Labor shortage

The mysterious case of the missing workers

In high school I learned an important lesson with a lifelong impact. Our Dutch teacher, mr. de Weerd, gave us a reading assignment. We had to analyze an article and answer questions. When he returned our papers, we found out we all failed.

Imagine the uproar.

When we asked him why, he explained that everyone failed to see the real issue: the article was not true. We had all taken the author’s words at face value without checking the facts – and he expected better from us.

Lesson learned – and I have always been grateful to mr. de Weerd for teaching us critical thinking skills.

So when Jamie Dimon, the CEO of JPMorgan was asked about the record number of job openings and said “People actually have a lot of money, and they don’t particularly feel like going back to work.” my antenna went up. Especially since Dimon did not elaborate and other CEOs were quick to make similar claims.

Was Dimon’s assumption true? And how did he come to that conclusion? Where was the data to support it? I decided to do some digging. I wanted to understand why companies are having difficulties filling vacancies: Where are the workers?

Low unemployment

Remember the labor market before the pandemic? The economy was in full swing, and people were hard to find. In 2018, Manpower surveyed 40,000 companies around the world and found that 46% were finding it hard to find skilled workers. And do not think that the pandemic has made it easier: the number went up to 69% in 2021.

Companies worked hard to hire the talent they needed. We saw the signs of a war for talent – for many jobs, there were more vacancies than candidates. Boards put talent topics high on the agenda. And CHROs put workforce strategies in place.

And then the pandemic hit. We all know what happened next: the world went into lockdown and in many industries (especially travel, retail, leisure) companies had to close and sent people home. Front-line workers were especially hard hit by layoffs and furloughs.

If you happened to be in the fortunate circumstances of being a knowledge worker, your company probably sent you home and expected you to work remotely. Not ideal, but at least you had a job and an income.

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Back to work

Keep in mind that in a mature labor market there are always shortages. You cannot perfectly plan for full capacity, just like you cannot foresee a pandemic.

After the financial crisis of 2008 it took most economies about 8-10 years to get unemployment down to pre-recession levels. The current outlook, especially for countries with high vaccination rates, is that it will not take that long to get back to pre-pandemic levels. In fact, most of them have seen unemployment rates fall sharply. In the Netherlands, where I live, the revised economic outlook anticipates unemployment in 2022 to be at pre-pandemic levels. Back to normal.

With the easing of lockdowns, businesses are starting to reopen. They are eager to (re)hire workers, but they cannot find them. The number of online job adverts in the UK has surged to above its pre-pandemic average.

UK Job Adverts

In Belgium, two thirds of employers with vacancies report having difficulties filling them to the point where it negatively impacts their revenue. Australia’s jobs ads are 38% higher than before the pandemic.

Which leaves the question: why are they so many vacancies? Aren’t people coming back to work?

Where are the workers?

Let us first address the elephant in the room; yes, there are people who have not returned to work because they received benefits. It is sobering to think that people are actually better off on benefits than on a salary, but I will leave the topic of living wages for another day.

There are a number of recent scientific studies where researchers found no evidence that recipients of benefits were less likely to return to work.

It is too early for definite conclusions, and I am sure we will see plenty of studies come out arguing pro and con in the coming years. But to me, one thing stands out: the high number of job openings is not an American problem. It is a global issue. Business owners all over the world are having difficulties filling vacancies, regardless of how their governments helped people through the crisis.

Pointing to benefits as the culprit cannot explain that worldwide labor shortage. And so, while I search for answers, I include links to data points from various countries, to help you understand how widespread this phenomenon is.

I will examine several reasons why you might find it difficult to attract workers and give you some tips to approach or replace each of these groups. But most importantly, this is a call to action: if you do not have a workforce strategy in place, you will need to establish one swiftly. The pandemic is far from over and understanding the labor market and its supply will give you an edge in hiring the talent you need.

1. New Jobs

It is easy to overlook, but COVID-19 has also created new jobs. Just think about testing and vaccination centers – these are run by medical staff, and supported by e.g., people in call centers, janitors, security, and cleaning crews. These jobs did not exist before and these people worked elsewhere.

Supermarkets, especially those that made home deliveries, saw an uptick in demand and added more workers.  In addition, hospitals and care facilities, public buildings and offices hired more staff to establish safety measures and execute cleaning and hygiene protocols.

Most of these jobs pay above minimum wage and often include benefits. Workers in health centers will return to the labor market when these centers are downsized, but that will not be this year. If we need follow up vaccinations, or the virus mutates and infection rates rise again, it might take even longer.

If you used to employ these workers, prepare for a tight supply for the foreseeable future. You will need to find your staff in other workforce groups.

2. Health & Safety

According to the John Hopkins Resource Center close to 4 million deaths have been registered so far. The actual number is higher than reported. An estimated 25% of these people were between 25 and 64, so of working age. It is sad to think about.

Even though some countries are seeing improvements after vaccination rollouts, the world is still in a pandemic. We do not know where the economy is headed after the summer, when support packages run out. Infection rates go up and down. What will be the effect of new mutations?

And that means that people are hesitant to return to work until they are fully vaccinated, and their colleagues are too, not to mention their customers. Some people care for dependents with compromised immune systems and cannot take the risk to bring the virus home. And until we know for sure that vaccinated people do not spread the virus, they will not be back.

This group of people will not return to the workplace shortly, and if they were front-line or essential workers, they might not be back at all. They will try to find a job where they are less likely to be exposed to the coronavirus — or any other deadly virus down the road. If they have the skills, a remote job will be a perfect solution and they are willing to take a pay cut for that.

3. Care givers

The pandemic upended nearly every facet of people’s work and personal lives. For many, support systems that were in place for child and elderly care disappeared. As soon as schools and day cares closed, parents and care givers were forced to make difficult decisions: who was going to stay home?

School closures

The answer is: women. Women account for a disproportionate number of job losses, and for them to be able to re-enter the workforce, schools and daycares must reopen first. Back in May 2020, the ILO already warned that the pandemic affected women far more than men and that gender equality issues were rising.

The crisis has hit women disproportionately. Their employment declined by 5 percent in 2020 compared to 3.9 per cent for men. One of the reasons is that women are more likely to work in client facing professions in industries that were hard hit by the pandemic. These women disappeared from the labor market to take on domestic responsibilities. This is a problem because they will never recover from this financially.

Until we get a better handle on the pandemic, care facilities reopen, and children go back to school full-time, this group will not be able to come back to work. And it may take even longer, because these businesses often shut down permanently and their owners accepted new jobs.

But once the situation improves, this group is available to work. A way to get women (and men) back to the labor market is to offer a combination of flexible schedules, remote work, and help with childcare options.

4. Quality of Life

The pandemic has made people take stock of their lives. Some people fell ill and experienced few or no symptoms, for others COVID-19 turned into a serious disease with lingering effects. People had to say goodbye to loved ones, saw friends pass away, and realized that life is fragile and can be short.

The pandemic has had a psychological impact on workers and makes them reassess their future. There is growing evidence that people are rethinking their lives and their priorities.

If you cannot spend money because everything is closed, you need less to get by. When you can work remotely, you do not need to live in an expensive city. You discover what it means when you have no commute. Or when one salary pays for childcare, and you do without.

And so, because people were forced to live through these alternatives, they are making changes that give them a better quality of life. When you make different choices, you might not need that second or third job you had before, or that second salary.

While this may not be a large group, they will not return to their previous employers soon if ever – they have made profound changes to their lifestyle, learned to do with less and value that too much to let that go.

5. Retirement

The aging of the workforce is a persistent problem that existed well before the pandemic and contributes to labor shortages in certain countries. But after the financial crisis, older workers postponed their retirement because their pensions had taken a hit and they could not afford to retire. These people remained in the workforce.

With the stock market at an all-time high, the opposite is true. More people cash out their portfolios at 65 and take retirement. Older workers also quit because they do not want to expose themselves to potentially unsafe situations. They have seen friends and family pass away and learned that life is short. They are not going to spend the rest of it at work.

The picture is mixed though: low-paid workers who lost their jobs have been unable to make payments into their retirement funds and have little prospect of finding a new job. But the group that can retire is larger than before and includes younger baby boomers that were expected to stay in the workforce for a few more years.

This group will not be back and if they work, they will work less hours than before on a more flexible schedule. If these people are in your workforce, you will have to look at other groups to replace them.

6. Migrant Workers

Even before the pandemic, countries put tighter immigration restrictions in place. Foreign workers returned home because their permits were not extended, and new applicants were not approved to enter.

With additional pandemic travel restrictions in place, even fewer migrant workers are available to local labor markets. Unless borders reopen and restrictions are eased, they will be unable to come back. Which means sectors that typically employ migrant workers, like agriculture, construction and hospitality are facing shortages: to harvest, to build and to serve.

International students often take advantage of the opportunity to work abroad during their summer holidays and work in amusement parks or run summer camps. With the uncertainty around travel restrictions and border openings, students found jobs in their home countries and will not be available this year.

Because this group is so diverse, there is no easy solution. But in many cases, it means that employers must backfill with local workers who are not always willing to do these jobs, even for higher wages. And so, there are many vacancies and no people to fill them. These sectors will likely be unable to fully reopen due to a lack of staff.

It’s interesting to notice that some countries are experiencing a reverse brain drain due to the pandemic: international knowledge workers who can work remotely, move back to their home country, bringing their jobs (and their money) with them. Or workers who move from a wealthy region back to their hometowns. And finally, some countries have passed laws to attract the digital nomads. For some, the labor market is truly global.

7. Relocation

When you hire locally, your labor supply is typically steady. But the pandemic also upended that. Consider a college town: as schools closed, students had to move out of their dorms. Most returned to live with their families. If you normally rely on student workers, chances are, your business was closed during lockdown. But you will reopen before these students come back to school and must hire different kinds of workers.

Not only students moved. Many people who lost their jobs gave up their homes, pooled resources with family members or friends and moved to different locations. Or moved away from overcrowded cities to more rural areas in an attempt to escape the virus.

This will not affect every business, but if you can’t find local employees, it’s worthwhile to evaluate if relocation could be a cause. Especially when hiring students, this will be a temporary shortage. Once schools reopen, they will return. In the meantime, you will need to tap into an alternative source of workers to bridge the gap.

8. Job training programs

In February, 66% of unemployed Americans in a Pew Research Center survey said they had “seriously considered changing their occupation or field of work.” A third of the jobless said they are taking steps to pick up new skills through job training programs or educational opportunities.

The pandemic made people realize that their jobs were not as safe as they thought. Others were put at risk by their employers because of lax safety measures. While being unemployed, they used the lockdown to reassess the future of their industry and their job. They also noticed that certain professions were a lot less affected by layoffs, offered more money, and that companies continued to post new openings.

These people took the opportunity to learn new skills. Or used their severance packages to pay for job training programs. The graph shows an example of switching workers in the Leisure and Hospitality industry compared to other industries:

Switching workers

And even though the increase is not a high number, it is the difference between being able to fill vacancies or not. This group will not be available to their former employers. They will be back on the labor market, but later, after they finish their job programs, and they will look for new jobs where they can apply their newly learned skills.

9. Skills mismatch

The Manpower study quoted earlier provides a wealth of information when it comes to skill sets that are in high demand. And while you might think it is technical roles, in most countries it’s Operations & Logistics roles that are hardest to fill.

2021 Top 3 global open roles

When you cannot find people to fill your vacancies, it pays to understand the skill sets you are competing for, and who you are competing with to fill those vacancies. The skills mismatch is not new: before the pandemic it was abundantly clear that to succeed in the 2020s, companies needed people with different skills, and “access to skills” or “reskilling programs” were on every board agenda. Gartner reported in 2018 that only 20% of employees have the skills needed for their current role and future career.

Finding workers with the right skill sets will only become more difficult, especially when it pertains to digital skills. To bridge this gap, companies will need to set up training programs for new and existing workers and provide continuous learning opportunities to remain competitive. This is not new, and the pandemic has not changed the criticality. But it did temporarily take the attention off the topic, and now it is back with a vengeance.

10. Job security

When we went through the financial crisis, workers learned how easily they could be discarded by their employers. And just as they started to feel secure in a booming economy, the same thing happened again. These employees, and especially their children, have come to realize there is no such thing as job security.

They have learned that depending on one employer is risky and are taking control. They are de-risking their financial circumstances by diversifying their income streams. It has never been easier to set up a side gig from home – anyone with a credit card can start an online business.

A variety of global talent platforms is jumping on this trend: covering a broad spectrum of jobs from graphical design to fractional executives and anything in between. People who developed their creative skills can use these market platforms to sell their creations and offer their services across the globe.

This group will return to work but will work less hours than before. They will spend the remainder of time running their own business, whether online or offline, and see if they can make that work. Even if they come back to the labor market full time, they will probably choose to work for at least two employers.

11. Continued Education

Students who graduated last year did so in a time where unemployment was going up and employers were not hiring before they were certain if the pandemic would affect their business.

In the Netherlands, that meant that the number of young people entering the labor market for the first time, was 10% lower than expected. Instead of registering for unemployment, they decided to continue their studies.

Normally, this group would be available to future employers. They will enter the job market, but much later. The upside is that once they join, they will do so with higher qualifications and more skills.

12. Changing Competition

When people have options, they choose higher paying jobs. Why wouldn’t they? Which means that if you want them back, you will have to pay at least as much as the competition. It is the normal law of employment. There is evidence that wages did go up during the pandemic – but wages in other industries have simply gone up more.

As the above points show, you may find yourself in a different situation: you might be competing for workers against companies that did not hire these people before. And if they offer a safer or more flexible work environment, they do not even have to pay a higher wage. Workers choose differently this time. Which gives you options: if you understand what people value most, e.g., a work from anywhere arrangement, and you can give that to them, you might not have to compete on wages.

What’s your workforce strategy?

With all the developments in worker groups, it is more important than ever to have a proper workforce strategy in place. The size of your business has nothing to do with it: every business should know where they can find the best candidates, and which groups to attract for future success.

So, what is your workforce strategy? What have you done in the last year to understand where your workers come from and what they are looking for? Which ones are most successful? And why they would want to work for you?

If you do not have a workforce strategy, or a clear picture of who you want to hire and what their alternatives are, it is easy to claim that you can’t hire people because they don’t want to work due to benefits. But you are kidding yourself – and you will find that out once benefits run out and you still cannot fill your vacancies.

Rethink work without jobs

It is normal to think in jobs – we’ve always done it this way. It simplifies the way we look at work. But in a tight labor market, rethinking jobs might offer you a way out: by breaking them down into activities. By looking at work this way, you might discover that a portion of the work is not tied to a location – which means you can tap into the global labor supply. Or find activities that you can automate.

Alternatively, you might be able to divide jobs into activities that must be done during the 9-5 workday, and ones that can be done at other hours. This also enables you to benefit from a different worker group or even allow your current workforce to put in more hours. Reskilling your current workforce could also help you move some people into new roles.

When you break work down and conduct a skills gap analysis, you will identify the skills your company needs to meet your business goals. Once you know which skills you need to scale, you can start thinking about where to find people who can provide these skills in whatever form: employee, independent, sourced.

Be realistic and do not over ask – we all want qualified workers, but a lot of ads include complex qualifications to fulfil a basic job. If you make it difficult to join, you will not find the people you need.

The Great Resignation

A recent study by Microsoft found that 40% of the global workforce considers leaving their current employer within the year. Employees are headed for the exit. On top of the 12 reasons for a seismic workforce shift, people are also leaving for normal reasons: a next career step. And since they could not leave last year, we will see more people change jobs this year.

If the pandemic has made one thing clear it is that work and location are not as tightly connected as we thought. People can be productive outside of the office, and working from anywhere is becoming the norm, especially for younger people. People want work that is tailored to them and their needs.

They are not thinking about a career: they want work with purpose that helps them grow and fits their current lifestyle. Work-life balance, flexibility and mental health are front-of-mind for employees as they look at their employers. They are even prepared to accept a salary cut for that. Priorities have fundamentally changed. If you do not cater to them, they will not join your company.

There is no template to solve the labor shortage

The ILO recently reported that global unemployment is expected to stand at 205 million people in 2022, surpassing the level of 187 million in 2019. Global employment recovery is projected to accelerate in the second half of 2021, but it will be uneven.

The good news is that jobs are coming back. But they are not equally spread across the world. We need to work hard to ensure that we have solid plans in place to make jobs worthwhile – so people earn a living wage – and to make work less dependent on location whenever that is possible, so we can be more inclusive towards the workforce. To this point, several countries have taken steps to curtail the effects of the gig economy and I expect this to continue as we move out of the pandemic.

If you do experience a labor shortage, approach it as an opportunity to rethink what works looks like, and design how you will organize work in future. These 3 steps are critical for a thriving business:

  • Have a good strategic workforce plan in place
  • Know how to execute that plan
  • Be able to quickly adapt to changes

Your best option is to stay on top of workforce developments in your geography, your industry, and your company as much as you can. Use the free data from your national statistics institute to understand the state of the labor market and the educational system, while comparing trends before and after the pandemic. Where possible, uncouple work from location, so you can make optimal use of the global workforce.

Even before the pandemic, all signs pointed to a massive overhaul of the labor market, due to changing circumstances, advances in automation, and a broad lack of skills required for a digital economy. The pandemic has only accelerated this.

There are many reasons for people not to return to work: some won’t come back at all, while others are postponing their re-entry. I hope this article has shown you that it is far more complex than pointing to benefits as the underlying cause, and concluding that once those run out, the labor shortage will magically disappear.

I am more inclined to go with Jerome Powell‘s observation: “This is an extraordinarily unusual time, and we really don’t have a template. We have to be humble about our ability to understand the data. It’s not a time to try to reach hard conclusions about the labor market.”

Mr de Weerd was right: when someone says something, use your brain. Ask yourself: Is it true? And look at the facts. The labor market is a complex topic and assuming just one cause can explain the lack of workers ignores the enormous complexity of the current pandemic circumstances and our economic situations.

I encourage you to use the 12 reasons I listed as a starting point to assess your workforce strategy. I hope it will help you come up with creative solutions to hire the people you need. I am sure of only one thing: the list is incomplete, and there are more reasons why you have a hard time finding the workers you need. Let me know by leaving a comment.

And for those of you worried that mr de Weerd’s live lesson ruined our grade point average: our scoring system does not work that way. But he did waive the grades.  

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I challenge executives to think about the future of work, and design workforce strategies to help their companies thrive. If you have questions, I am happy to answer them. Please reach out by sending an email.