scorecardWhy the labor shortage will stick around — and is good news for worker pay
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Why the labor shortage will stick around — and is good news for worker pay

Juliana Kaplan,Madison Hoff   

Why the labor shortage will stick around  — and is good news for worker pay
PolicyPolicy4 min read
  • A new Indeed and Glassdoor report looks at long-term trends for the labor market.
  • The report finds that labor shortages are going to stick around, especially with an aging population.

If the last year or so of hiring — and understaffed restaurants, stores, and just about everywhere else — has shown one thing, it's that labor shortages are sticking around. Don't expect them to go anywhere anytime soon.

A new Indeed and Glassdoor report looked at long-term labor market trends. One key trend: Labor supply will remain tight, especially as the number of people who are considered working age continues to dwindle.

"It is a fundamental error to think that as COVID recedes, hiring difficulties will evaporate," the new report stated. "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."

Mismatches have been a continual problem in the post-vaccine labor market. For example, the roles that are available don't fit workers' qualifications, workers aren't where the jobs are, and workers want more out of work, whether that's benefits or money. All of those are making it tougher to hire — and those mismatches are part of longer-term labor trends.

The workforce is getting older and retiring more

One major reason for the current tight labor market, according to Svenja Gudell, chief economist of Indeed, is because "we entered the pandemic with certain demographic trends already being in existence." The pandemic accelerated this. For instance, Gudell said some workers retired early, especially older workers, although some people did end up unretiring.

"We still had the natural progression that was sped up of a very large generation of Baby Boomers that were heading towards the retirement age," Gudell told Insider. "Going forward, if you look at population projections and how the workforce is gonna develop over the coming years and decades, it's become very apparent that the future is here now."

"We are living the changes that we've talked about for some time right now," Gudell added. "The pandemic was the accelerator to that fire, and now we're dealing with an acutely aging population."

The problem isn't just seen in the US; that prime working age population is set to decline across a range of countries based on 2026 to 2036 population projections from the World Bank.

"The long-term demographic shifts are not unique to the United States. Some countries are in a much more dire situation," Aaron Terrazas, chief economist of Glassdoor, told Insider. In Japan, for instance, birth rates are near century lows as the workforce struggles with labor shortages.

The repercussions of this will hit some industries harder. Healthcare, for instance, will need new workers as older Americans leave the labor force — but also to take care of that aging population. Gudell said we will need to "fill a whole new set of jobs to be able to accommodate for that aging."

Long-term labor shortages could lead to better benefits and wages, but policy solutions could truly solve them

While employers have raised wages over the past year to try and lure in workers, inflation as measured by the Consumer Price Index remains sky high — even though it has recently cooled. At the same time, the report identifies another trend: Workers wanting more leeway for remote work, and better benefits.

"Inflation has effectively eroded any real wage gains that incrementally higher wages have made," Terrazas said. "It's hard to imagine why someone would be attracted back to the labor force when real wage growth has been negative for much of 2022."

Another factor aside from pay is how workers' desires will continue to shape where they work. The economists find that the desire for remote work is sticking around, even though some employers want workers back in person. Workers want to feel better and happier at work, and they want a more diverse and just work environment.

To lure in workers, employers also need to beef up benefits. Low-wage job postings on Indeed saw an 100% increase in mentions of paid time off, for instance — illustrating how one labor-strapped sector is trying to lure in new workers.

Improving or hitting on all of those might bring in some of the workers who are staying on the sidelines, but there's a larger structural issue of labor supply. To remedy that, there are some solutions other countries have taken that could be applicable to the US.

In France, fertility rates are high, Terrazas said — "in large part because of family friendly policies that were enacted in the 1990s and 2000s." Obviously, that takes a little while to spill over into the labor force, as the country still deals with its own labor squeeze.

"But I think France is benefiting from those family-friendly employment policies that were enacted two, three decades ago at this point," Terrazas said. And, in Germany, the labor market situation is still a problem, but hasn't been as challenging over the last few years.

"Germany has been more and more open to foreign workers, welcoming refugees most recently during the Ukraine crisis. Those people are adding to Germany's labor force," Terrazas said. "And that's one reason why Germany's labor force and participation rate has rebounded much more sharply than we've seen in the United States."