February 2022 | Vol. 27 No. 2
by Fred Ashton, Senior Economist, NEMA
An employment situation dubbed the ‘Great Resignation,’ characterized by record quit rates and job openings, remains a central focal point among business leaders while threatening short-term output and long-term economic growth prospects. While benefiting from a sharp rise in consumer spending on goods, the manufacturing industry has not been immune to the complications of a shrinking workforce. It has responded by boosting wages to attract and retain talent.
Looking at the labor force participation rate—defined as people 16 years and older either working or looking for work—helps illustrate the magnitude of the worker shortage. Before the pandemic in February 2020, the labor force participation rate stood at 63.4 percent. By December 2021, that ratio shrunk to 61.9 percent. Had the rate held its pre-pandemic level, the workforce would have nearly 4 million more workers.
Data from the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS) underscores employers’ difficulty hiring amid a dwindling labor force. The most recent November 2021 data showed more than 10.5 million job openings in the U.S. economy. While this figure was down slightly from the peak of more than 11 million in July, it was more than the 3.5 million openings above the February 2020 level. The manufacturing sector alone had more than 858,000 job openings, more than double the pre-pandemic level.
The same JOLTS data showed manufacturers were struggling to hire new employees and hold on to their existing workforce. The number of workers quitting their jobs each month increased 55 percent between February 2020 and November 2021 to nearly 293,000 workers, a quit rate of 2.3 percent. No other industry has faced such a steep rise in worker exits.
Manufacturers have responded bluntly, raising hourly wages for production and nonsupervisory employees by 8.1 percent in nominal terms between February 2020 and December 2021. However, with nearly every economic sector competing for a shrinking talent pool and increasing wages, the pace of hiring has failed to accelerate.
The reasons for the labor shortage are wide-ranging. Everything from a dearth of childcare workers, early retirement, and trillions of dollars in fiscal stimulus kept potential workers on the sidelines. Compounding the problem for manufacturers is the uniquely precarious position of needing employees on site. The recent surge in Covid-19 cases tied to the Omicron variant has likely prompted job seekers to seek opportunities that do not require working in proximity with others.
More than 40 percent of economists recently surveyed by The Wall Street Journal
predicted that the labor force participation rate would never return to its pre-pandemic level. The remaining thought that it would likely be several more years before the labor force recovered. A permanently smaller workforce means that manufacturers will continue to compete against other industries for employment while at the same time retooling their production processes to rely on a smaller workforce count. ei