Is There a Labor Shortage?

Topics: Small Business

Summary: Why are so many businesses struggling to find workers right now? Find out what happens when there is a shortage of labor, and what small business owners can do to cope with this current difficult situation.

Where is America’s Labor Force?

Small businesses across the United States have struggled to reopen, or stay open, as the COVID-19 pandemic continues to affect people’s lives. The pandemic led to shifts in employment and workplace demographics, and some also blame the virus for the current shortage of labor companies of all sizes are experiencing.

While COVID-19 may be partially responsible for a labor shortage, there are other factors in play making it challenging for some businesses to bring workers back to the job site.

What is a Shortage of Labor?

A labor shortage occurs when there are more available jobs than there are people out of work. NCCI reports that in the second quarter of 2021, when many state health restrictions surround COVID-19 safety were lifted, businesses began returning to full operation, thus creating a demand for labor. The Bureau of Labor Statistics reported the highest number of job openings since they started reporting in the year 2000, with more than 10 million unfilled positions as of July 2021. Although many business owners assumed workers would quickly return to their previous jobs, a high unemployment rate remained, with more than three million fewer Americans in the workforce than before the pandemic.

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Why is the labor supply so much lower when there are so many businesses looking for reliable workers? One can’t drive more than a few miles right now without seeing “help wanted” signs in front of companies, with many offering incentives like sign-on bonuses, free meals or even free schooling. Meanwhile, it’s also not uncommon to see “we appreciate your patience, we are short-staffed”-types of signs in many retail stores and restaurants.

Some experts have questioned if extended unemployment benefits contributed to the shortage – in some cases unemployment benefits were more than workers were making. But federal unemployment benefits ended in early September 2021, with some states ending them in early summer, yet there still hasn’t been a mass movement to return to the workforce. Some theories suggest the labor shortage reflects the fact that many individuals won’t return to their previous positions until wages increase and working conditions improve. Business and professional services, the leisure and hospitality industries, and retail and wholesale trade all currently have more openings than prior workers, and many individuals report they have no intention of returning to those industries.

Other factors that play a role in the labor shortage include:
  • Older workers retiring. Older individuals are often in the higher risk group for contracting COVID-19, and when faced with that risk, many in this age group decided to retire over going into work.
  • An increase in resignations. Many workers report they’re simply tired of being overworked and underpaid, especially during a stressful time like the pandemic.
  • A surge in new businesses. Rather than return to previously held positions, some individuals have decided to go for a career shift and start a new business. 25% of workers switched careers altogether during the pandemic, and new business applications increased by almost 27% in 2020 compared to 2019.
  • Women leaving the labor force. Many women shifted gears to become primary caregivers throughout the pandemic, taking care of their children, helping with remote schooling or assisting aging loved ones.
  • Fear of exposure to COVID-19. Some workers may be hesitant to return to the workforce because they worry they could contract the coronavirus, especially the highly contagious Delta variant causing numbers to surge countrywide.

What Can Small Businesses Do to Manage the Labor Shortage?

help wanted sign labor shortage
There’s no doubt that many small businesses still struggle to return to their pre-pandemic profit levels, especially as they cope with a shortage of reliable staff. While it will certainly take time to recover back to pre-pandemic levels, there are a few things business owners can do to get through these difficult situations.

Offer Enticing Incentives to Recruit Workers

As mentioned previously, many business owners are trying to recruit workers by offering various perks to keep staff content after they’re hired. Restaurants can offer one free meal during a shift, coffee shops can consider providing free beverages for the team during working hours, and retail stores can increase employee discounts. Sign-on bonuses are also a great option to entice new workers to apply.

Increase Wages

If possible, business owners should take a closer look at their budgets and see what changes can be potentially made to increase hourly wages for employees. One coffee shop located in Iowa is said to have received nearly 50 applications in just two weeks after raising their hourly pay to $15.

Adjust Business Hours Accordingly as Needed

Suppose an owner is finding it difficult to fill certain roles for different shifts throughout the day. In that case, one temporary solution is to cut back on their business hours until recruitment efforts can be fulfilled. While this is obviously not an ideal situation, limiting hours will help ensure current employees don’t become overworked in the meantime – which could easily lead to workers resigning altogether.

Reward Current Staff

The challenges for business owners don’t always end at finding workers. Keeping workers satisfied and enjoying coming to work every day can also be key to retaining a great team. Offer monthly bonuses for top-performing employees or even a free paid day off.

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This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.

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