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Monday, March 4, 2024

Emerging Issues Forum: Labor shortage can be fixed with effort

Last week’s Emerging Issues Forum in Raleigh got a useful presentation of why the labor force has gotten so tight from Laura Ullrich, a senior regional economist at the Charlotte branch of the Richmond Federal Reserve Bank. 

The message was that the labor situation can be improved with effort, but the demographic headwinds are strong. This is a long-term fix we are in. The problem has been a long time coming. We started having fewer kids. Baby boomers start retiring. Some young folks aren’t doing much. And many people have left high-stress jobs.

Laura Ullrich

We are now coming up on the third anniversary of the pandemic shutdown in March 2020. For a while, the labor market was not tight at all, because a lot of people were suddenly thrown out of work.

“In the Fifth District and the U.S., we lost about 12 to 15% of jobs, almost overnight,” said Ullrich. And the recovery has been different depending on where you live. 

“North and South Carolina have significantly outpaced states in the rest of the district, and North Carolina has significantly outpaced South Carolina,” she said. North Carolina jobs are well above 200,000 more than where we were before Covid.

But some sectors are struggling to hire. “We’re facing this reality where people have left very difficult, stressful jobs that traditionally did not pay very well, [going] into jobs in sectors like business and professional services and transportation and warehousing, that may even pay more but are much less stressful.” So schools are finding it hard to hire teachers, local governments have a lot of vacancies, nursing homes are trying to recruit staff, and daycare workers are in short supply.

“But that’s not the whole story,” said Ullrich. “People are not in the labor market to take some of these jobs.”

The labor force participation rate is a key number, the percentage of non-institutionalized adults that are either working or looking for jobs. This rate jumped between the mid-1960s and 2000. Women entered the labor force in large numbers. Even with 76 million baby boomers boosting the population, the labor force participation rate rose from around 58% in 1965 to a peak of more than 67% in 2000. But it has been declining as the oldest boomers start retiring. After the Great Recession of 2008-2009,  the downward labor participation slope became steeper. There was a slight uptick right before the pandemic, mostly people working longer and an increase in the minority labor force participation rate, said Ullrich, so in February 2020, it was at 63.3%. 

But now, three years later, it is 62.4%, nearly one point lower. “We haven’t seen a recovery here,” said Ullrich.

It’s not surprising that baby boomers were retiring, at an average rate of 2 million a year. “We can do the math. We knew that this was going to happen.” But Covid accelerated these retirements. The St. Louis Federal Reserve Bank estimates that an extra 2.5 million baby boomers retired in 2020 and 2021. 

The youngest boomers, born in 1964, are turning 59, and one reason they can retire early is that they are relatively well-off. The boomers became the wealthiest generation because they were the first that typically had two working adults in the household. The average wealth of retiring boomers is $1.2 million, said Ullrich.

But this may have had an impact on the work patterns of their children, the 26 to 41-year-old millennials, particularly males, said Ullrich.  

She suggests that the baby boomer wealth has contributed to an “extended adolescence” that is keeping young people on the sidelines and out of the labor force.

“There are a lot of baby boomers that are paying for their children into adulthood. Some of you in the audience are paying cell phone bills for adult children,” she said.

“It’s a cultural shift.  The idea of you’re 18 or 22 years old, and you have to be out on your own, has kind of gone out the window. And we’ve seen data that supports this.” In 2014, for the first time since 1870, adults 18 to 34 were more likely to be living at home than they were to be living with a spouse, she said.

In 2022, 18.7% of men and 12.4% of women 25 to 34 years old lived at home with their parents. And a census study showed that 25% of these adults did not work a single hour in a week or go to school. “So how do we engage these people? These are people that could be working. This could help us with the shortage,” she said.

In 1980, 94% of males between 25 and 54 were working or at least looking for work. By 2019, even before the pandemic, that rate had fallen to 89%. “And it’s fallen even further at this point,” said Ullrich. “That represents 3 million missing workers in the economy.”

“Research on this is rather depressing, especially among young, white males. They are working fewer hours. More of them are not working. And what they’re doing in place of work is not very productive.” 

Between 2000 and 2015, work hours for men 21 to 30 declined 12%, said Ullrich, and 15% of the men in this age group did not work a single week. Some 75% of the increased leisure time was spent playing video and computer games, she said.

“Every time I say that out loud, I feel like that’s impossible, and then I look around my own household,” where she has three sons. “And they’re either playing video games or watching videos of other people playing video games, which is completely lost on me.”

Another problem is that there are people who want to be part of the labor force but face obstacles. In the recent government report that showed the economy adding 517,000 jobs in January, it also showed that there are 5.3 million adults who want a job but are not actively looking for work. So, they are not counted in the labor force participation or unemployment statistics, because they’re not looking.

These are people who can’t afford childcare, or they are people who have criminal records and have been turned down for employment repeatedly and so have given up. “Or they have a disability that makes it difficult to do a traditional job.”

Another challenge, said Ullrich, is demographics. The “baby bust is catching up with us.”

“We have been below replacement rate, which is the number of babies we need to have to replace our population without immigration,” 2.1 births per female, said Ullrich. “We’ve been below that rate for 50 years at this point.”  

The population is aging and fewer children are being born. The median age in North Carolina has gone from 26.5 in 1970 to 38.9 in 2020.

She offered some ideas for what might improve the availability of workers:

  • Flexibility: According to LinkedIn, workers are 2.5 times more likely to apply for jobs that can be worked remotely. Flexibility in terms of location and hours worked can help workers with young children or other care responsibilities.
  • Immigration:  “I think this has to be a part of the conversation,” Ullrich said, “because just based on the pure demographic numbers, if it’s not, the population will start shrinking within the next 40 years or so.”
  • Policy initiatives: This could include enhanced child tax credits, subsidized child care, or expansion of the Pell Grant.
  • Changes in recruiting philosophies: Employers need to evaluate how and who they recruit. “Could you hire retired workers a few hours a week?”
  • Encourage young people to go into high-demand fields. There are numerous short-term training programs at community colleges that “can completely change their economic situation.” 

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