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6 min read

10 Reasons Businesses Are Facing Labor Shortages in the US

In the past year, we’ve seen a rise in businesses struggling to adequately staff their operations. Just walk into any restaurant or store today, and you’ll most likely see a sign asking customers to be patient as they’re short-staffed or have had to reduce open hours. This labor shortage isn’t because there are more jobs than people available to work them. In fact, alongside the labor shortage businesses are experiencing, the workforce is also seeing the rise of what’s been coined ‘The Great Resignation.’

In 2021, over 47 million Americans voluntarily quit their jobs. So, if the current labor shortage in the US isn’t caused by a lack of available workers, what is the cause? Several factors are at play, many of which were rapidly brought to a head by the onset of the pandemic and its impact on the workforce. This article will explore ten reasons why businesses are currently facing labor shortages in the US.

Outdated Hiring Processes Filtering Out Qualified Applicants

Some companies may be experiencing labor shortages on their end not because there’s a lack of qualified candidates in the applicant pool but because their hiring systems and processes are outdated or inefficient. Companies that require job applicants to jump through hoops to make it to the interview portion or complete lengthy tests to apply are potentially losing some qualified applicants to other companies that cut right to the chase in their application process.

Additionally, some companies that use an automated process may be unintentionally filtering out qualified applicants without even knowing. A Harvard Business School study found that over 10 million applicants are filtered out through automated hiring software. Factors such as employment gaps, education, or years of experience in a certain role could keep workers that are actually qualified from even being looked at by a real person, much less hired. 

People Are Reevaluating Their Career Paths

One of the significant contributing factors to the current labor shortage in the US is workers switching up their career paths. Along with The Great Resignation came people thinking about what they’re passionate about and want to do and if their current career aligns with that. For some people, this meant staying in the same field but going to a different company that better fits their values and desires, while for others, this meant completely switching industries. 

For these ‘epiphany quitters’ passion has become their number one priority in a job, and over the last few years, we’ve seen more and more people leave typically highly stressful, underpaid industries like retail, food service, and hospitality for careers in more fulfilling industries that also offer better benefits. This Indeed survey showed that out of the over 1,000 people who voluntarily quit their job during the pandemic, 92% said they realized life is too short to stay in a job they aren’t passionate about.

People Want Better Pay

The pandemic, many people losing their jobs, and enhanced unemployment benefits made many Americans realize their wages were insufficient to provide for themselves and their families. Many people who lost their jobs or whose hours were significantly reduced and received enhanced unemployment and had any savings were able to manage and continue their lifestyle without having to work as much or at all. This has been eye-opening for many people in the workforce to the reality that there’s a wage problem for many industries and positions. 

For people who have received financial assistance from unemployment programs, been living off savings, or even started a business or freelancing, why would they want to go back into the traditional workforce when they’re making the same, or maybe even more, than working a job at the wages they previously received? The answer is they don’t. This has hurt businesses that aren’t willing to provide employees a livable wage or meet wage demands but has benefit those in the job market.

Many workers have changed how they want their working situation to look, including working for better pay. Many businesses have adjusted their compensation plans, increasing base hourly wages or salaries to bring in more employees. These businesses haven’t seen as much of a struggle with labor shortages as those that have refused to provide employees with better pay. 

Higher Demand for Flexible Jobs

When most companies switched to remote work to ‘flatten the curve’ in 2020, many businesses and workers realized how effectively they could continue doing their job remotely. This caused some companies to entirely switch to a remote or hybrid work style, while others were quick to go back to working in the office as usual. 

While not everyone prefers to work from home, for many workers, this taste of flexibility made them realize they actually don’t need to go to the office at all for their job and prefer a job that offers them fully remote work or the flexibility of a hybrid option. With so many businesses providing fully remote or hybrid work options, job seekers can be more selective and have no problem finding a job that fits their desired work environment. Meanwhile, businesses that don’t offer flexible working arrangements have seen a hit on their ability to retain or recruit employees.

People Are Burnt Out

In addition to wanting better pay and more flexible working arrangements, people have also mentally and emotionally been through a lot in the past two years and are stressed and burnt out. Industries, such as healthcare, are seeing a rapid increase in burnt-out workers quitting, which adds on more stress and responsibilities to remaining employees and employers. 

Many businesses are struggling to keep up with demand while also being short-staffed and finding more employees. With the added struggle of finding new employees to work, some employers are managing by increasing the workload on their current staff, adding to the continued cycle of burnout and more people leaving their jobs. 

Not The Right Fit

Similar to people making career path changes to pursue jobs more fulfilling, another reason for the labor shortage in the US isn’t because there’s no one available to work. It’s because there’s a big disconnect between the available jobs and the jobs people want, as well as the workers available and the roles companies are trying to fill.

It may have been more common in the past for employees to take the first job they were offered, regardless of whether it was exactly what they wanted, paid well, or doing something they were passionate about. With the number of jobs open and more options job seekers have, people are more willing to be selective and either not apply or turn down job opportunities that don’t feel like a perfect match for them.

The same goes for hiring managers as well. The pool of available workers has grown due to people voluntarily quitting their jobs more often and more companies allowing remote work. Companies have greater access to finding the perfect candidate for a job virtually anywhere and are also more selective about who they hire. 

People Are Starting Their Own Businesses

Losing employment during the beginning of the pandemic was an opportunity for many people to try their hand at starting their own business. For those who found success, going back to being an employee when more jobs came back on the market wasn’t appealing, further increasing the labor shortage. Others have seen the entrepreneurial success of their peers and have decided to leave the workforce to work for themselves.

The increase in people starting their own businesses since the pandemic was so substantial that the U.S. Census Bureau decided to start officially counting new business formations as a statistic. The number of self-employed individuals, whether through newly incorporated businesses or contract workers, reached an all-time high in the summer of 2021 and still remains higher than the number of self-employed individuals before the pandemic. 

Reduced Immigration

As immigration has slowed down in recent years due to changes in policies, it’s contributing to the growing problem of labor shortages in the US. Immigration has declined from the Census Bureau’s yearly projections of one million new immigrants a year to below 300,000 in 2021. This means that many work-eligible potential immigrants that could contribute to improving the labor shortage aren’t here to do so. 

Immigration was already slowing down before the pandemic hit due to immigration policies. Further immigration restrictions brought on by the pandemic impacted the already growing labor shortage in the US. One article found that if the immigration trend pre-2016 had continued, there would have been 2.1 million more immigrants between 2017 and 2020, which would have significantly improved the US labor shortage. 

The Anti-Work Movement

The shift in the workforce post-pandemic hasn’t just caused workers to rethink their career paths, their wages, and work arrangements. It’s pushed people to rethink work altogether. Many people who are tired of working long hours at low wages with little time off or in negative work environments are joining the ‘anti-work’ movement. Over a million Reddit users are a part of the subreddit ‘anti-work’ which describes itself as “for those who want to end work, are curious about ending work, want to get the most out of a work-free life, want more information on anti-work ideas and want help with their own personal work-related struggles.”

With more employment and self-employment options available, more and more people feel empowered to not put up with intolerable or exploitative work environments. While some people aim to live a completely work-free life, for others, it’s simply about jobs that work for workers and don’t consume their personal life or mental and emotional health. 

More People Are Retiring

It just so happens that the rise in people quitting their jobs aligns with many Baby Boomers naturally aging out of the workforce. The number of Americans at retirement age leaving the workforce is currently outpacing the number of Americans over the age of 16 entering the workforce. 

One report found that 3.4 million of those who left their jobs were over 55, and around 1.5 million were considered early retirements compared to the 1 million considered expected retirements. The report also estimates that those who left the workforce due to retirement will not likely reverse and come back. 

Labor Shortage in the US: The Bottom Line

While the labor shortage in the US was already starting to grow, the pandemic expedited its growth for many reasons. Some contributing factors are out of most people’s control, such as government immigration policies, while other factors can be improved upon to help reduce the labor shortage. Businesses can consider offering flexible working arrangements and better pay as well as updating any outdated processes and procedures while adopting an employee-first approach to help workers feel appreciated and valued at their jobs. 

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