Key takeaways

  • A record 9.2 million job openings went unfilled in May.
  • The nation’s aging workforce is creating a persistent labor shortage. Retiring baby boomers leave the workforce almost as fast as new graduates and immigrants enter the job market.
  • A labor shortage could incentivize businesses to invest in technologies that allow smaller staffs to be more productive.
  • For workers with the right skills, rising productivity will create opportunities.
  • Wages could see a sustained climb as businesses adapt to a new labor market dynamic.

What's behind our persistent labor shortage

Job openings are at a record high, and the pandemic is only partly to blame. Over the past decade, job creation consistently outpaced the growth of the working-age population. Many companies will find labor shortages to be an ongoing challenge.

  • Pandemic closures and reopenings churned the labor market. A stabilizing business climate should quickly erode this spring’s record-setting spike in vacancies. 
  • However, the pre-pandemic economy logged 7 million job openings at the peak of the last business cycle right before shutdown. 
  • The baby boom generation’s retirement has dramatically slowed workforce growth:
    • In the 1990s and early 2000s, the economy needed to create around 200,000 jobs every month to keep up with population growth.
    • Today, the workforce is growing by only about 50,000 monthly. Job creation above this level is likely to eliminate labor market slack quickly.


Monthly change in working-age population

(16-70 years old; change in thousands monthly)

Policies and raising wages won’t go far enough

There is no straightforward way to expand the workforce. Policy shifts like immigration reform and unemployment benefit cuts are unlikely to entice enough workers to fill the emerging shortage. In local battlegrounds over talent, companies may seek to entice more workers with higher wages and more benefits, but this could lead to other challenges.

  • Immigration reform may have limited power to grow the workforce. Net immigration flows have plateaued over the past decade, largely due to rising prosperity in the developing world. 
  • Supplemental unemployment insurance benefits are frequently blamed for job vacancies, but the expiration of benefits this summer will likely do little to expand the workforce. 
  • The market solution to labor scarcity—higher wages—may not be viable in a globally competitive economy. Consumers may turn to imports if the price of domestic goods rises in response to climbing wages.

Leaping beyond the productivity gap 

As labor becomes scarce, businesses will need to find a way to increase production without taking on new staff. The likely answer is an old one—automation—but a combination of surging productivity and labor scarcity could put workers in an advantageous position. 

  • In the past, advances in IT and automation displaced workers. Technologies made offshoring possible and devalued some types of routine labor. 
  • This pushed corporate profits up, benefiting stockholders—but hardly lifted wages. 
  • Artificial intelligence promises to enhance technologies like enterprise resource planning (ERP) systems, which help employees work more efficiently.    
  • Such growing efficiency would place skilled workers in a strong position to reap the rewards from their productivity. Instead of becoming redundant or replaceable, they will likely be bringing more value to the workplace.
  • As always, wage growth is likely to be concentrated among workers with the skills to fully harness new technologies. So training and reskilling investments will be essential. 

What to watch 

In the near term, watch the pace of job creation. If it continues to outstrip population growth, a labor shortage is coming. In the longer run, look to productivity and wages’ share of GDP for signs of relief.  

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Jim Glassman, Head Economist, Commercial Banking

Jim Glassman is the Managing Director and Head Economist for Commercial Banking. From regulations and technology to globalization and consumer habits, Jim's insights are used by companies and industries to help them better understand the changing economy and its impact on their businesses.

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