Are Worker Shortages the New Normal?

Tightening Trend

One key characteristic of the pandemic economy was a shortage of workers. In 2022, the number of available jobs waiting to be filled stood at more than 12 million , a record by a long way. As companies competed for labor, they outbid each other on the salary front, pushing up average wages, and adding to the nation’s high inflation problems.

The number of job openings has tapered down again, reading just 8.1 million in May. While that’s still above pre-pandemic levels, it’s well below the record again. But that’s just it: It’s still above what was normal before Covid. Can we ever get back to that again?

Demographic Dilemma

Looking at a longer horizon, labor markets in advanced economies like the U.S. have tightened for years. In other words, there are fewer workers for the jobs available. The unemployment rate offers some evidence: Today, the U.S. jobless rate is 4% — lower than in any month between 2001 to 2018.

As demographics change and the workforce ages, this trend may only intensify, according to the report from McKinsey Global Institute.

Labor market tightness “means forgone economic output,” according to McKinsey. If nobody does that job that needs to be filled, nothing gets produced. In 2023, the GDP of advanced economies could have been 0.5% to 1.5% higher if employers had filled all vacant roles, McKinsey estimates.

Productivity Push

A perpetually tight labor market means that companies will continue to vie for talent, which often translates into positives for workers, who may be able to reap better pay or benefits in the process.

But rising wages can add pressure to inflation. Think about this example: The place you get your weekday lunch from has to pay up to compete for staff. These increased costs may be reflected in your paying higher prices you end up paying for your lunch.

Given the high inflation period the nation went through in the wake of the pandemic, economists and central bankers will continue to pay close attention to this trend.

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