With all the talk of drastic changes in the talent marketplace as our economy begins to recover from a global pandemic, it’s interesting to look at what’s happening through an Economics 101 lens. The short version: Low supply of workers and high demand for them continue to drive wages up – and the supply and demand curves don’t look like anything we’ve ever seen.
Under typical circumstances, markets for labor have demand and supply curves, just like markets for goods. The law of demand applies in labor markets this way: A higher salary or wage leads to a decrease in the quantity of labor demanded by employers, while a lower salary or wage leads to an increase in the quantity of labor demanded. The law of supply functions in labor markets, too: A higher price for labor leads to a higher quantity of labor supplied; a lower price leads to a lower quantity supplied.
The Impact of a Global Pandemic on Talent Supply and Demand
In a typical recession and recovery, the constraint on employment is lower demand for workers, but in recent months the demand side of the labor market seems to be recovering faster than the supply side, as more businesses are posting job openings while people have been relatively slow to return to the labor force. This flips the script on what supply and demand looks like in a typical recession labor market.
One piece of evidence corroborating the slow return of people to the workforce is the behavior of the labor force participation rate. As of June 2021, there are more than eight million job openings and 9.3 million people unemployed. However, the demand for workers is outpacing the supply of those ready to snap up a position. It is more visible in sectors like food service, manufacturing and retail.
According to the Bureau of Labor Statistics, the 2019 data reflect a strong economy –closely matched numbers of job openings and people competing for them. The 2020 data are from an economy in severe distress, reflecting the impact of the COVID-19 pandemic. The ratio of experienced unemployed workers to job openings is larger in every single industry in 2020 than it was in 2019 – indicating high competition among workers for the available jobs. This tells us that the relationship between job openings and the number of experienced unemployed dramatically changed for the worse across the entire U.S. economy from 2019 to 2020, and helps explain the talent shortage we are currently facing.
Job openings and experienced unemployed, by industry, annual averages (in thousands), 2019–2020
|Industry||Job Openings (2019)||Job Openings (2020)||Experienced unemployed (2019)||Experienced unemployed (2020)|
|Accommodation and food services||875||693||605||1,958|
In these three sectors, it appears that the supply of talent in 2020 is much higher than the demand, however, these are the very industries that are struggling to find candidates. It’s important to note that these three industries also are in need of workers who can be on-site, in person.
However, with so many people working remotely due to the pandemic, the supply has changed. Companies offering remote work and hire from anywhere in the country are creating increased competition for companies who are only hiring from a specific geographic area. More workers want remote work, therefore the supply to meet the demand of non-remote work jobs is very low. The same is true for higher wages, better childcare offerings, and other things that matter most to job seekers.
At Talroo, we have consistently monitored the state of recovery of the U.S. economy, with a major focus on how job seekers are feeling and what employers can do to hire better across industries. To learn how Talroo can help your organization hire better – even through the current workforce shortage – visit talroo.com.