Labor shortages and safety nets: Why are people not working?

There's a record 1.9 jobs available for every employed worker. What's behind the stagnant numbers?

6 minutes

January 2, 2024 Adecco

smiling man on couch with remote control

It’s no secret that the COVID-19 pandemic changed the world of work. Many companies had to downsize or close, millions retired early, and the average employee sought more freedom and flexibility in their working schedules. All of this resulted in a lower labor force participation rate where less Americans were working. But as many hallmarks of the pandemic like rapid tests and mandatory quarantining have disappeared, Americans have not returned to work, resulting in 3 million “missing” employees that were working prior to covid but are not today.

This labor shortage, where there are now a record 1.9 jobs available, shows no signs of slowing. Monthly job reports released by the Bureau of Labor Statistics (BLS) continue to reveal a stagnant labor-force participation rate despite hundreds of thousands of job openings added each month. 

So why aren’t Americans returning to work? We break down the reasons for this long-standing labor shortage and how employers can entice people to rejoin the workforce:

Why is there a labor shortage?

In April 2020, the first full month of the pandemic, the labor force participation rate dropped sharply from 63.3% to 60.1%- the lowest rate recorded since October 1971. This is mostly due to companies responding to the pandemic, with thousands having to close their doors and lay off workers.

However, three years later the participation rate is still below pre-pandemic levels despite other economic measurements, like the unemployment rate, returning to or exceeding February 2020 numbers. This means that millions of Americans are actively choosing not to work, even though there are plenty of jobs available.

It all comes down to the fact that millions of Americans have changed their outlook on working over concerns of health and flexibility since 2020. Two major working groups, in particular, have exited the workforce and not returned:

  1. Baby boomers retired early
  2. In 2020, one in every four workers was a baby boomer. However, millions used the pandemic to re-evaluate their work-life balance and overall health, culminating in a mass exodus from the workforce. The Great Retirement, as it has been deemed by economists, left a massive hole in the workforce as almost 29 million baby boomers retired in 2020 alone (an increase of more than 3 million from 2019) in order to live out their golden years stress-free and in good health.

    And they haven’t changed their minds since. According to Pew Research Center, 75 million baby boomers are predicted to retire by 2030. With their rate of retirement outpacing the rate of hiring, thousands of American companies cannot fill their open roles.

  3. Working parents left for more flexibility
  4. Making up 40% of all employees, parents have also left the workforce in the midst of the pandemic and have not returned. As millions were forced to leave the office and work from home, parents too re-evaluated their work-life balance. With children also needing to quarantine at home, many parents were unable to juggle work duties with child-rearing duties, forcing them to make a choice. Unsurprisingly, they chose their children as nearly half of working parents chose to quit or reduce their working hours in 2020.

    Childcare issues have remained a hot topic for working parents as thousands struggled to find affordable and attainable childcare options as companies have returned to the office. As a result, working parents are continuing to exit the workforce with many turning to gig work and even starting their own businesses to provide for their families without sacrificing flexibility.

Why are people not working in 2023?

Aside from the re-evaluation of work-life balance, millions of Americans received hundreds to thousands of dollars in government funding, safety net expansions, and healthcare subsidies, making the same or even more than with their salaried jobs while unemployed. This resulted in many Americans choosing not to re-enter the workforce: why work to get paid when you can get paid not to work?

In a recent study, researchers found that supplemental unemployment benefits (up to $600 a month), food stamp expansions, child tax credits payments, and other COVID-related government benefits amounted to over $120,000 a year given to families in many states. Even when split between two parents, this aid is more than $5,000 above the median income in the United States ($54,132).

Even though unemployment benefits have softened since 2020, in some states these benefits can still provide the annualized equivalent of up to $100,000 in salary. In fact, one group of researchers discovered that normalized unemployment benefits coupled with expanded Affordable Care Act (ACA) subsidies result in the same income as a head of household earning $80,000 a year in fourteen states and more than a $20/hour wage in sixteen states.

The expansion of the ACA not only increased government subsidies but increased the number of Americans who qualify to receive such subsidies. Under expanded provisions, a family of four with income exceeding $227,000 still qualifies for ACA subsidies in all 50 states while families earning over $300,000 a year still qualify for ACA subsidies in 40 states and DC. That means the vast majority of workers qualify for these benefits and can supplement part of their salary with this government aid.

What can employers do about this labor shortage?

These ACA expansions are in place until 2025 meaning the labor shortage can last through then and possibly longer if government benefits continue to out mark average salaries.

Today’s employers may need to look at what they’re offering their workers – from benefits to culture to, most importantly, wage rates. As employees face record inflation, high gas prices, and a higher cost of living, making sure you’re offering a living wage is more critical than ever.

Adecco can help.

To stay on top of news related to the labor shortage check out our employer resources or contact us to speak with a hiring expert who can consult on living wages reported in your area.