The Labor Shortage Will (Eventually) Be Good for Employees and Businesses, Here’s Why

• The data suggests that in the U.S., economic activity has mostly returned to normal. Despite this, a labor shortage exists, and businesses are feeling it.  
• The pandemic gave workers a taste of remote and hybrid work. This experience provided a more flexible work-life and increased productivity. 
• The shortage of workers and skill gap creates an opportunity for better working conditions and pay as work conditions evolve. 

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At the beginning of the COVID-19 pandemic, labor shortages were expected. After all, with the world in quarantine, most workplaces needed to close for the sake of public health. Yet, despite many aspects of society returning to normalcy through the loosening of pandemic-related restrictions, a chronic labor shortage remains.  

The data suggests that in the U.S., economic activity has mostly returned to normal — even with continual concerns about the virus. Considering this, what are we to make of this labor shortage? Most importantly, what effect has this shortage had on small businesses? 

What’s Causing the Labor Shortage? 

A prominent assumption is that the current labor shortage results from the pandemic assistance program, which gave those collecting unemployment an extra $600 a week from April to July 2020 and an additional $300 a week from January to September 2021. It also streamlined the criteria for leaving a job and claiming unemployment.  

In the above cases, critics argued that many workers were earning the same amount or higher income from government assistance than they were at their previous jobs.  

During what some called the worst-ever global public health crisis, some states went so far as to terminate federal unemployment assistance early. They claimed the extra unemployment funds removed the incentive for people to work.  

Ending federal unemployment assistance fails 

Notwithstanding these incentives, there is not a single explanation for the labor shortage. On the one hand, over half of those who are unemployed have reported experiencing mental health and identity-related issues due to being unemployed. On the other hand, the pandemic assistance program ended nationwide in September.  

According to the U.S. Census Bureau, those receiving unemployment benefits did not hastily search for jobs. Indeed, job search rates have been somewhat stagnant throughout the pandemic. This indicates that there is some other disincentive that is stronger, that is deterring people from returning to work.  

But what is it? 

A taste of the future of work 

The pandemic gave the general population a taste of what only a few experienced before the pandemic. Namely, remote and hybrid work arrangements rather than the traditional 8-hour workday.  

While no single factor can be the sole reason for the current labor shortage, it seems that a significant factor among many is the general public’s newfound desire for better working conditions.  

This renewed desire principally derives from the pause COVID gave many workers during lockdown to reflect on the current work environment. Additionally, many non-essential workers were exposed to remote and hybrid work and workspaces for the first time. Many workers enjoyed not making the commute to work – and the flexibility remote work afforded them. 

There is ample data to support this hypothesis.  

The Pew Research Center reports that 66 percent of workers have “seriously considered” changing their line of work. Most jobs associated with high unemployment rates have been low-wage jobs, so this should not be surprising. These are the jobs with the worst reported workplace conditions. Researchers have claimed that most people are not happy with their jobs. While they felt secure in their jobs, many workers struggled to find purpose and fulfillment in their work.  

Remote, hybrid, and flexible work show promise 

By contrast, remote and hybrid workers report that their well-being markedly improved due to their new work modalities. Along with these improvements, research shows that hybrid and remote work can be equally or more productive than traditional work settings.  

In fact, the Wall Street Journal recently reported that many who have switched to remote work have drastically increased their income by working two full-time jobs from home. And given that the number of people voluntarily leaving their jobs to pursue higher-paying and more flexible work are at record highs, it is safe to say the more agreeable nature of remote and hybrid work options is a substantial factor in causing the current labor shortage. 

Because of the flexibility of remote work, workers can now dodge useless meetings, work fewer hours, and make more money, while having less stress related to paying for child-care and more time for themselves. 

It is no wonder, then, that so many are hesitant to return to traditional jobs, where the valances on all these benefits are flipped. 

How has the labor shortage affected small businesses? 

Small businesses have been peculiarly affected by the recent labor shortage. Approximately 53 percent of small business owners do not expect to reach pre-COVID levels of business for at least six months.  

Last February, it was also reported that roughly 9 million small businesses do not expect to survive in 2021. Economic recovery for small businesses has been slow, and in many cases, non-existent, and this is chiefly because they are having trouble filling open job positions. 

According to NFIB Small Business Jobs Report from August 2021, half of small businesses report difficulty in filling open positions. The NFIB reported similar findings back in May, and small businesses have mostly reacted to this by raising wages and lowering standards for hiring. The recent NFIB report shows these efforts have been unsuccessful. 

Part of the issue is that many of these job openings are for high-skill positions: this is problematic because the pandemic has exacerbated an already devastating skill-gap in the American labor force. Hence, many of these jobs simply require skills that too many people do not possess –and when only 27 percent of job openings are low-skill positions, this makes hiring a challenge.  

The problem isn’t that there are no jobs –there are arguably more jobs available now than there ever has been in America– but that most jobs require skills that most people do not possess.  

Conversely, there is a shortage of workers who are willing to risk returning to public-facing jobs that do not offer stability, a sense of purpose, or a living wage. 

Considering these factors, the future of work might be more ideal for a greater percentage of the population than once believed. Workers are already demanding better working conditions, such as better wages and more work flexibility.  

Small businesses have suffered as a result of the labor shortage, and so too have low-skill and low-wage workers –the job prospects of whom have been decreasing even before the onset of the pandemic. And because of automation, the trend of decreasing opportunities for low skill work will continue to diminish indefinitely. 

Many workers are benefiting from the labor shortage to pursue new opportunities. 

A boom in creative high-skill work 

Prior to the pandemic, highly skilled workers –creative workers in particular– became quite jaded in the face of traditional work. They yielded to the expectation of working traditional 9-5 jobs but were disillusioned. When the pandemic happened, however, things changed.  

A lot of non-essential jobs became unavailable, and people had to act fast. The advent of remote work for the mainstream made quick action possible. However, many did not expect what came next. 

While museums, movie theatres, and Broadway closed, the creative economy evolved and innovated. Many aspiring creatives discovered new ways to obtain work and businesses formed platforms for them to share their creativity and influence with the world.  

Now, creative workers compose a substantial part of the economy. Some are gig workers using platforms like Upwork, and others are influencers making thousands of dollars a day. In 2020 alone, 2 million Americans began freelance, and these numbers have only risen since. 

How will the labor shortage resolve? 

America cannot afford to leave millions out of work. Nor can it afford to force the deterioration of a huge portion of its economy –namely, small businesses, which composes 44 percent of U.S. economic activity, and is responsible for roughly 64 percent of newly created jobs. In light of this, what can be done to help resolve the current labor shortage? 

Firstly, employers need to universally provide hybrid, freelance, and remote options, so as to promote agency among employees. Lacking these features in this day and age is for many workers a point of departure: in other words, without these options, do not expect floods of applications to fill your roles. 

Next, what about the skill gap?  

On the one hand, job training is underutilized by employers, but job training has been proven to generate efficient and high-skilled workers. Hence, instead of focusing on credentials, opting for in-house training is a step in the right direction.  

On the other hand, according to Harvard Business Review, employers and managers tend to have trouble with leadership. In particular, managers can often be unclear in how they express the rules surrounding work. There are various ways in which this can be resolved, including but not limited to managers acknowledging the feelings of employees, criticism being allowed from the bottom-up, and strategic planning for clear and concise expressions of work expectations. 

Creating a safe environment for free expression and reasoned communication in workplaces –which must mean taking criticism from subordinates– is the path forward towards ending the current labor shortage.