In the United States, there are currently 8 million available job openings. However, there are only 6.8 million unemployed individuals who can fill these openings.
The limited supply of labor is a problem for employers. Unfortunately, this labor shortage is only going to continue. For small businesses to compete in the modern labor market, they’ll need to be proactive. Through more accurate job postings, new development opportunities, and creative outsourcing, you can learn how to navigate the shifting labor market.
Why Is There a Labor Shortage?
Birth rates and death rates take a long time to have an effect on the labor market, so this current transition has been expected for decades. In a recent podcast on, “The Future of Work: How Small Businesses Can Compete in a Labor Shortage” on Mission to Grow, the partner and founder at HRTechRadar, Anita Lettink, discussed the impact these demographic changes will have on the labor market.
“We have known for a while that, from a numbers perspective, starting around 2020 to 2025, more people would exit the workforce than enter the workforce, especially in the global north,” Lettink says. “There were high hopes that technology would make us more efficient and more effective. And, therefore, we would not notice this as much. Here we are in 2024 and we have more technology and more automated technology, but instead of eliminating work, it has also created a lot of new jobs and extra work.”
Because technology hasn’t decreased the number of jobs as much as expected, the demographic changes have had a major impact on the labor market. The labor market participation rate hasn’t changed significantly over the last decade in the United States, so the problem isn’t related to the percentage of people who want to work. Instead, there simply aren’t enough workers for the available number of job openings.
Lower Birth Rates
From 1946 to 1964, a baby boom occurred that was eventually known as the baby boomers. After the baby boomers, the subsequent generations didn’t have as many babies. This decline in birth rates is one of the key reasons why there is a labor shortage today.
As Lettink points out, “As people are born and people die, you can pretty much chart what the future population looks like and what that means for the workforce.”
While the United States hasn’t tried to encourage additional births through government policies, other countries have tried to reverse their declining birth rates. For the most part, these measures have proven to be ineffective.
Increased Retirement Rates
In 2011, the youngest of the baby boomer generation began turning 65. Between now and 2030, about 10,000 baby boomers will retire each day. Back in 2000, there were just 35 million Americans who were 65 or older. By 2030, there will be 74 million people over the age of 65.
While some people reach retirement age and keep working, many of these individuals will decide to retire. Among workers between the ages of 70 to 74, 76.4% are currently retired. As baby boomers continue to retire, this will increase the number of retirees per worker. In 1940, there were 42 workers per retiree. Right now, the ratio is around three workers per retiree.
Limited Immigration
When societies have more retirees than babies, one of the few short-term ways to gain workers is through immigration. Immigrants currently make up 14.3% of the United States population. While this is less than the 1890 record of 14.8%, it is still three times higher than it was in 1970.
However, the number of immigrants isn’t enough to reverse the demographic trends. To change the rate of retirees to workers, it would take tens of millions of immigrants. Right now, there are more than 50 million retirees in the United States. To simply change the rate of retirees from three retirees per worker to four retirees, you’d need to find another 50 million workers.
As a result of these demographic factors, it is simply unlikely that the labor force will suddenly grow in the next few decades. Thanks to the ongoing trend, workplaces will have to deal with a labor shortage for the foreseeable future.
How This Impacts American Businesses
For businesses, the changing demographics mean there will be an ongoing struggle to find workers. This will impact companies in several key ways. By preparing for this trend, you can alleviate some of the impact on your revenue and worker quality.
Limited Talent Pool
Thanks to the labor shortage, companies are pulling from a shallow pool of talent. You may be able to find a worker who has the right skills for the salary you previously paid. To address this issue, you may want to try reducing your job requirements so that there are more workers who qualify for each position.
Inability To Find Workers
In addition to dealing with a limited talent pool, workplaces are also struggling to find workers at all. Jobs that have low wages or an in-person component are more likely to have a hard time finding applicants. However, even white-collar and professional jobs have a shortage of workers for open positions. Even if no one had to worry about qualifications or skills, there simply aren’t enough workers in the United States economy to fill every open position.
Weaker Revenue Growth
A lack of workers can impact your revenue in a variety of different ways. For example, you may be unable to make as many products if you don’t have enough workers to run a second factory shift. Likewise, poor-quality workers may produce poor-quality products, leading to fewer sales. Longer wait times and decreased productivity can end up harming your revenue growth.
Less Innovation
If you can’t find the best workers, it will likely impact your company’s innovation levels. Many soft skills, like customer service and sales, may also be harder to find. As a business owner, you may be able to replace some of your workers with outsourcing or technology. Then, you can use the cost savings to pay higher salaries and attract better workers. Without a strategy for tackling the worker shortage, your company’s innovation may suffer.
Increased Burnout
When customers make a purchase, the order or service has to be performed. However, you may have fewer workers available to handle the purchase, and the available workers might not have the right skills because of the tight labor market. Over time, this type of situation can cause increased burnout among your workers and poor employee morale.
Higher Turnover Rates
In turn, increased burnout and poor morale can increase the turnover rate among all types of workers. Top performers like feeling as if they have a purpose and are good at their job. If they’re struggling to cover multiple jobs, they’re more likely to quit.
Increased Labor Costs
High turnover rates, burnout, poor innovation, and a limited labor pool all come with a cost. To get the same quality of employees, you’ll have to pay more. Unless you can find a way to substitute technology, outsourced teams, or other alternatives in place of your labor force, you will have to spend more money to get the same quality of workers.
Navigate the Labor Shortage and Win the War for Talent
When it comes to a labor shortage, you have to be creative about finding ways to attract talent or reduce your need for labor. By figuring out better ways to navigate the labor shortage, you can lessen its impact on your business.
If you’re ready to win the war for talent, we can help. Reach out to Asure’s team of small business HR experts today to learn more.