Unemployment in the U.S. is the lowest it's been in years.
While this makes for great headlines—and it is a good sign overall—it does not come without its challenges for employers. As of May 2018, it was 3.9%—the lowest rate since December 2000—but at some point, a low rate may become an impediment to business growth.
“Labor scarcity can create bottlenecks in the economy or impact profitability,” Fifth Third’s Chief Investment Strategist Jeff Korzenik explains. “Companies seeking to grow despite labor constraints generally look to improve productivity, which usually requires capital investment.”
What type of businesses are affected?
Some of the most acute labor shortages show up in the goods-producing sectors of the economy, such as manufacturing, construction, and related industries. According to a recent survey, no fewer than seventy percent of construction firms report difficulty filling hourly craft positions—which is a majority of the construction workforce. Manufacturing reports a similar struggle.
Employers in the service industry also suffer. According to data from the National Restaurant Association, four in ten restaurant operators named recruiting and training employees as their most challenging task. The hospitality industry has more than 1.1 million job openings in April 2018, the highest number in at least a decade.
The supply of workers in these fields is limited by a variety of things: First, rising opioid use—particularly in areas where these sorts of industries are concentrated—eliminates a group of people from employment who fail drug tests for jobs. Second, current preferences favor non-vocational work, such as traditional office jobs. In the hospitality industry, for example, millennials are less satisfied in their jobs and more likely to leave within five years, leading to fewer available workers. (They value task variety, research has found, and entry-level hospitality jobs don’t offer much of that.)
On the other hand—to look at the positive inverse—as it becomes progressively more difficult to find good labor to fill these roles, the personal stock of potential employees rises. “Growing demand for workers in these sectors in part reflects the multi-year trend of ‘reshoring’ production to the U.S.,” Korzenik says. “This trend, in turn, is related to the disappearance of the cost advantage of offshoring production to China, new energy production technology, resultant low domestic energy costs, and proximity to the end consumer.”
How can businesses attract workers in this kind of environment?
Drawing and retaining labor in a tight market may require a multi-tiered approach and an eye toward being competitive in the broader field. In some cases, offering more comprehensive employee benefits can make a company more appealing to potential talent—and is often more cost-effective than raising salaries. Companies also might consider a renewed focus on training and professional development of existing employees.
“There is no one-size-fits-all solution to tight labor markets,” Korzenik says.
Where can businesses look to fill the employment gap?
Companies must be open-minded about expanding sources of employment. For instance, as incarceration rates have climbed over the years, the population of those with criminal records having difficulty re-entering the workforce has subsequently increased. Harnessing the skills of that group and helping them find appropriate work that suits their talents can benefit many employers.
“Typically, employers only consider those with tainted pasts as a last resort,” Korzenik says. “However, when sourced and supported properly, employers report that people who have been given a second chance can be extraordinarily dedicated contributors.”
Some businesses now partner with workforce development nonprofits that specialize in training, placing and supporting these second-chancers. For example, 70x7 Life Recovery is a church-based program that connects former inmates with community and work opportunities in Michigan. And in Chicago, the Safer Foundation helps people with criminal records acquire and keep jobs.
Other options include luring retired workers back to the job market or mining traditionally less involved populations. Women, for example, are still less likely to be working than men in every state in the U.S, with a labor force participation rate of 57% in 2016. One thing that could help entice them? Research has shown that greater flexibility is a key factor in retaining women in the workforce.
“We are closely following demographically challenged countries like Japan,” Korzenik says, “Which, in defiance of longstanding cultural traditions, have had great success in raising female labor force participation rates.”
The key to workforce improvement is to remain proactive, listen to what the job market is telling you, and adjust as the pool of talent evolves.