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How to Get the Workers?

By Jason Kosakow and Sonya Ravindranath Waddell
Regional Matters
March 31, 2022

There is evidence that labor markets are even tighter now than they were when the COVID-19 pandemic reached U.S. shores in 2020. Among other things, job openings are at a record high, wage growth is accelerating, and survey measures of employers, including our own Richmond Fed surveys, show an unprecedentedly tight labor market. In our March survey, we found that firms continue to struggle finding workers across skill levels, but particularly in the low- to mid-skill range. Even with the wage increases that firms are implementing, they find that applicants still turn down the higher wage offers or simply drop out of the hiring process. Moreover, we learned in our February survey that firms are struggling to meet demand for goods and services in part because of the difficulty finding workers.

Where Are the Workers?

The evidence from our March survey matches what we hear from our business contacts and what we see in the data: Firms are trying to hire. Of the 207 respondents in March, only 10 percent did not attempt to hire in the last year, and well over half of the respondents tried to hire for at least two different skill levels.

Note: Low-skill is defined as: “performs routine, manual tasks that do not require a college degree or specialized training”; mid-skill is defined as: “requires more education and training than a high school diploma but less than a four-year college degree”; high-skill is defined as: “performs non-routine, creative tasks and are college educated (or highly trained).”

Not surprisingly, in a world where job openings far exceed new hires, many firms struggle to find the workers that they need. Furthermore, although very few firms reported that any hiring was easy, the low- and mid-skill workers proved the hardest to hire. Firms were far more likely to report the same level of difficulty hiring high-skill workers compared to pre-COVID-19 (40 percent) than they were for low-skill (21 percent) or mid-skill (26 percent) workers.

Note: Low-skill is defined as: “performs routine, manual tasks that do not require a college degree or specialized training”; mid-skill is defined as: “requires more education and training than a high school diploma but less than a four-year college degree”; high-skill is defined as: “performs non-routine, creative tasks and are college educated (or highly trained).”
Note: Low-skill is defined as: “performs routine, manual tasks that do not require a college degree or specialized training”; mid-skill is defined as: “requires more education and training than a high school diploma but less than a four-year college degree”; high-skill is defined as: “performs non-routine, creative tasks and are college educated (or highly trained).”

Obstacles: The Employer Perspective

The biggest obstacle to hiring — most pronounced among mid-skill workers — was a diminished pool of qualified applicants. A whopping 81 percent of firms reported that a lack of qualified applicants was an obstacle to hiring mid-skill workers (compared to 72 percent for low-skill hiring and 63 percent for high-skill hiring). In lower-skill hiring, the next most cited obstacle was what employers call “ghosting” or applicants simply dropping out of the hiring process without communication. This was also an issue for firms hiring mid-skill workers, but much less of an issue for firms when trying to hire high-skill workers.  Many firms (about 40 percent, across hiring) also reported that the compensation offer was often not accepted.

Note: Low-skill is defined as: “performs routine, manual tasks that do not require a college degree or specialized training”; mid-skill is defined as: “requires more education and training than a high school diploma but less than a four-year college degree”; high-skill is defined as: “performs non-routine, creative tasks and are college educated (or highly trained).”

According to our March survey results, a large share of firms decided to raise starting wages. Firms also used remote or hybrid work options as a way to recruit high-skill workers (43 percent of firms), but only 8 percent of firms used these flexible arrangements when hiring for low-skill workers. This disparity in employees’ ability to work remotely has been a challenge for many employers and employees in the past two years, as firms have struggled with balancing flexibility for those who can work remotely with equality among workers in the workplace.

Note: Low-skill is defined as: “performs routine, manual tasks that do not require a college degree or specialized training”; mid-skill is defined as: “requires more education and training than a high school diploma but less than a four-year college degree”; high-skill is defined as: “performs non-routine, creative tasks and are college educated (or highly trained).”

Why Not Just Pay the Workers More?

When demand is high and supply is limited, the price goes up. Thus, it is not surprising that in our March survey, firms expected average wage growth in 2022 to be notably higher than pre-pandemic (2019). On average, firms expected wages to rise 7.2 percent for low-skill workers in 2022, 6.5 percent for mid-skill workers, and 6.7 percent for high-skill workers. However, firms do not expect this level of wage growth to persist into 2023. Although firms anticipated wage growth for high-skill workers to remain above 2019 levels, this is not true for low- or mid-skill workers, where 2023 expected wage growth looks remarkably similar to what firms reported regarding wage growth in 2019. This survey focuses on expectations among firms for wage growth; measures of realized increases across skill levels, such as the Atlanta Fed's Wage Growth Tracker, also show elevated wage growth across skill levels in 2022.

Note: Low-skill is defined as: “performs routine, manual tasks that do not require a college degree or specialized training”; mid-skill is defined as: “requires more education and training than a high school diploma but less than a four-year college degree”; high-skill is defined as: “performs non-routine, creative tasks and are college educated (or highly trained).”

Understanding the Labor Market

Over the past few months, our surveys have tried to shed light on labor market conditions in the Fifth District. We have written on how the worker shortage is impacting firms’ ability to meet demand, how firms are raising wages to attract workers, and how employers are using remote work to recruit and retain workers. In our March survey, we learned that demand for workers is up across skill levels, and we corroborated other results that finding workers is harder than it was even in the tight labor market of 2019. We also learned that firms are anticipating higher wage growth in 2022 but also expect 2023 growth broadly to revert to 2019 growth (albeit a period that also had a tight labor market). In addition to raising wages, firms are, among other things, relaxing hiring criteria, expanding their search geographically, and offering hybrid/remote work options. Although both the obstacles and the recruiting techniques vary by occupation, nearly every firm in our survey has taken some new action to recruit the workers that they need. The question is: Will it work?