The United States faces a long-term labor crisis that inevitably will lead to higher wages and a slowing economy, The Wall Street Journal reports.
Unemployment in the U.S., currently at 3.8%, has been under 4% for nearly two years. The biggest force driving the need for workers has been companies meeting renewed consumer demand post-pandemic. This is what has led to worker strikes at automakers and airlines, and in Hollywood.
However, bigger economic forces that have been brewing for decades will continue to put workers in the driver’s seat. These are: retiring Baby Boomers, many of whom left the workforce prematurely during the COVID-19 pandemic; a falling U.S. birthrate that is now half of what it was in the 1960s; declining productivity; and more part-time, flexible, remote and gig workers.
“It is a talent supply chain, and you have to think about it that way, except in this case, talent has a choice,” says Teresa Carroll, chief executive at Magnit, which places temporary, contract and freelance workers.
U.S. labor force participation peaked at 67.3% in the first three months of 2000 amid the dot-com boom and a time when Boomers ranged in age from 35 to 54. The Labor Department projects labor participation will fall to 60.4% by 2032.
Labor also forecasts employment will grow by 0.3% a year in that time frame, far below the 1.2% rate in the past decade, and notes that worker production has risen a paltry 1.4% a year in the past decade.
Experts say an economy grows as fast as the expansion of its workforce and its productivity—which points the U.S. economy towards lackluster gross domestic product growth and workers towards higher wages for the foreseeable future.
“A carpenter now is making 20% to 25% more than they did 24 months ago—and that is not sustainable,” notes John Fish, chairman and CEO of Suffolk, a construction contractor.
Solutions to this dilemma include enabling more people to enter the labor force through such means as tapping disabled or formerly incarcerated people to work. U.S. employers could also outsource more work overseas, automate more functions, change production, and train people for different jobs.
Immigration reform is also an option but remains a divisive issue. Many business leaders want the U.S. to adopt a coherent, stable policy to address the looming labor scarcity.
Carroll sees three options for companies facing a lack of workers: “They can plan for it. They can do nothing. Or they can have hope. And to me, hope is not a strategy.”
Fish adds, “If we don’t solve this with a thoughtful immigration program, we’re going to drive wage rates through the roof in the next two to three years because of the systemic shortfall of labor.”
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