Just How Bad Is the Labor Shortage? NCCI Digs in to See How COVID Impacted the Workforce

A potential labor shortage could be the result of the pandemic, but there are several factors could help employers adjust.
By: | August 21, 2021

As we continue to move away from the onset of the COVID-19 pandemic and well into our “new normal” living with the virus, we are continuing to see just how serious an impact a global pandemic can have on all aspects of life.

Countless studies are in the works, monitoring long-term effects. Included are the recent findings from NCCI on labor and unemployment.

In the released study, “Is There a Labor Shortage?” authors Francesco Renna and Patrick Coate, both economists with NCCI, aim to answer that burning question while evaluating the unemployment and wage factors over the last two years.

Here are key takeaways to note.

COVID Prompted an Exodus of Workers

Labor force participation is below pre-pandemic levels, the research found, with an estimated 3 million fewer Americans working today than there were before the pandemic.

NCCI attributes this to a few main factors, primarily women having left the labor force during the height of COVID-19 to, more often than not, take on the brunt of childrearing.

According to responses from a Current Population Survey conducted in April 2020, an estimated 1.4 million women left the labor force specifically to care for family.

The decline in labor is also being attributed to retirement in the older workforce (ages 55+).

Between 2016 and 2020, an average of 2.6% of workers in this category retired annually. That jumped to 3.3% during the pandemic as certain jobs posed health risks for older adults. These unexpected retirements, NCCI posits, could exacerbate an already tight labor market, especially for industries with existing shortages, like long-haul truckers.

That can pose workers’ compensation-related risk for companies that may be hiring a younger, less experienced workforce to fill the shoes of retiring veterans.

Most important to note is the decline in prime-age workers during the pandemic. This workforce is made of up of individuals ages 25-54 and saw participation decline from 82.9% in February 2020 to 81.7% in June 2021.

The biggest question for this last group is why. What made so many prime-age workers leave?

The Wage Debate

According to the study’s researchers, leisure and hospitality, particularly restaurants, are facing the most difficulties in hiring.

These industries experienced some of the largest employment gaps throughout the pandemic, as indoor dining and recreation events were halted in order to accommodate social distancing mandates.

But prior to 2020 and the COVID outbreak, leisure and hospitality was already known as a sector with high turnover due to lower wages.

To combat the gap in labor, leisure and hospitality companies have been offering wage increases, more training, schedule flexibility and additional benefits to entice its exiting workforce. Still, a ZipRecruiter survey found that 70% of unemployed leisure/hospitality workers are looking for work outside the sector.

Overall, however, NCCI concluded that “as individuals who withdrew from the labor market gradually return to work, wage pressure can be expected to ease.”

Where Unemployment Plays into the Mix

As NCCI noted, higher compensation across industries can and will draw workers back to the workforce. However, any factor that alters unemployment could easily contribute to the labor shortage moving forward.

The study notes, “A recent report found that the initial federal subsidy ($600 during the time period studied) lowered job-finding rates in food preparation and service, the lowest-paid occupation classification, but did not affect job-finding rates for other workers.”

Trends for this will become more clear as we reach the Sept. 6, 2021 COVID unemployment benefits expiration date.

Additional Reading

For employers looking to manage a returning workforce, it’s important to review what might be keeping their workers from wanting to return in the first place.

Childcare options and flexibility for working mothers can go a long way.

Also, for employers that are allowing a hybrid work option as part of their flexibility, it’s key to review at-home safety and ergonomic factors to keep workers safe at home, as well as in the office&

Autumn Demberger is the content strategist at Risk & Insurance®. She can be reached at [email protected]

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