Across the US, small and large employers in nearly every industry are asking the same question: where are all the workers?
Desperate to hire as the US economy has rebounded at a historic pace from one of its worst economic contractions, companies are struggling to find enough qualified people to fill a record number of job openings. According to Goldman Sachs, they are contending with the most severe imbalance between labour demand and supply since the second world war. For every unemployed worker, there are 1.9 vacant positions.
The worker shortage is a nationwide phenomenon, but a Financial Times analysis shows it is more acute in some states and industries than others, and that it varies across different segments of the population. Those differences pose an additional threat to US central bankers who already face a fiendishly difficult task: cooling down the “overheated” labour market by raising interest rates without causing substantial economic hardship.
“This variation across states and across sectors is the reason why we don’t think the Federal Reserve is going to be able to engineer just lower labour demand while not moving the unemployment rate higher,” said Matthew Luzzetti, chief US economist at Deutsche Bank. “Our baseline is that there will be a recession by the end of next year, and this is a key element of why.”
Not only is labour market tightness in the US at a record high nationwide, but the variation in that tightness between states has never been greater, according to research from the Fed’s Kansas City branch. The number of job openings per unemployed person ranges from 1.3 to 3.8 depending on the state.
The tightest labour markets are in places such as Utah, Nebraska and Montana, where there are more than 3.3 job openings per unemployed person. At the other end of the spectrum, in states including Connecticut, Pennsylvania and California, the ratio is less than 1.4.
“The labour market over the past year or two has definitely felt much tighter . . . frankly unlike anything we’ve ever experienced,” said Josh England at CR England, a family-owned trucking company in Utah. “It’s felt like a perfect storm of demand picking up and being really strong in our industry — so we’ve needed to hire a lot of people — but also the supply side feels like it has been somewhat constrained.”
England said the perfect storm had hit “hurricane” intensity before the company boosted drivers’ salaries by an average of 25 per cent.
Economists already rushing to understand the national picture have not yet reached a consensus on why there is so much geographical variation. But some trends have started to emerge. In places where weekly wage growth has been higher, the labour market tends to be less tight and there is a better balance between vacancies and workers wanting to fill those jobs.
Northeastern states including New York and New Jersey have less tight labour markets and have also recorded some of the highest wage gains, for instance. That has meant some workers in these areas are still struggling to find the right job.
“My friends and family are puzzled as to why I’m not getting hired because they are reading headlines about this sexy new job market,” said Sheila Egan, who works in financial technology and relocated to New York from Chicago last year. “Some roles are as competitive as ever.”
Meanwhile the so-called quits rate has also been lower in northeastern states and Washington DC. That bucks a national trend, where workers are leaving their jobs in record numbers for better prospects elsewhere, with 4.5mn people quitting in March alone.
In addition to regional disparities, labour market tightness also varies widely by industry.
Care services such as nursing are among the sectors that have been the slowest to recover, according to official data. Across the healthcare sector, the openings rate has nearly doubled since 2019, while the hiring rate is lower. For nursing in particular, only about 2 per cent of the 412,000 jobs lost since the onset of the pandemic have been recovered.
Betsey Stevenson at the University of Michigan said the shock of the pandemic had resulted in big societal shifts, with more Americans cooking their own food and caring for children and elders. “I do wonder whether there has been a shift in preferences to wanting a little bit less work and a little bit more, ‘do things for ourselves’,” she said.
This is the second of a three-part FT series on the tight labour economy in the US and what it means for workers, businesses and policymakers. The first part focused on the booming jobs market in Atlanta. Part three will investigate the political costs for the Biden administration of high inflation and falling real wages.
Employment in leisure and hospitality has also lagged behind other sectors. In accommodation and food services, the number of openings has jumped 62 per cent since 2019 but hiring is up just 18 per cent. More than 6 per cent of workers in this industry quit in March alone, the most recent month for which regional and sector-specific data is available. That was more than twice the national average.
On the other hand, the transportation and warehousing industry has experienced a particularly robust recovery. With few services to purchase during various pandemic peaks, consumers switched spending to goods that needed to be delivered, and these workers have enjoyed one of the biggest wage bumps: pay was up 9 per cent on average in the two years ending 2021.
Regardless of the industry, however, the worst inflation in more than 40 years has meant that wage gains for many have been gobbled up by higher prices. Real hourly earnings, adjusted for inflation, are down 2.6 per cent year-on-year, according to the latest data.
“We have this situation where it’s not really worthwhile to participate in the labour market. It’s expensive to go to work, especially if you don’t make a lot and you have to find childcare,” said Nela Richardson, chief economist at payroll processor ADP. “You have to put gas in the tank . . . clothes are more expensive, food is more expensive. So are you really winning by working?”
The seismic reshuffling of workers between jobs has dramatically altered the make-up of the US workforce. The labour participation rate — the share of Americans employed or looking for work — is still below its pre-pandemic level but has bounced back faster for some groups than others.
Women of colour left the workforce in disproportionate numbers during the pandemic, according to research published by the Fed’s Minneapolis branch; to begin with, the plunge in participation among Hispanic and black women was more than twice as large as that for white women. Women with young children were also more likely to leave the workforce.
As the labour participation rate has recovered, some of those discrepancies have started to narrow, but unemployment rates among black and Hispanic Americans are still at 5.3 and 3.6 per cent, significantly higher than the 2.7 per cent rate among white Americans.
‘Looser’ times ahead
Few economists expect the labour market to stay this tight, especially given the Fed’s pledge to raise rates in a bid to stamp out inflation. Higher rates have already increased borrowing costs for households, with further pain to come, which should dent the demand for houses and other big-ticket items. And businesses are expected to reassess expansion plans that would have fuelled hiring and wages.
Officials are also hopeful that those still sitting on the sidelines will return to the workforce, as the fear of becoming seriously ill with Covid-19 abates and the stockpile of household savings dwindles. That might help, on the margins at least, to offset factors like lower levels of legal immigration into the US.
Some pandemic-inflicted stresses on the labour market are already starting to retreat. For instance, in the past year, approximately 1.7mn retirees have re-entered the labour market, according to Indeed, the jobs website.
That marks a slight reversal of the Covid-19 phenomenon that saw millions of older Americans retire early. Most of those returning to work have accepted part-time positions and BLS data show black and Hispanic men aged over 65 are more likely to have done so than white men of that age bracket.
Nonetheless, the variations across sectors and states mean it will be all the harder for Jay Powell, the Fed chair, to execute what he has called a “softish landing” for the economy, where tighter monetary policy reduces vacancies rather than spurring significant job losses.
“The question is, can the Fed — with the tools it has — fine-tune the temperature of the labour market or does it cool it down more than it would like or that the economy needs?” said Nick Bunker, Indeed’s chief economist. “There is a bluntness to their tools.”
Additional reporting by Taylor Nicole Rogers in New York