Labor and Its Impact Going Forward on Supply and Demand

May 16, 2023, by Lex Silbernagel, Special Projects – Utility

Many manufacturers are reporting that labor continues to be one of their greatest obstacles to maintaining and increasing production. There are 9.9 million jobs available in the United States and approximately 5.8 million unemployed workers, yet labor force participation still falls short of what it was before the pandemic. The unemployment rate in April was only 3.8%. Among those currently unemployed who have held multiple jobs since April 2020, 60% lasted three months or less in their most recent job.

The U.S. Chamber of Commerce has identified contributing factors to the labor shortage.

What is contributing to the labor shortage?

An increase in savings from enhanced unemployment benefits, stimulus checks and being unable to go out and spend money during the lockdown.

According to an analysis conducted by economists at the University of Chicago, comparative government data from 2019 was used to calculate that, beginning in April 2020, 68% of claimants were earning more on unemployment than they did while working.

Early retirements of more than three million baby boomers.

Lack of access to childcare – Even before the pandemic, access to high-quality, affordable childcare was difficult. To return to work, people who have children need reliable childcare; however, childcare providers have faced immense challenges for staffing, and many have closed or scaled down.

In the spring of 2020, 5 million mothers had left their jobs, driving the labor force participation rate for working moms from around 70% to 55% — the lowest rate in 50 years.

Net migration to the United States is at its lowest level in decades. The contribution from immigration to national population growth dropped by 76% — from a high of 1,049,000 to 247,000 per year.

The Great Reshuffle/Resignation – There has been a shift in the labor force as people search for more free time or better opportunities. The result is increased turnover and shorter tenure, which equates to a less experienced and/or more costly workforce.

New business starts – Employees either left work or stayed unemployed to open their own businesses. Over the last two years, more than 10 million new business applications were filed, which is significantly more than the 4.4 million yearly average. In some cases, people working remotely are working more than one job at a time.

Remote work – More and more people are searching for remote work opportunities that better support their mental health.

In response to these factors, the U.S. Chamber of Commerce stated, “Keeping our economy growing requires that we fill the jobs of today — and tomorrow. To do so, we need to remove barriers that prevent people from entering the workforce, get individuals the skills they need for the open positions and enact sensible immigration policy.”

In addition to current labor shortages, the demographics in North America show that, as we have industrialized and urbanized:

Birth rates have dropped.
Our population is older and retiring.
The result: There are fewer working-age people as a percentage of the population.

How is the labor shortage affecting supply chains?

Mexico, Canada and the United States do not have enough workers with the skills to meet all the labor needs in manufacturing, transportation and construction. Automation will help in manufacturing, but it is not easy to deploy and is expensive to maintain, meaning manufacturers will also need relationships with manufacturers in countries where the United States has trading agreements in place.

Ultimately, education and development of younger generations and the incoming workforce are critical, but it’s equally important to note that not all jobs require higher education. More than ever, employers are looking for ways to bring in new talent without requiring a college degree to help expand the talent pool.

The shortage of skilled workers will continue to be a significant driver for supply constraints and inflation over the long term (10–15 years). Throughout the past 30 years, low costs, quality and service have been the basic requirements to consider when building supply chains. Today, the lessons we’ve learned over the past few years emphasize the additional requirements for supply chains to be resilient, sustainable and agile. Labor and workforce skills will be central to building such supply chains.

Final thoughts

There are emerging trade agreements in eastern and southeastern Asia — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership. The United States and India have not joined either of these trade agreements, although the CPTPP was initially instigated by the United States under President Obama. Instead, the Biden administration has put forth the Indo-Pacific Economic Framework, which is more of an alternative to China’s Belt and Road initiative for members of the CPTPP.

A “big picture” question: Will we need to be part of the CPTPP trade agreement in Asia, or do we already have the trade agreements needed?

Regardless, labor will be a limiting factor in North America for manufacturing, transport and construction. Trade, automation and development of younger generations will be needed to help address shortfalls in the manufacturing workforce.

Disclaimer:

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