Limited Labor Supply Shapes Workforce Trends in North America

Just over one year has passed since the devastating impacts of COVID-19 jobs losses hit the US, and many companies find themselves in a very different situation than they had anticipated. A high-demand talent environment spurred by a post-lockdown recovery shows that companies face historical challenges in retaining and securing workers. In most places, the pressures of emerging workforce trends have created conditions of significant talent scarcity.

Achieve a Stronger Workforce Strategy

The Numbers Behind US Workforce Trends

Looking to grow their businesses in a post-pandemic economy, companies in the US face a shortage of workers. What can they do to keep their workforce and business plans on track?

The answer begins with understanding current workforce trends and their implications for employers. Drawing on its view into the markets and the experience of its clients, the AGS labor market analytics team took a careful look at the trends in play.

Findings from our labor market analysis reveal a scarcity of talent across industries. To be sure, the supply of great workers in the US is significant, but demand rapidly outpaces that supply. The resulting shortage of talent is having an effect on businesses in the region.

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A Shrinking Worker Supply
Since shedding 22 million jobs in early 2020, US employers added roughly 70% of lost workers back to their payrolls. The unemployment rate dropped from last year’s high of 14.8%, and it now hovers around 6% as of May 2021.

But the unemployment rate only tells part of the story.

The US Labor Force Participation Rate (LFPR) declined since 2008 and plummeted in early 2020 due to COVID-19. The LFPR has started to rebound a bit, but it is still two percentage points below pre-pandemic levels.

This reduced LFPR equates to 3.4 million working-age people who are not seeking employment in the US. Even as pandemic-related benefits end, many of those millions will not return as they retire, return to school or move toward full-time caregiver roles, causing a permanent reduction in the number of available workers in the US.

Unfilled Roles: Job Openings Exceed Talent Supply
Not surprisingly, companies have trouble filling roles in the face of a short talent supply. Today’s situation reflects a milestone on a longer journey.

In 2014, the US saw 1.7 million more job openings than hires, the largest gap ever prior to COVID-19. Today, that gap stands at 3.2 million more openings than hires, an all-time record! In fact, from March to April alone, there were 1 million more jobs open in the US. Simply put, there are nowhere near enough people to fill the ever-increasing demand for talent.

The impact on specific industries varies. In most sectors, job openings exceed remaining job losses (which includes contingent labor). Finance, construction and professional and technical services face difficult shortages as they have more than fully recovered their pandemic job losses and have large numbers of job openings.

Wage Growth: A Must-Have for Attracting and Keeping Workers
With larger numbers of unfilled roles, securing workers will be more challenging than ever. In effect, the proverbial “war for talent” will escalate as employers continue to increase wages and entice people to new roles to bridge the gap.

As employers offer higher salaries to fill their jobs, compensation is rising. The Employer Cost Index (ECI), which measures compensation costs, increased by 1.5% in Q1 2021, three times a typical quarterly increase. Employers should expect to raise wages for current employees rapidly in order to retain them.

Expanding Flexible Workforce: A Focus on Contingent Labor
As companies faced a challenging labor market over the past decade, their reliance on contingent labor grew exponentially. Overall employment grew by 9%, while contingent labor rose by 37%. This disparate growth has happened for a number of reasons; however, one of the trends we see now is employers using contract talent as a funnel for their full-time employment due to the difficulties faced by internal recruiting teams.

For companies relying on suppliers of contingent labor to support their workforce, growth in this area means that they need to stay high on the priority list of those suppliers. Agencies that provide contingent labor have ample business opportunity, so building relationships with suppliers and cooperating to arrive at agreeable cost and delivery expectations will be important.

Varying Local Workforce Trends: The Devil is in the Details and Data
One of the toughest challenges in the US is that labor markets continue to vary widely by location. For example, if an organization is looking to secure workers in the professional or technical services category, they will find different competitive pressures across cities.

Consider that Austin, Texas has gained 350% of the professional and technical services jobs lost due to COVID-19 (or grown threefold) over the last year. In St. Louis, Missouri, employment in this industry has continuously declined since February of 2020. The level of applicants for roles appears to be average in Austin, while it is above average in St. Louis.

As a result of these differing workforce trends, a company recruiting for professional or technical staff in Austin will need to rely on passive recruiting and very attractive offers, while the same types of jobs in St. Louis will find a more steady flow of applicants. That said, employers cannot underestimate the influence of remote work, which will continue to blur the lines on local market conditions.

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Workforce Trends in Canada Indicate a Post-Pandemic Holding Pattern

Last year, Canada started to recover from COVID-19 related losses at an accelerated rate, bringing back over half of the jobs lost by the end of the summer in 2020. Unfortunately, subsequent waves of new cases held that recovery in check. Many geographies began shutting non-essential businesses down again and have continued to do so in waves, limiting the ability to continue their recovery.

The Talent Supply Varies in Strength
The country’s unemployment rate has hovered around 8% as the economy struggles to gain a significant footing in job growth. Many unemployed people have begun looking for new work rather than waiting for their old jobs to return. This trend is evident in major metro areas like Toronto.

Companies Prepare for Recovery and Watch US Growth
A large movement toward reopening economies in Canada will likely be necessary to regain traction in the country’s economic recovery. Understanding how quickly the US turned from high unemployment rates to a talent shortage will be crucial to prepare and be successful in Canada when the recovery stabilizes.

New Labor Pools and Retention Will Shape Future Workforce Trends and Strategies

In the face of evolving labor market conditions, companies that embrace new perspectives in their approach to workforce strategy will likely achieve a talent advantage. Toward that end, forward-thinking companies are focusing on two needs: retaining current workers and opening their view to new labor pools.

Retaining current workers will be difficult as more companies compete for a limited talent pool. Compensation, remote work preferences, flexibility, work/life balance, bonuses, benefits and work environment are all critical to attraction and retention. At the same time, generations newer to the workforce have very different ideals than prior generations.

Employers must use their data to identify areas of improvement and actively address them, as retaining talent has never been more important. With demand far exceeding supply, backfilling employees lost to attrition will be more challenging than ever.

Likewise, tapping into new labor pools will be essential to meet demand. Companies are streamlining hiring requirements, reskilling and upskilling, accommodating re-entrants into the workforce, enhancing their employer brands and increasing their focus on the employee experience. Contingent labor providers can also open paths to new talent through training programs, access to talent communities and participation in inclusion and diversity initiatives.

Staying in front of changing workforce conditions will continue to be a challenge for HR, TA and procurement decision-makers alike. For our RPO, MSP and Procurement Solutions customers, AGS has played a key role in helping those leaders maintain visibility into the market changes and act on strategies to expand their access to talent.

Achieve a Stronger Workforce Strategy

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    Written by Krista Palmisano
    Krista Palmisano has nearly 15 years of experience in providing market and business analytics. Her work includes: conducting labor market analysis across the US & EMEA; supporting client consulting engagements to assist clients in workforce planning, placement and costs; building and advising clients on rate strategies and rate cards to manage contingent labor costs; and publishing voice of the market research for clients and industry groups.