How the Labor Shortage is Changing the Economy

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COLORADO SPRINGS, Colo.– Economists are hinging hopes of a recovery on how strong hiring is during the month of September as kids return to school–hopefully freeing up more adults to return to work.

“We really need to get these workers back into the active labor force, looking for work, and finding jobs at livable wages,” said Tatiana Bailey, a Ph.D. economist and director of the Economic Forum hosted at the University of Colorado-Colorado Springs.

Labor participation in the United States is at one of the lowest points since the late 1950s, at under 62% of adults.

Despite hopes for the contrary, the rate remained unchanged from July to August, squelching anticipation for late summer hiring.

Bailey says hospitality workers have moved on to other careers with more stable hours and better pay. She also says a booming stock market has allowed some people on the verge of retirement to financially make an early exit from their careers work.

The labor rate isn’t too far off from pre-pandemic levels, and Bailey says issues like a child-care shortage and skills-gap for workers are two things that have stayed consistent from the before times until now. But as output of the U.S economy continues to rise, it creates a strange economic reality.

“These are all structural issues. This all means that the labor participation rate is still really low,” she said. “GDP has continued to grow, so we can ask ourselves, how has GDP continued to grow when we have 8 million fewer workers?”

Bailey said that she thinks companies and businesses are being put in a position to do more with fewer workers, whether that be through automation, more robotics, changing work flows or simply asking more of the people working.

She also said that she thinks ensuring access and availability for people to train, retrain or increase their workable skills will help address the issue in the long term.

In the short term, companies are offering increased wages and benefits in order to obtain and retain workers.

“I wonder if we are perhaps experiencing some kind of transformation in the capitalist model,” Bailey said. “Prices are likely to continue to creep up as our capitalist model goes from a very employer-directed model—in terms of wages and benefits—to more of an employee-driven model.”

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