MIKE WALDEN COLUMN: Will there be a permanent labor shortage?

Published 3:36 pm Tuesday, November 9, 2021

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One of the surprises of the current economy is the labor shortage. Even though the unemployment rate is higher than it was prior to the pandemic, fewer people are looking for work. As a result, many businesses — from restaurants to trucking to construction and technology — have openings that are going unfilled. In North Carolina, there are approximately 90,000 fewer individuals in the labor market than before the pandemic.

Mike Walden

There’s a huge debate swirling over the causes of this situation, with fingers pointed at many possible reasons. Generous federal financial help, continued fear about COVID-19, uncertainty over schools for households with children, lack of affordable child care and a surge in retirements are some of the causes offered.

While there’s hope the lack of workers will be resolved as the pandemic ultimately disappears, some experts are not so optimistic. In fact, for years many demographers have been warning of a permanent worker shortage in the coming decades. It may just be that the pandemic brought the shortage earlier.

An important concept in demographics is the “replacement birth rate.” This is the birth rate needed to replace deaths and keep the population unchanged. If the actual birth rate is higher than the replacement rate, then the population increases. Demographers estimate the replacement birth rate is 2.1 children per woman. If the birth rate is lower than this replacement rate, then the population decreases. In the case of the latter, a declining population will eventually result in a declining labor force.

The statistics show the U.S. birth rate has been steadily declining and is below the replacement rate. The latest birth rate for 2020 is 1.6, well below the replacement rate of 2.1. This means that, based on domestic births alone, the nation’s population would be declining. So far, immigration has prevented this, but there’s no assurance this will continue in the future.

There’s a second issue at work causing concern about the future labor force. Participation by adults in looking for and taking jobs has still not recovered from the pandemic. But even before the pandemic, labor force participation of both women and men had been falling. There have been numerous ideas as to why, including the high cost of child care, the increase in incarcerations, the disinterest of many young men in working due to drug abuse and video-gaming and the long period of time many young people are in college.

Hence, with the future of immigration uncertain, there is a real chance our national population could shrink. Even with immigration, it’s a fairly sure prediction that population growth will continue to slow. The big question is, how will this impact the economy?

One possibility is that technology will fill the gap left by fewer workers. The capability of technology to perform human tasks has rapidly been increasing. Kiosks and tablets for ordering in restaurants, robots for storing and retrieving products in warehouses, and even machines for laying bricks and computers for building homes are just a few examples.

Five years ago, two British economists created big headlines by estimating that almost half of occupations were susceptible to having machines replace people in performing work tasks. At the time of the British study, the worry was about lost jobs and what the displaced workers would do. Ironically, with the prospect of fewer future workers, labor-saving technology may be exactly what is needed.

There are also policies that can be used to increase the labor force participation of existing adults. Reducing the taxation of Social Security benefits for those still working but younger than the full retirement age could encourage more work from older adults. Encouraging the expansion of additional child care facilities could make it easier for parents who want to increase their work hours. A renewed focus on training incarcerated individuals in needed skills is a “win-win” for them and society.

For individuals — especially younger individuals — who find formal education uninteresting and are distracted by video games and drugs, wider educational opportunities might be explored.  Exposure to occupations in the trades — tasks that are more physically oriented rather than cognitively focused — as well as to skills that can be acquired with short-term training, might give many youths a productive and compelling future.

While trends in the North Carolina birth rate track national trends, North Carolina’s situation does differ in one important way — in-migration. In-migration measures people moving to the state from other states. For years North Carolina has been a leader in in-migration, with many more people moving to the state compared to those leaving the state. Continuing to attract households and workers from other states is a way for North Carolina to avoid a worker shortage.

Workers are a key part of our economy. In past decades we assumed people would be easily available to fill jobs. That time may be gone. How should we adjust to this new reality? You decide.

Dr. Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.