Why no one can seem to hire workers anymore—and what workers are doing instead to pay the bills
It’s late on a Sunday morning, the perfect time for a cup of coffee to help jump-start wrapping up the remaining weekend errands. And yet Starbucks is dark, its drive-thru eerily empty.
It turns out that at least one Northeast Ohio outpost of this coffee giant doesn’t have enough staff to run the location, so it remains closed on Sundays for now. Starbucks tells Fortune that the company is experiencing “infrequent and temporary shortages in staffing in certain markets,” but this particular location has been closing on Sundays for months.
Starbucks says some of its locations are responding to the staffing shortages by reducing hours to ensure that employees aren’t overworked. The company says it will continue to make the necessary investments to remain an attractive employer moving forward.
The coffee chain is far from the only employer suffering from a lack of workers. Last month, the CEO of Popeyes’ parent company, Restaurant Brands International, said that 40% of the Southern chicken fast-food locations have been forced to scale back operations, at times cutting hours and operating as drive-thru only.
Grocery chain Harris Teeter cut back the hours of operation for its stores nationwide in September to alleviate staffing shortages, and many local stores and restaurants across the U.S. are in similar straits.
While the unemployment rate in October was 4.6%—only 1.1 percentage points higher than it was prior to the pandemic—the supply of workers remains low. Across the U.S., there is at least one open job for every American seeking work. The U.S. had 10.4 million job openings as of the end of September, according to the latest report from the Bureau of Labor Statistics (BLS) published Friday
“It’s much more on the supply side of labor, people not wanting to work, than on the demand side of labor, people not wanting to hire people,” says Jason Furman, an economist and professor at Harvard University’s John F. Kennedy School of Government. “That itself is just profoundly different from what is normally the case when the unemployment rate is elevated.”
Overall, nonfarm employment in the U.S. is down by 4.2 million, or 2.8%, from its pre-pandemic level, according to the latest October figures from the BLS. Others estimate it could be higher. A report from the Peterson Institute for International Economics estimates the U.S. economy is still short 6.2 million jobs. Half of the 11,000 employees recently surveyed by CNBC in October reported their companies are understaffed.
It all prompts the question: With the worst of the pandemic seemingly behind the U.S., where have all the workers gone? The answer has a lot to do with shifting attitudes among Americans coming out of the pandemic and the restrictions some workers are still facing.
Sitting on the sidelines
About 7.4 million Americans remained unemployed as of October, according to the BLS, and labor force participation continues to hover at 61.6%, below 2020 levels. But that doesn’t tell the full story, since another 6 million people want a job, but aren’t actively looking—and are therefore not counted as unemployed—and 4.4 million Americans are working part-time, but want a full-time job.
All of that adds up to a lot of people sitting on the sidelines—and there are a number of reasons for the trend, says Guy Berger, LinkedIn’s principal economist. Lingering concerns around COVID-19 still plague many Americans. About 27% of Americans who are working remotely or temporarily not working believe returning to work is a large risk, according to a recent Axios/Ipsos poll of over 1,000 people conducted Nov. 5–8. Even among those who are employed, about 33% say the Delta variant has delayed their search for a new job.
“You have people who are just worried about health risks,” Berger tells Fortune. Workers are still asking themselves: Is it safe to go back to work even if, in some cases, the pay has gone up? “It is a question of whether pay has gone up to the extent that workers perceive it compensating for those risks,” Berger says. LinkedIn’s data finds that jobs offering remote work are getting 2.5 times the share of applications compared with those requiring on-site employees.
It’s also worth noting that compensation isn’t increasing across the board. Although many companies including Target, Chipotle, and CVS have raised their minimum starting wages to $15 per hour or more to attract workers, national wage growth during the third quarter of 2021 only increased 2.7% year over year, according to the PayScale Index. Meanwhile, real wages, which factor in the effect of inflation, are actually down 0.5% year over year.
“You’re not excited if you’re a lower-paid worker about inflation, but your pay is probably more likely to be keeping up than somebody who’s closer to the middle of the pack on the pay distribution,” Berger says, adding that the shortage of workers in industries like restaurant and hospitality would be “much more intense” if companies hadn’t increased wages at the lower end.
Many are waiting for more attractive opportunities, says Julia Pollak, ZipRecruiter’s labor economist. Only a third of job seekers say they feel pressured to accept the first offer, according to ZipRecruiter data. That means about two-thirds of Americans searching for a new job are taking the time to find the right match, Pollak notes.
Burnout is also contributing, in part, to the number of unemployed on the sidelines—and could be leading to a greater gap between jobs. From April through July, employee burnout rose nearly 9%, according to LinkedIn’s Glint Employee Well-Being Report, which surveyed over 339,000 global members. “Everyone’s been affected by the pandemic. Mental health challenges, anxiety, mood disorders, depression associated with the pandemic—I would not be surprised if they were playing a really meaningful role,” Furman says.
In some cases, bank account balances may be alleviating some of the pressure to find work. Personal savings rates have soared over the past 20 months, and while they’ve declined in recent months, many Americans still have more in savings now than before the start of the pandemic—and that even includes those with lower incomes. In a survey of those earning an average of $25,000 to $35,000 a year, 50% have been able to increase their bank balances in a given month since the start of the pandemic and two-thirds have deposited more than $500, according to SaverLife’s United States of Savings report.
Many politicians and analysts have blamed expanded unemployment benefits, stimulus checks, and child tax credits for the labor shortage. Last month, Sen. Mitt Romney (R-Utah) specifically blamed increased unemployment benefits for employers’ struggle to attract and retain workers.
“It’s possible the extra cash balances people have are, you know, slowing down people’s entry back into jobs,” Furman says. But he cautions attributing the stimulus directly to the labor shortage.
“Historically, the amount of cash we’re talking about actually hasn’t been enough to change whether you take a job. People have a few thousand dollars extra in the bank, but that can’t last six months or a year,” Furman says.
Some workers may be gone forever, others are just temporarily missing
During the pandemic, many Americans opted to retire or even take career breaks. Of the over 5 million Americans Goldman Sachs estimates have left the workforce since the pandemic kicked off, about 3.4 million were over the age of 55—about 1.5 million of whom were early retirees and about 1 million of whom retired on time, according to a recent analysis. Meanwhile, nearly half, or 42%, of working Americans surveyed by LinkedIn have considered taking a break from their career.
“A major group of the missing workers right now are people who are in retirement, who would otherwise have returned to the labor force. In normal times, a lot of retirees un-retire, and we didn’t see that happening during the pandemic—people who had retired just kind of sat it out,” Pollak says.
Berger is not optimistic that these workers will return in huge numbers either, even as the pandemic fades. “It takes a lot to lure somebody back in,” he says. Goldman analysts agree, saying the pandemic retirements likely won’t reverse. “Shifts into retirement tend to be stickier than other labor force exits, and we therefore expect that the participation shortfall from early retirees will unwind relatively slowly through fewer new retirements going forward,” the analysts note.
In addition to those who retired, COVID has claimed the lives of more than 750,000 Americans, according to the Centers for Disease Control and Prevention. Yet despite the high death toll, victims of COVID made up only a small portion of the workforce. About 75% of all COVID deaths were among those over the traditional retirement age of 65. Just over one in five of deaths (about 157,000) were among those ages 45 to 64, and 4% (or about 30,000) were among those under the age of 45.
Immigration restrictions also contributed to the lower supply of workers, Pollak says. Last year, the number of visas issued was down 54% year over year, according to a report from the U.S. State Department for the fiscal year that ended October 2020. And there was a 44% drop in those receiving temporary or permanent work visas in 2020 compared with 2019. “We totally restricted immigration during the pandemic,” Pollak says, and that had an impact.
Immigration probably isn’t showing up in the labor force participation rate, Furman says. But looking at the total number of workers and the total number of job openings, the slowdown in immigration has had a “pretty sizable” impact, he notes.
But there’s hope that these workers will rebound—and quickly, Pollak says. “Immigration is picking up rapidly as embassies reopen and visas start being printed again,” she notes. Additionally, the Biden administration lifted the travel ban and began allowing vaccinated international visitors on Nov. 8.
Women’s return to the workforce remains a big question mark
Another big segment of the workforce that is missing: women. As of September, women are still short nearly 2.4 million jobs since February 2020, according to the National Women’s Law Center. And the recovery for female workers has been uneven. For instance, while men gained 220,000 jobs in September, women lost 26,000. In October, women gained 304,000 jobs while men gained 227,000 jobs. “The biggest question mark is over women, whether they will come back in large numbers,” Pollak says.
Many experts point to childcare as a major reason why women’s participation in the workforce remains low. When schools and childcare centers closed at the start of the pandemic, it forced many families to make tough calls on who would care for their children—in many cases, it meant juggling children and work or even quitting outright.
Childcare issues are less severe now than they were, but Berger says a lot of parents are staying home because COVID exposures are still temporarily forcing classrooms to shut down.
Yet while childcare issues may account for some women’s decision to leave their jobs, the effect may not be as substantial as initially thought. “The evidence for women caring for children being a big [labor] issue is actually really not there,” Furman says. Women with young children left the workforce at only a slightly higher rate than non-mothers, according to a May analysis authored by Furman. Employment rates for young parents fell 5.2% during the pandemic, compared with 4.5% of nonparents.
Moreover, a November analysis from the Brookings Institution also found that remote schooling had only a small impact on the low level of labor force participation among women with children. Instead, a more complex set of factors seems to be at play in women’s continued lower return to the workforce—including the fact that many of the occupations hit hardest by the pandemic are predominantly staffed by women.
“People that are worried about health or have childcare issues are potentially people that can be lured back,” Berger says. Some this will come down to money issues, he says, but some of the decisions Americans are making around returning to work are not always intuitive or strictly related to financial needs.
When will labor shortages start to ease up?
When it comes to predicting when the current labor shortage will start to dissipate, experts say it depends on a number of factors. Most prominently: the course of the ongoing pandemic. “Right now, we’re sort of in this world where various things are having trouble adjusting,” Berger notes.
But that’s slowly improving. About 70% of U.S. adults are now fully vaccinated, and the effects of the Delta variant are starting to fade. Additionally, nearly 1 million children ages 5 to 11 received their COVID-19 vaccinations already this week.
“COVID cases have fallen to half of where they were in early September, and we are already seeing the effects in the labor market pretty dramatically,” Pollak says. The number of absences owing to illness; people saying that they can’t look for work right now because of the pandemic; people temporarily teleworking—all of these factors have been dramatically reduced in the latest job reports, Pollak notes.
Another reason to be optimistic that the worst of the labor shortage is behind the U.S. is the falling unemployment rate. When the unemployment rate falls below 5%—which it did in October—it encourages people to come off the sidelines, Pollak says.
“More and more people have jobs,” Berger says, a good indicator that things are starting to turn around. “Ideally what you want is a world where lots of people are getting paid more, lots of people are employed, and employers don’t have to spend a lot of resources trying to find workers,” he notes.
Not everyone will come back—Furman estimates that about 90% of the workforce will return. But it will take a while to hit that milestone. “My best guess would be that it takes a year or two. And a year or two is a really long time,” he says.
Goldman analysts report that while they expect the labor force participation rate to increase in the near term, they expect residual weakness in participation to continue through at least mid-2022.
Yet experts like Pollak believe that employers are building back stronger and will be more resilient to future shocks. “Even if there are further future outbreaks of COVID, each time we have an outbreak, the labor market reaction is smaller and smaller,” she says, “because more people are immune.”
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