Why Is There a Workforce Shortage and How Can Employers Overcome It?

Why Is There a Workforce Shortage and How Can Employers Overcome It?

  • The spread of the pandemic in 2020 exacerbated the periodic problem of labor shortages.
  • The pandemic led to a change in industry preference and immigration challenges for workers, further accelerating the global workforce shortage.
  • To sustain their businesses, companies should look for measures to retain their current workforce as well as attract new workers to their organizations.
June 10, 2022 | Human Resource Blogs

Labor shortages aren’t new, but the current one has had a stronger effect on the global economy.

As countries reopened after the COVID-19-induced lockdowns in 2020, the global labor shortage continued to increase, surprisingly, along with a rise in unemployment rates. Though jobs were available, workers were not willing to take them up.

In the United States, job openings rose to a record 11.5 million in March  2022, according to the U.S. Bureau of Labor Statistics. The number of available jobs exceeds the number of people looking for work by 5.6 million.

Globally, higher unemployment rates since the pandemic suggest that employers would not face challenges in meeting their worker requirements. However, the pandemic has changed the outlook of workers on industries and their job locations.

The Change in Industry Preference for Workers

In 2020, with the COVID-19 pandemic at its peak, most countries around the world shut down all non-essential activities. This led to massive layoffs in most companies and industries, especially the manufacturing industry.

As a result, unemployed workers moved to jobs in the few industries that provided them with opportunities. According to the U.S. Bureau of Labor Statistics, a minimum of 1.7 million workers working in the leisure and hospitality industries who lost their jobs during the pandemic have either changed their industry or left the labor force entirely.

Now, as economies have opened further, the demand from previously shut-down sectors has boomed. However, workers are reluctant to leave their current stable revenue streams and move back to employment sectors that crashed in the past couple of years.

Immigration Challenges Intensifying the Labor Shortage

For industries relying heavily on expats for labor, immigration challenges, especially after the pandemic, have proven to be a major problem.

The travel restrictions imposed by various countries to curb the spread of the pandemic led to a vast chunk of employees relocating to their native countries and finding replacements for these workers has become a challenge now that demand in these industries has risen again.  

Brexit has been a major contributing factor to the labor shortage in the U.K. as it led to many E.U. workers losing their permits to work in the country. Other countries are also facing workforce shortage issues with international labor. For example, oil and gas projects in Malaysia that depend heavily on expats witnessed a sharp increase in project costs due to the unavailability of the workers. In Australia, the population declined for the first time in over a century as border closures in 2020 led to lower immigration to the country.

Impact of this Labor Shortage on the Economy

The continuing labor supply shortage is leading to higher labor costs, steeper inflation and supply chain disruptions severely impacting many industries. In the long term, it may lead to a global economic recession.

The sectors and industries that rely heavily on blue-collar jobs or manual labor should actively start taking steps to make their companies attractive employment venues for workers if they wish to see a bright future.

Measures Companies Can Take

Higher labor wages can be the first step to attracting workers. Higher wages would lead to a rise in overall project costs, but in the long term they can be a valuable investment to attracting more applicants and securing and retaining talent.

The other method is to invest in technology that either boosts worker productivity or reduces the dependency of processes on workers.

Investment in such technology has already grown significantly in countries where labor supply has been an ongoing problem.

In 2021, the U.S. manufacturing industry posted the largest labor productivity rate in over a decade. Similarly, the productivity rate in the U.K. also witnessed a sharp rise, especially in sectors such as manufacturing, retail, wholesale and auto repair.

Apart from all this, the recent change in worker preference has seen workers looking for more flexible job opportunities.

So arrangements that allow workers to work remotely or hybrid options where they balance remote and on-site work are viable ways to attract more applicants.

Additional Read: How Hybrid Work Model Taking Shape Amid Virus Flareups

To Solve the Labor Shortage, Employers Must Tailor Actions to Their Workforces

The labor shortage is an ongoing problem that many countries have been battling for a few years now.

This issue has, however, recently been aggravated due to the spread of the COVID-19 pandemic.

Organizations must start taking proactive measures to both retain their existing workforce as well as attract new talent. There are no simple solutions to tackle this problem.

Employers need to identify the problems that their workforces are facing and act accordingly.

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