Solving the mystery of the ‘worker shortage’

Welcome to a new era of the “reservation wage.”

The average person passing on a chance to join a burrito assembly line or become a long-haul trucker may not be familiar with the economic concept of a wage below which people won't participate in the labour market. But it’s likely one element in the mysterious lack of job growth marring the US economic recovery.

Other countries have been experiencing something similar. Whether it’s for positions as essential workers in Canada, hotel employees in France or cooks in Australia, fewer applications are rolling in. In many cases these may not be worker shortages, as much as shortages of good opportunities for workers.

The trend is triggering fundamental questions about fairness and the ways economies are constructed. Such as: is the fact that someone can net more money collecting pandemic-related unemployment payments than working a full time job a reassuring indication everything will return to normal when those payments stop – or a cause for concern?

The role of COVID-19-related unemployment benefits in curbing demand for jobs is hotly debated. Some say it’s been decisive. Others say not so much. Research published earlier this month by the Federal Reserve Bank of San Francisco cited “small but noticeable effects.”

In many places around the world, workers are simply bypassing jobs that don’t measure up. That might be due to low wages, or a lack of safeguards. It’s just one aspect of the disruption wrought by a health crisis that’s still far from over. And it points to a need for longer-term solutions.

Worker shortages may be limited to certain sectors, but they could have troubling knock-on effects. For example, nurses from the Philippines who have played a crucial role during the pandemic say they’re overworked, underpaid, and under-protected – and many are leaving the profession.

In some places, pandemic-related border restrictions have increased the odds of shortages. In Singapore, for example, companies that rely on a steady flow of foreign workers are bracing for the impact of restrictions that classify all but a handful of other countries and regions as “high risk.”

And in Australia, reports of worker shortages have kindled debate about stagnating wages and the need for immigration to augment the labour force.

Certain occupations are at risk of being thinned out disproportionately. The International Council of Nurses warned last month that global nursing workforce could be cut in half in the next few years due to inadequate pay and working conditions.

In some cases, downtime during the crisis has simply afforded people a rare opportunity to reassess their career paths – and pursue something different.

Those who want to pursue new jobs may not be following through because they lack the required skills, however. The CEO of an aluminium foundry in a small town in Wisconsin complained recently that he’s having trouble finding people to take his $26-per-hour jobs, and warned it will take time to fix the “skills mismatch” contributing to the shortfall.

According to a report published by McKinsey, the pandemic means 25% more workers than previously anticipated may need to switch jobs due to factors like automation, and more than half of all displaced low-wage workers will potentially need different skills to remain employed. Among the report's findings: a German worker shifting occupations might spend 3.4% less of their time using basic cognitive skills, and 3.2% more time using social and emotional skills.

For more context, here are links to further reading from the World Economic Forum's Strategic Intelligence platform:

On the Strategic Intelligence platform, you can find feeds of expert analysis related to Work, the Future of Economic Progress and hundreds of additional topics. You’ll need to register to view.