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Where Are All the Workers?

The rumors were the labor market was suffering from a shortage of workers because of the additional unemployment compensation paid due to the COVID-19 pandemic. Extended unemployment benefits ended for everyone on Sept. 5, 2021, so economists and others believed the labor market would rebound after the extra $300 a week expired. Schools were back in session, which freed up parents to return to work.  

The joke was on the pundits or the many employers suffering from a lack of eligible job seekers. September saw the labor force shrink. States that ended the unemployment benefits early saw no discernible change in their labor participation rate.  

What is the explanation for the continued lack of workers? We still have 4.3 million people gone from our labor force since the start of the pandemic.  

The first explanation is continued health fears due to COVID and the Delta variant. With savings high and debt loads lower, workers can remain home until they feel comfortable.  If this is the reason, the loss of workers is short-term.

Another driver of the labor market shortage is lack of childcare.  Yes, schools are back in session but with frequent COVID outbreaks, parents must be available to stay home if their child is exposed. Some people can work from home, but some cannot. In addition, childcare is another job sector seeing a shortage of employees. Employment in childcare is down 10.4% from February 2020 to September 2021. Lack of childcare due to higher costs or fewer caregivers, parents must make a choice to stay home.  Women tend to be the parent that stays home and 1.8 million dropped out of the labor force amid the pandemic.

Statistics show that 57.5% of women are participating in the labor force as of June 2021; this represents the lowest rate in 30 years. It’s important whether this is short-term or a long-term trend.  Since World War II, rising female labor participation has been a major driver of income and productivity gains.  

The pandemic permitted many workers to slow down and take time to rethink priorities. I did note a large influx of retirees come in for planning last year and the beginning of this one. From my firm’s experience, it seems many people decided life was too short to wait to retire and took advantage of this time to leave the workforce altogether. I will be interested to see the average retirement age and the number of workers starting retirement in 2020 and 2021. 

Another place workers went was to their own businesses. In July 2020, 600,000 new business applications were filed, which was a 100% increase from 2019. It is difficult to count entrepreneurs in the job data, so the reality is more workers may be working for themselves. 

With border closures due to the pandemic, immigrant workers have been unable to fill the void.

There are some expectations that the labor shortage may last several more years or become a permanent problem. Given we are 4.3 million short on labor and U.S. employers are having trouble filling 10 million jobs, this leads to the same problem we are having with supply and demand in semiconductors, furniture and other goods.  When demand outstrips supply in the economy, it leads to inflation. This is bad news for the Federal Reserve, which continues to believe high inflation is short-term and gives them room to wait to raise interest rates. How do employers attract workers if there are not enough of them? They raise wages, which leads to longer-term inflation pressures.

Many employers are adjusting for the shortage. The perfect example is restaurants. Restaurants and bars saw employment down 7.6% so they are shortening hours they are open. Hourly pay is up 12.7% in the restaurant industry and meals are 7.3% more expensive. 

Hotels are limiting hot breakfast buffets and clean rooms every five days.I experienced the no turndown and no regular room cleaning with the Omni William Penn Hotel in Pittsburgh a couple of weekends ago. It is a tough time for the hotel and recreation sector, which were hit hardest during the pandemic.

Will the labor shortage be short or long term? If it is long-term, it has implications for all sectors and for ongoing inflation fears. I think at a minimum people need to manage their expectations; industries are coping with an unprecedented recovery with not enough people to provide the services and goods in a timely manner. Patience is something that the on-demand economy will need to get used to.


All investing is subject to risk, including possible loss of the money you invest. Nothing in this article should be construed as investment or retirement advice.  Always consult with a professional advisor and consider your risk tolerance and time to invest when making investment decisions. Review your personal situation with a professional before planning any gifting or estate planning.

Judy Loy is a Registered Investment Advisor, ChFC®, RICP® and CEO of Nestlerode & Loy, Inc.