The Labor Market Is Undergoing a Seismic Shift as Markets Await September’s Jobs Report

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When the Labor Department releases its monthly report on the job market early Friday, all eyes will be on the headline number of how many new positions employers created in September.

© (FREDERIC J. BROWN/Getty Images) Applicants receive help with their applications during a job fair at a Post Office in Los Angeles, California on September 30, 2021, as the US Postal Service looks to fill 40,000 seasonal-worker positions in preparation for the winter holidays. – Mail delivery across the United States will slow down beginning October 1st as the US Postal Service implements new service standards. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)

Expectations are that the number will come in around 500,000, or more than double the disappointing 235,000 added in August, which was a major miss from the consensus forecasts.

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But focusing on a single number, good or bad, may serve only as a guidepost along a journey that has been anything but normal. After shedding more than 22 million jobs in one month last year as the coronavirus brought on a national shutdown of the economy, much progress has been made in the labor market. More than 18 million jobs have been restored since March 2020.

However, the monthly churn has obscured the broader trend of disruption in the job market, which over the last 18 months has shown signs of undergoing a seismic shift the likes of which has not been seen for generations.

A complex stew of trends – reflecting the country’s changing demographics, governmental policies, technological change and a reevaluation of the contract between employer and worker – has brought about the tightest labor market of modern times. And, it is not likely to get better any time soon.

Indeed, the monthly jobs report from the National Federation of Independent Business released Thursday found that 51% of small business owners reported job openings they cannot fill, up one point from August and a second consecutive record monthly reading.

“More and more small business owners are struggling to find workers for their open positions,” NFIB Chief Economist Bill Dunkelberg said. “For most small employers, labor costs are the largest operating outlay and owners will be compelled to pass those costs on to their customers by raising prices.”

Clearly, the COVID-19 pandemic upended norms across the economy, in some cases hastening changes that were already afoot and in others rewriting the rules that had governed the labor market for years. And business, which has spent the better part of four decades substituting capital for labor through automation, offshoring and productivity improvements, now finds itself with not enough labor to meet the demands of its customers.

“The retirement of baby boomers, lingering challenges associated with the pandemic and a ‘you only live once’ philosophy among younger workers are driving a structural shift in the labor market away from the conditions that had prevailed since the 1980s,” economists Tuan Nyguyen and Joseph Brusuelas wrote this week in The Real Economy blog.

“In many ways, this is the biggest change to the domestic economy since the automotive industry was forced to adapt to more dynamic foreign competition,” the pair added.

The forces affecting the labor market are powerful, in some cases unprecedented, and for many businesses something that they are still coming to grips with. Rarely, if ever, has there been a recovery from a recession where there was a shortage of labor.

Consider the headwinds facing the labor market and, by implication, the broader economy:

An Acceleration of Retirements

While the economy overall has seen a record high number of “quits” – persons leaving the workforce voluntarily – baby boomers have been at the forefront of the departure wave. Some 3.2 million more boomers retired in the third quarter of 2020 than in the same period a year earlier.

The loss of such seasoned workers, who are more likely to be managers, has put a disproportionate burden on other employees who have found themselves working harder and longer hours to offset the departures.

Technological Change

“The migration to working remotely during the pandemic has changed the way people think,” says William F. Zeibell, CEO of Gallagher’s Benefits and HR Consulting Division. “Millions of Americans are looking for a better job and that can include increased rewards, better benefits, working from home as well as their professional development.”

In some ways, the pandemic brought about a “forced experiment” in how Americans do their work, says Andrew Flowers, labor economist at Appcast, which provides advertising technology solutions to the recruitment industry.

But it has also forced companies to change their processes, automating back-office functions, streamlining online sales and purchase systems and adopting more flexible management, work procedures and schedules. This, in turn, has led to new skills needed for jobseekers.

“The nature of the jobs are actually changing,” says Michael Stull, senior vice president at Manpower USA. “It means a quicker transformation of the workforce.”

But it’s not clear workers and their employers are on the same page when it comes to dealing with these sea changes. A recent survey by Future Forum, a consortium led by Slack, found a huge divide in attitudes about remote work when asking workers and their bosses, what it termed “the Great Executive-Employee Disconnect.”

The global survey of more than 10,000 knowledge workers found 68% of executives want to work in the office most or all of the time, yet 76% of employees want flexibility in where they work and 93% want a say in when they work.

“The divide between executives and employees is especially stark among those currently working fully remotely,” the survey found. “Nearly half of all executives in this group (44%) want to work from the office every day, compared with17% of employees.”

Clearly, something has to give, especially when the survey also found that 57% of the workers are prepared to look for a new job to gain more flexibility.

“Many of the companies we deal with recognized (COVID-19) was not a one-time event,” says Jeramy Kaiman, who heads professional recruitment for the western states at staffing firm Adecco. “Many of the trends were already occurring, but many companies sped up their strategic plans from five years to a matter of months.”


It’s not like employers can afford to be choosy. Simply put, demand for labor far exceeds supply. Even absent the effects of the pandemic, there are major forces at work shrinking the available supply of labor.

For one thing, Americans are not having enough babies. To replace the number of people who die each year in the U.S. requires a birth rate of 2.1 births per woman. The rate has been steadily declining for decades and in 2020 reached a record low of 1.6375 births per woman, according to the National Center for Health Statistics.

The problem doesn’t end there. Americans are also living shorter lives, with life expectancy for someone born in 2020 now 77.3 years, down 1.5 years from a year earlier.

A recent study by the Pew Research Center also found that in 2018 the percentage of people 25 to 54 not living with a romantic partner reached 38%, up from 29% in 1990. That does not bode well for life events like marriage, buying a first home, or having a child, which correlate closely with progress up the career ladder.

Then there’s immigration, which has been on a downward trend in recent years because of governmental policies that restrict legal immigration and targeted crackdowns on undocumented immigrants. Many studies over the years have found that immigrants are a net plus to the economy when it comes to job creation.

“We need to embrace skilled legal immigration,” says Dan North, chief economist for North America at Euler Hermes. “Immigrants create more jobs than native (Americans) do, this is what Canada does.”

Still, it is not clear there is much impetus in Washington for reforming the country’s immigrations laws.

A Reevaluation of the Meaning of Work

Beyond the forces of demographics, there is “something happening here and you don’t know what is, do you, Mr. Jones” in the words of Bob Dylan.

Various surveys have found that workers have thought long and hard about their work life during the past 18 months, with some choosing to vote with their feet while others opted out of the labor force en masse. The reasons are many, from health care issues related to COVID-19, dissatisfaction with work and pay, or just realizing there is more to life than work.

This has resulted in a labor force participation rate – the sum of workers who are employed or actively seeking a job measured against the total noninstitutionalized, civilian working-age population – that has remained unchanged in recent months despite overall job increases. In August, it stood at 61.7%.

The rate declined to a pandemic-era low of 60.2% in April 2020 but the current reading is barely above that registered in early 1976.

“There were already tailwinds toward a tighter labor market before COVID hit,” says Appcast’s Flowers, pointing to the record 10.9 million jobs currently open and the 8.7 million people unemployed and presumably able to fill them. “That excess of demand over supply has never been that high.” Moreover, Appcast’s data shows that the number of jobseekers was still off 15% in August compared to early 2020.

As workers experience remote work and a job market that affords great mobility to those who want to change jobs or careers, the pressure is also mounting among those who are currently employed for companies to do more.

A survey by Limeade, a global online company that helps companies track employee wellbeing, found that the No.1 reason employees left their prior jobs was burnout (40%), followed by a lack of flexibility (20%), discrimination (20%) and feeling underappreciated (20%).

That research dovetails with another survey of recruiters by Jobvite, which found that 54% have experienced candidates turning down a job offer for lack of flexibility.

“The behavioral changes we have built up over 18 months” during the pandemic, “may take a long time to give up,” says Jay Denton, chief labor market analyst at ThinkWhy.

“Many people are reevaluating what they want to do in the future,” says Adecco’s Kaiman. “In professional recruiting, where the labor market continues to be very strong with sub-2% unemployment,” the evaluation even extends to geography as many of these jobs can be done remotely.

Kaiman points out that some labor markets, such as Utah and Idaho which pride themselves on an environment conducive to remote workers, are outpacing places like Las Vegas, where many of the casino jobs require in-person attendance.

“There have been record job openings this summer, but businesses are struggling to hire and retain talent,” according to the recent edition of the LaborIQ index from ThinkWhy. Several large metros – including Austin, Phoenix and Salt Lake City – have already reached pre-pandemic employment levels and are entering job expansion mode. In contrast, metros in California, the Midwest and the Northeast are lagging.”

Friday’s release of the September jobs numbers will add to the discussion about how fast the labor market will recover, but the forces now shaping it will not likely ebb anytime soon. That is especially true as the economy enters the crucial holiday spending season with large employers such as UPS saying they plan to hire thousands of seasonal workers to deal with demand.

Still, some economists note the U.S. is leading the recovery from the pandemic and remain optimistic that employment will continue to grow and unemployment decline for the remainder of 2022 and into 2023.

Kerry Dynan, senior fellow at the Peterson Institute for International Economics, in a forecast Tuesday sees the U.S. unemployment rate falling below 5% this year from its present 5.2% and reaching 4% in 2022.

“Most of the working-age population will re-enter the labor market,” Dynan says, “but restructuring, sectoral shifts and automation will drag out the jobs recovery.”

Copyright 2021 U.S. News & World Report

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