Behind the Labor-Shortage Headlines

by James A. Bacon

The news is full of stories about labor shortages. The latest case in point, which prompted this column, is Virginia Mercury article focusing on the paucity of nurses. The author lists several plausible reasons to explain the deficit, from COVID-related burnout to a shortage of nursing school faculty. Similarly, Bacon’s Rebellion has discussed the shortfalls in police departments across Virginia and the lack of teachers. I hear trucking companies advertising repeatedly on the radio for truck drivers, and as I look for suitable living arrangements for aging relatives, I have heard similar tales from retirement communities. Meanwhile, small businesses everywhere are reporting that they cannot find enough workers.

While observers can cite narrow-bore explanations to explain what’s happening in, say, the nursing industry, the ubiquity of the problem across all economic sectors suggests that there may be a common cause.

The first point worth noting is that the Baby Boom generation is retiring, and the smaller Gen X generation is taking its place. The population continues to grow, but the working age population began leveling off a few years ago, and shrank this year. A second point is that a smaller percentage of the working-age population is actually working.

This graph from the Research Division of the Federal Reserve Bank of St. Louis shows the leveling off of the working age population nationally.

This long-predicted trend — I wrote about it in my book, “Boomergeddon,” back in 2010 — clearly is part of the explanation. But there is more to the story.

The graph atop this post, also from the St. Louis Fed, shows the marked decline in the percentage of people of working age who are participating in the labor force in Virginia. Many factors influence the participation rate, including the number of students attending college and cultural factors pushing women out of the home and into the workforce. But neither of those factors can explain the dramatic decline in Virginia’s workforce participation rate from a peak of 71% in the early 1990s to 66% pre-COVID (and 63% today).

In sum, ubiquitous workforce shortages stem from a leveling off of the working-age population and declining labor force participation. We can fix the industry-specific problems for nurses… or policemen… or home healthcare workers… or plumbers… but if all we’re doing is pulling workers from one economic sector to another, we’re not fixing the underlying problem.

One way to address the underlying problem is to let more people into the country. But there’s the drawback to that. Amidst chronic labor shortages, working- and middle-class employees have the upper hand in labor markets for the first time in decades. Inflation-adjusted wages have been stagnant since the 1970s. Finally, demand for working- and middle-class jobs is pushing up wages. (Whether wages are rising faster than inflation is another question.) If allowing an unrestricted flow of immigrants into the country (as seems to be happening now by default along the Mexican border) ameliorates the labor shortages, it also undercuts wage gains for native-born Americans.

Another approach to the labor shortage starts with analyzing why the labor participation rate has fallen so. Are people retiring early? Are more people receiving disability benefits? Did excessive federal unemployment insurance benefits encourage people to stay home during the COVID-19 epidemic? One thing we know is not the cause: It’s not a case of more people going to college. College enrollments have declined during the epidemic.

My key question: Are taxpayers underwriting indolence? When labor shortages are widespread, there is no excuse for subsidizing sloth.

Whatever the explanations, workforce shortages are likely to persist, and, barring a surge in illegal immigration or enactment of self-defeating government policy, there will be a massive and sometimes painful shift in the national distribution of income toward lower-income occupations. As long as that shift reflects voluntary renegotiations between employers and employed, not government policies enacted by Intellectuals Yet Idiots (to borrow a phrase from Nassim Nicholas Taleb), I’m OK with that.

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7 responses to “Behind the Labor-Shortage Headlines”

  1. Gwen Frederick Avatar
    Gwen Frederick

    I believe slothfulness is to blame for some of the unemployed. Getting paid to stay home was great when children weren’t in school. What I don’t understand is why those looking for work (my son) can’t get hired!

  2. Nancy Naive Avatar
    Nancy Naive

    Never fear. Youngkin is going to bring manufacturing to Virginia.

    1. Packer Fan Avatar

      Leaving McAulife plenty of time to work on that refund from China that the state is still waiting on.

  3. LarrytheG Avatar

    What a difference a year and a few months makes! Heavy duty yammering about minimum-wage and employers automating… and sending the malingerers and slackers out on their lazy ass keisters!

    More yammering about firing “woke” public education teachers.

    Closing those nursing homes who had too many dead clients!

    And allowing immigrants in to take some of those jobs? No WAY! Can’t have those folks who can’t even speak the mother language taking jobs away from real Americans!

    One of the main excuses (which I agree with a little) is that all this helicopter unemployment and rent is keeping workers from working!

    Some of this can be blamed on the pandemic but some of it was already in flux and was gonna happen anyhow, but the pandemic accelerated it.

    And what about RoVa. Still high unemployment? Will that change or is it still a darth of jobs?

  4. Eric the half a troll Avatar
    Eric the half a troll

    “One thing we know is not the cause: It’s not a case of more people going to college. College enrollments have declined during the epidemic.”

    I thought you were discussing the work force participation since the 1990s. In actuality, 4-year enrollment has been steadily climbing since that time period (see attached)

    1. Stephen Haner Avatar
      Stephen Haner

      Ends at 2010? Missing 11 years….evidence rejected. 🙂

      A big part of this remains the complication and uncertainty around the schools. Yes, most are now open, but unpredictable quarantine periods put huge pressures on lower and middle income families, and the easier path is to just wait before returning to work for a stable situation. In the “better benefits discourage work” column this new per child cash benefit is huge, huge, and makes it all that much easier for a parent to say, well, I can stay home in case of a quarantine. Not sure but have heard that child care costs are also rising (same labor issues.)

      1. Eric the half a troll Avatar
        Eric the half a troll

        You are correct and college enrollment peaked in 2010 and has dropped somewhat since. It has still never reached the 1990 levels. No matter how you slice it, enrollment rates are higher now than in the 90s. The data does not support college enrollment as a factor in declines in workforce participation since the 90s. Other demographic changes are at play here – I say blame the Boomers.

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