Local economists, business discuss labor shortageDate: 2/21/2022 MASSACHUSETTS – With many businesses experiencing a staffing shortage across the board, two local economists and a business owner discussed the challenges of hiring and maintaining staff in a world recovering from COVID-19.
Jeannette Wicks Lim, an associate research professor in the University of Massachusetts Amherst’s Political Economy Research Institute said one of the largest factors in the ongoing labor shortage is the impact COVID-19 had on the job market.
“In terms of speaking about the labor shortage, in general it is always good to keep in mind what happened to the labor market over the past couple years. We went through the shock of losing over 20 million jobs over a couple of months and then we needed to ramp up the economy really quickly, more quickly than we have ever done in recent recessions,” she said. “COVID [-19] was really this very dramatic thing that happened to our labor markets than what we have experienced in history.”
Western New England University Associate Professor of Economics Karl Petrick said despite the talk of a labor shortage, the unemployment rate both locally and state-wide doesn’t reflect that.
“The unemployment rate at the state and in the Springfield metropolitan area have come down quite a bit. In November 2020 the Massachusetts unemployment rate was 7.7 percent and in November 2021 it was 4.8 percent. In the Springfield metropolitan area in November 2020, it was 8 percent, and it was 5.5 percent in November of 2021,” he said. “There has been a lot of recovery in terms of the unemployment rate.”
From his research, Petrick said there are more jobs available than people to fill them.
“The labor force participation rate, which is the number of people that are 16 years and over who have looked for a job in the last four weeks is 66.3 percent. We have more of our available labor force actively seeking work or have work, what we have is a lot more jobs available than people that are currently engaged in the labor force, that is the challenge that we have seen nationally as well as at the state and in Western Massachusetts,” he said.
Despite a higher percentage of people looking for work, Wicks-Lim said there are still 2 million less workers than there were prior to COVID-19.
“The number of people who are actually in the labor force is still smaller than what was the case prior to COVID [-19], so you actually see a lower labor force participation rate now than what existed before the onset of COVID [-19] so we have about 2 million people fewer that are active in the labor market, so in that sense, there is a bit of a squeeze on the number of people employers have to choose from,” she said.
While some have said people are quitting their jobs and no longer working, Petrick said the data shows people have raised their standards for what they want out of a job.
“What has happened is workers have gotten more picky. What has been called the Great Resignation has not been so much a resignation, but it has been a great job switch. These people are finding jobs and leaving jobs they no longer want, and leisure and hospitality seems to be one of those sectors that is really struggling to get workers because other sectors are paying better,” he said.
The Restaurant and Hospitality Industry
Petrick said one of the biggest victims of the job switch is the restaurant and hospitality industry.
“Hospitality, which includes restaurants and bars, was the fastest growing sector in the state with 5,400 jobs, but they are also the ones that are actively looking. Manufacturing last year was booming a bit and people were going from working in restaurants to working in warehouses – better pay, better benefits and the warehouse would not shut down the way a restaurant might because of COVID [-19],” he said.
The shortage in restaurants is not something the industry has had to deal with in the past.
“Workers are being more picky and some of the sectors that really over many, many decades have had it pretty easy to find and replace workers are really struggling with the new reality that they have to step up their game and improve their retention of workers,” Petrick said.
Petrick said COVID-19 and a larger focus on takeout has changed the restaurant industry to some extent.
“In some ways switching over during COVID [-19] to being much more based on takeout might have relieved some of the pressure on them, you do not need people waiting as many tables. But at the same time, that was expected to be temporary and not a new feature of the hospitality economy, it may be more long-lasting than we expected,” he said.
To fill many of the vacant positions, Petrick said restaurants should try to do exit interviews to figure out why the employees are leaving in the first place.
“In terms of those real face to face jobs like retail and hospitality need to up their game with training and retention and do exit interviews with people that have left, which is always hard to arrange, but find out why they left and what the business can do to fix that. I think that is something that every company is going to have to do, particularly in those two sectors,” he said.
Wicks-Lim said it was difficult to say if there is a labor shortage but like Petrick, agreed there is a higher turnover in job industries like restaurants and hospitality.
“It is not entirely clear that there is a labor shortage per se, if you look at the sector of business where there were huge job losses like in hotel and restaurants, that is where you see very high quit rates and a very high hiring rate, so you are actually seeing more people being hired than quitting so you are seeing jobs being added but it is at a much higher pace so the churn is much higher,” she said.
Wicks-Lim said other industries are not seeing the same fluctuations as leisure and hospitality because those industries were hit the hardest immediately at the onset of the coronavirus pandemic.
“The leisure and hospitality sector was the sector that got hit the hardest and lost the most jobs the fastest, so it is kind of not a surprise that it would be the sector that would then have this high rate of churn now that the economy is trying to get back on track,” she said.
Wicks-Lim said there were two perspectives to consider when looking at the leisure and hospitality sector.
“From the employer’s perspective it feels like they are trying to ramp up their businesses really quickly and so they are having a hard time filling their jobs because there are so many jobs to fill,” she said. “I think workers are seeing all these job openings so workers who may have jobs already are looking and seeing there are other jobs that are offering better wages or benefits and conditions, so they quit their job to go work somewhere else.”
Despite the high turnover, Wicks-Lim said the hospitality sector has seen a significant increase in wages.
“Wage growth in the leisure and hospitality sector has actually been higher than we have seen in recent decades, the wages have grown by about 14 percent in that sector. If you take into account inflation you still see a real wage growth of about 7 percent, which is notable, we have not seen wages grow like that in that sector for a long time,” she said.
With higher wages, Wicks-Lim said restaurant workers are likely to move to a higher paying job in the same industry.
“You are seeing a worker within a restaurant or hotel seeing a better wage offer at a different hotel or restaurant and going there. That done enough times and employers are finding that while they are ramping up their businesses, workers are responding to better wage offers and if they do not offer good wages, they are losing the workers they have,” she said.
The turnover rate in the restaurant industry is higher than it has been since 2000.
“What you have seen in leisure and hospitality is different than what we have seen in the past, it is definitely a marker of what we are experiencing now. Since the Labor Department has been collecting this data, which it started doing in 2000, what we are experiencing now is different from the last couple decades,” Wicks-Lim said.
Local Business Perspective
Lydia Chagnon, the owner of East Street Coffee in Ludlow, said the hardest part about hiring is finding someone who fits in with her staff.
“It is hard to find the right people I guess, it is really important to me, especially during the interview process, to find someone that I think will fit in well with everyone else that works here and with the staff I have, I am very lucky to have them, they are very responsible and they are very hard workers,” she said.
Chagnon also credited some of the turnover she has seen with people going off to college and leaving their high school jobs.
“Part of it, too, is finding people who will do the work and learn the routine. Unfortunately, some of my staff is high school and college kids who have a higher turnover, I did lose a couple of people I was pretty upset about when they went to college,” she said.
Next Steps
While the labor force is expected to grow as COVID-19 wanes, Petrick said many people still have concerns about the virus.
“In surveys the number one reason people are not actively seeking work still has to do with COVID [-19], either they are too scared to go back and hospitality is one of those areas where it is particularly face to face contact, or they are sick or taking care of somebody,” he said. “As hopefully the pandemic becomes endemic, and more people are vaccinated, they return back to work. The expectation is the labor force participation rate will come back up because of less concerns about catching COVID [-19].”
With so much uncertainty around COVID-19, Wick-Lim said it was hard to tell when the labor market will normalize.
“Because COVID [-19] is such an unusual event for our economy it is hard to say, but I think what we are finding is that the U.S. economy seems to be on track to keep adding jobs until we get sort of back to where we were in terms of the number of jobs by the end of this year,” she said. “Maybe by the beginning of next year we will have a labor market that feels more normal, but this is an informed guess based on the pace of employment growth over the past year.”
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