Workforce futurists have been predicting mid-twentieth century labor shortages for some time now, but many forecasts seemed unduly alarming – until the pandemic. Now, a confluence of factors is rapidly decreasing the global worker supply.
Employers have noticed. According to Ceridian’s 2023 Executive Survey, 66% of the global leaders surveyed have experienced a labor shortage in the past 12 months. And 88% said it’s at least slightly likely shortages will continue over the next year.
The surveyed leaders aren’t wrong about the likely continuation of labor shortages. And many executives I’ve spoken to recently are wondering why there is a labor shortage and how they can protect their organizations from critical deficits in the near- and long-term.
So, why is there a labor shortage? Let’s look at some of the causes.
Fewer people in the workforce
The main culprit, as futurists have noted for decades, is demographic shifts. Specifically, falling fertility and labor force participation rates mean there are simply fewer workers available to be hired.
Over the next decade, with most baby boomers entering retirement, the number of working-age people aged 15-65 is projected to decline by over three percent in some countries, including the United States. And even the people in this age range aren’t necessarily working to their full potential. Per a recent World Bank analysis, the global labor force participation rate has fallen steadily since 1990 from more than 65% of working-age people to less than 60% today.
These figures are already affecting unemployment. In April 2023, the U.S. Bureau of Labor Statistics’ Jobs Report showed that unemployment for 20-to-24-year-olds fell to 5.4%, the lowest it has been since 1969. As a result, newly minted college graduates are entering a job market that’s not only more robust than a year ago, but significantly stronger than it was before the pandemic.
Low-wage workers lack mobility
Labor shortages among low-wage workers are getting the most attention recently. And with good reason, as they are currently among the most dire shortages. One major factor is stricter immigration policies, and the other, economists speculate, is a “dual labor market” that doesn’t allow much room for mobility.
A new research paper published by economists at the Federal Reserve Board in Washington, D.C. shows this dual labor market is a problem for countries like the U.S. The researchers’ analysis documented a primary workforce comprising 55% of the population. These workers have high levels of employment stability and are only unemployed for short periods of time.
The secondary labor market, on the other hand, makes up 14% of the population and lives in a constant state of flux with poor wages and working conditions. These workers experience six times higher job turnover than those in the primary tier and are 10 times more likely to be unemployed. At present, extremely limited mobility between the two sectors negatively impacts the United States’ (and others’) ability to attract lower-wage workers who want to climb their way up.