Labor Shortage, People Shortage, or is it Something Else?
As a business owner, how often do you say “We can’t find people to do the work” as you turn customers away. Every business owner we talk to is facing not having enough labor to deliver its goods and services. In fact, there are two important challenges to this problem – people to fill entry level positions and difficulty finding skilled talent.
This problem is not confined to restaurants and hospitality, but rather every industry and geography. Yet millions of Americans are still unemployed while large and small companies alike are having difficulty finding workers. The world has been going through the COVID 19 Pandemic for over 18 months, a vaccine has been deployed and the economy is reopening. Yet help wanted signs are in windows from manufacturing companies, to construction, to a variety of service businesses and everything in between. So why can’t businesses hire enough workers and what is really going on?
According to the latest available economic data, there are 10.1 million job vacancies in the United States and yet there are 8.7 million people unemployed. Industries such as manufacturing, construction, professional and business services, health care, retail trade and food service lead all others in job vacancies So one would ask, why are employers having such difficulty filling positions.
This problem existed well before the pandemic and shut down of the economy. The US had experienced the longest sustained economic and employment expansion in history with 118 months of sustained growth. This expansion created a tight labor market and shortage of qualified workers in several trades and occupations.
The evidence is clear, employers are desperate to find workers. Many employers assumed that with the economy opening and more people being vaccinated, would result in people returning to work. That just did not happen. Many business owners we have spoken to have said that unemployed individuals receiving additional federal unemployment benefits, in addition to state benefits, had little incentive to return to work.
This is simply not true because:
First, in only three states do unemployment payments exceed the average wages in that state.
Second, only a small percentage of people collecting extended unemployment benefits would turn down a job.
Third, only about 3% of those individuals collecting unemployment had no financial need to return to work.
It should be interesting what happens now that those benefits are suspended.
Make no doubt that wages are an issue, but not the only reason for the worker shortage. In interviewing employers and independent research, we found several insights.
If a labor shortage truly existed, wages would be skyrocketing, and companies would be going out of business because they are unable to operate without a sufficient workforce. It is important to note that wages have been stagnant for years. A bit of perspective - in 1968 the federal minimum wage was $1.60 an hour, which is equivalent to $12.38 in 2021, however the federal minimum wage is $7.25.
This upward pressure on wages is creating a critical divide between small and large employers. Large employers are raising the minimum wage paid to their employees. Examples include Under Armour who bumped its minimum pay from $10 to $15. Amazon is hiring 75,000 workers at a starting hourly rate of $17 plus a $1,000 signing bonus. Bank of America pays $20 per hour and will increase the rate to $25 by 2025.
The competition for workers dramatically effects smaller companies and makes it difficult to attract new workers and keep their existing workforce. This situation further exacerbates the divide between small and big business.
Workers want a better work-life balance, flexible schedules, and dependable hours.
Companies were forced into a remote workforce, which in most cases resulted in better work-life balance and flexibility. The transition to a remote workforce resulted in employees realizing they can be more efficient working remote while they achieve the work-life balance they seek.
Employers are faced with a dilemma – Do they bring employees back to the office or continue remote? We are finding that most companies are going to a hybrid with a combination of office and remote. This achieves the work-life balance employees are requesting. However, there are a significant number of jobs where this simply will not work and work-life balance must be achieved differently.
Families have needs for child and adult care.
Many people want to return to the workforce, but simply cannot because they are caring for a child or parent. During the pandemic many childcare facilities closed and have not reopened or have partially reopened. Senior citizens feel safer and would rather age at home rather than various senior living facilities.
Skills and knowledge gap.
The nature of work is changing, and employers and employees need to retrain and learn new skills. This is driven by emerging technologies and disruptive forces such as artificial intelligence, the gig economy and automation. Further contributing to the skills gap, is the Baby Boomer generation retiring at an astounding rate leading to the skills they possess not being replaced. This skills gap has employers struggling to hire trained workers and employees seeking jobs.
The skills gap is a serious threat to a full recovery from the effects of the Pandemic. Every industry is experiencing skilled and unskilled worker shortages. In a recent survey by Prudential Financial, workers see their job opportunities in jeopardy if they don’t learn new skills. On the employer side, 74% of managers believe their team would be more productive if they expanded their skill set.
The skills gap is not confined to big business and there is no doubt that small business is an extremely important component of the economy. However, the pandemic has disproportionately affected small businesses compared to large corporations. Now that many businesses are starting to recover, the skills gap places significant pressure on small businesses that may not have the capital to invest in reskilling or upskilling their employees. Many small and middle market companies are not equipped to recruit, hire, train and retain a skilled workforce.
Remaining competitive and attracting talent is critical to restoring value. This is not easy, and businesses must consider:
Changing the mindset. It is no longer prudent to look at talent as an expense but as investment in your company.
Skilled talent is and will continue to be a competitive advantage.
Without a documented written training program, it is difficult to develop talent internally. This can be expensive but well worth it.
Developing partnerships with educational and training organizations that can bolster capabilities of internal programs.
Examining your business model to move into the digital age.
The pandemic has accelerated the importance of workers in all industries to have strong digital skills.
Birkdale Transition Partners LLC is the objective source for those seeking business sustainability, growth, or considering a business transition. Our goal is to ensure business sustainability and to maximize the value of an enterprise before any transition or transaction. Business owners without a transition plan often are unable to sell or transfer their company at its highest value. We help them to balance a company’s transition with the owner’s personal goals. Then we work with them to avoid problems caused by the lack of planning or to recognize what needs to be added, corrected, or modified before.
Birkdale is unique because it only offers an unbiased assessment and solutions for the company owner. We do not sell any other products or services, so are a fee-only firm. We work in partnership with the company’s current professional advisors and staff. Because we help companies increase their monetary value, owners view our assistance as an investment—with payback and payout occurring during and after an engagement.