare as important to their decision to fully resume work. Many experts predicted that the impact of young students returning to school would bring working parents off the sidelines and flooding back into the job market, but two key factors are slowing that impact down. For one, the rise and spread of the Delta variant has served as a warning that we have not yet escaped the virus. The threat of intermittent quarantines with unvaccinated young students, as well as upcoming confusion and anxiety that will surround flu season, is forcing parents to stay at home and ready themselves for childcare in a crunch. Secondly, hammering home the theme of this piece, schools and day centers are struggling to hire. Many teachers and support staff either retired or switched jobs with the onset of the pandemic. As a result, job openings in state and local education are 70% higher than their pre-pandemic peak, according to a Wells Fargo Economics report. On the day care side, an already low-paying industry, finding and retaining talent has been grueling. Just like the oil-drilling companies, day care centers are facing increasingly stiff competition from companies like Amazon and Walmart that require fewer qualifications and are handing out extraordinary wages and benefits.
These two case studies only begin to analyze the ripple effects of the labor crisis. Zooming out further, we must consider that the U.S. population aged 20-64, a prime labor demographic, is expected to increase only 0.2% each year for the rest of the decade according to U.S. Census data. Meanwhile, the youngest of the baby boomers will soon reach retirement age, and COVID-19 has already accelerated that trend. At this point, the solution will require companies to adapt to altered worker preferences and behaviors. Numerous surveys like one done by the hiring platform ZipRecruiter continue to find that most jobseekers want some level of remote work options. Furthermore, 70% of applicants who worked in the leisure or hospitality sectors prior to the pandemic are now looking for work in entirely new industries.
Today’s employee wants change and flexibility. To survive, many companies across all industries are already fiercely competing to attract and retain talent with hybrid work models, higher salaries, childcare services, and amplified benefit plans. This labor mismatch will take a considerable amount of time to play out. One bright spot is that this slow and methodical matching of employees to new jobs could mean a calmer labor market, as workers find themselves more suited for their roles after this waiting period. A more efficient economy could follow.
If there was ever a question on the importance of the labor market on virtually every aspect of our economy and society, the events and consequences of the pandemic have profoundly answered it.