Scarce labor is likely to hurt U.S. business long after COVID

Reggie Kaji’s employment agency got a weird request last year: Could he find 200 migrant workers ready to catch a bus from Texas to Detroit, where they’d be put up in hotels while working at a factory that makes car doors for the big three automakers?

"I've never seen anything like this," says Kaji, who had to tell the prospective client that he couldn't guarantee to find people qualified to work that kind of machinery. "A low-wage employee, with little education, can run through a door and get a job."

It’s a classic story from the pandemic worker squeeze. Successive U.S. jobs reports — the one for December is due on Friday — have shown a shrunken labor force, with potential employees kept on the sidelines or retiring early. Bosses are desperate for new hires to meet surging demand, driving up wages and giving inflation-wary officials at the Federal Reserve something else to monitor.

What’s less widely understood is that, in many industries, worker shortages will likely persist for years — or even decades — after COVID-19 is gone.

The labor force is projected to grow by just 6.5 million workers through 2030, according to the Bureau of Labor Statistics (BLS). That’s down from almost 10 million for the 10 years ending in 2019, and even bigger numbers in previous decades.

A combination of slower population growth inside the country and fewer migrants arriving from outside — both exacerbated by the pandemic, but also pre-dating it — suggests that in periods of strong or even steady economic growth, companies could have trouble finding people for entry-level jobs.

"Call it a crisis if you will, but it's been building," says William Emmons, an economist at the St. Louis Fed. "We have a problem. Where are the workers going to come from?"

Along with falling birth rates and higher death rates, trends that got worse after the financial crisis and again in the pandemic, “immigration is probably going to be lower and slower,” Emmons says. “This safety valve that enabled us to continue to operate an economy based on an unending supply of low-cost, low-skilled labor — that is probably not going to be viable.”

Similar demographics across developed economies have fueled a debate about whether decades of low inflation may go into reverse, as fewer workers enjoy more bargaining power and wages rise.

Businesses got a preview of the labor squeeze in late 2019 as the unemployment rate dropped to 3.5%. The Fed's regional survey for November that year reported a worker shortage that "spanned most industries and skill levels."

Even some giant companies able to offer higher pay can see looming limits.

“The foundation of the economy is labor,” Elon Musk said in a Dec. 6 video interview with the Wall Street Journal, explaining why Tesla is working flat-out to develop robots. “There are not enough people. I cannot emphasize this enough.”

Along with health-care and social services, as baby boomers age, the BLS says leisure and hospitality will be the fastest-growing employer in the coming decade.

That means plenty more demand for workers such as Xochitl Anguiano, a Mexican immigrant who is now a legal permanent resident and a hotel guest-room attendant in Las Vegas.

But net migration flows are falling along with domestic birth rates. There’s a pandemic shortfall of almost one million work visas. Last month’s announcement by the Department of Homeland Security of an additional 20,000 permits for seasonal guest-workers barely dents that. And migration is entangled in politics, making it hard to open the gates again.

What's more, Anguiano's family is symbolic of how many of the children of immigrants are achieving higher levels of education, meaning they're unlikely to step into their parents' jobs.

As a member of Culinary Workers Union Local 226, Anguiano enjoyed benefits — from health care and pension to legal assistance with immigration issues — that helped her focus on family life and her children’s education.

Now, one of her daughters has a degree in biology from the University of Nevada, and plans to take medical-school entrance exams in March, while another is finishing up a business degree at the same university.

Slowing labor-force growth means companies will have to reorient their hiring for just about every profession, looking for candidates from different types of schools and family backgrounds than they are accustomed to.

There’s a lot of work to do on that front, says Jacob Martinez, founder of Digital Nest in California, which seeks to help people from rural areas find work in technology and similar industries.

“The truth is, they are not getting those jobs,” Martinez says of his students, many of whom are Hispanic. Big tech or even local tech doesn’t recruit much from cities such as Gilroy or Watsonville, Calif., better known as garlic and strawberry capitals, he says.

"I can't get to the heads of Google and Twitter," Martinez says. "They are working with big universities as they look for talent."

Business groups point to the need for more labor from outside the country, to work the kind of jobs Anguiano has.

"Hotels have always been a major employer of immigrants," says Curt Cashour, vice president of media relations at the American Hotel and Lodging Association. "Our current immigration system is not working."

Tight labor markets can boost productivity, as companies work more efficiently and invest in better equipment and software. The current squeeze has brought advantages for workers too. Those with just a high-school degree enjoyed faster wage growth than other groups last year, according to the Atlanta Fed.

Such conditions could prevail "for some time," says Nick Bunker, North America research director for the Indeed Hiring Lab. "There's slower population growth, and we are just going to have fewer people in those younger-age cohorts."

There's still room for business to lure workers from the sidelines with better pay and benefits, even without more migration. Broad measures of labor-force participation among working-age people remain below pre-pandemic levels. "Strong demand can induce supply," is how Bunker puts it.

What that would likely mean in practice, as it did late last decade, is that longstanding barriers to work — from racial bias to criminal records — melt away as companies compete to hire.

Kaji, the employment-agency chief, has seen some of those trends in action, with demand for semi-skilled manufacturing workers on fire.

Drug tests are being waived, as are conviction records, in some cases. Employees taken on as temps are getting permanent jobs within three months or less, instead of as long as nine.

“If someone didn’t have a year of work history, we wouldn’t talk to them,” Kaji says. “We had to loosen our restrictions to six months of work history, then three months.” Even one of the few remaining requirements — a high-school diploma — no longer applies across the board.