3 reasons the labor shortage could be a 'structural change' in the economy, according to S&P

The record number of people leaving the workforce signals structural changes in the economy, Standard & Poor's reported last month. 

The global credit agency's investigation, led by Benn Ann Bovino, concluded that there were two kinds of reasons behind the labor force exodus: structural ones that include an increase in retirement rates and skill mismatch; and pandemic-specific problems, such as location mismatches, virus fears, and child care obstacles. The pandemic-specific problems are the bigger culprit, according to the researchers, but both types of reasons to quit were exacerbated by the spread of the coronavirus. 

2021 continues to clock record numbers of people quitting their jobs — as some have called it: the Great Resignation. The US is currently at a 45-year low in labor participation rate, S&P says. 12.7 million Americans left their jobs between July and September, according to the Bureau of Labor Statistics. This is the largest mass resignation the US has seen in the two decades since the government started documenting them.

As people quit, employers are scrambling to hire, but the latest jobs report from the BLS shows that hiring slowed in November. More than 12 million people are either long-term unemployed, seeking work to no avail, or employed part-time, despite more than 10 million job openings. All of this adds up to a major mismatch between what Americans are looking for in jobs and those that are available — a mismatch that doesn't have a quick fix.

S&P says that the return of prime-age workers — who are about 45% of the 3 million who left the labor force completely — are key to stabilizing the job market. 

The US government seems to be betting on logistical issues imposed by the pandemic being the overwhelming reason people are resigning for their posts. 

Treasury Secretary Janet Yellen, for instance, told CBS News last month that the labor supply will revert to normal after "we really get control of the pandemic." 

At the time, Yellen pointed out several reasons for the shortage, saying that an "abnormally low" supply of labor, including a shortage of childcare workers and teachers, creates problems with child care. She also said that people in public-facing jobs would likely have concerns about increased exposure to the coronavirus. 

S&P says that's true, to a degree. But structural causes illuminated by the pandemic bear nearly half the responsibility. 

"U.S. labor market conditions since the pandemic began highlight a possible structural shift in the labor force, with almost two-thirds of the missing workers having left the workforce entirely," S&P found. "We estimate that 42% of the drop in the labor force participation rate is due to structural shifts and 58% of the drop is for reasons that stem more directly from the pandemic and may be temporary." 

Here are three reasons why S&P says why people are leaving: 

Employers want different skills than workers have

Skills mismatch has been an issue for several years in the labor force, S&P argues. That problem only worsened during the pandemic, with older workers retiring earlier than they intended due to virus fears. 

This loss of skilled, older workers explains why the skills mismatch is growing starker — the labor force participation rate among people over 65 experienced the largest percentage drop of all age groups during the pandemic, falling by 10.6% between May 2020 and February of this year. 

Lingering vaccine hesitancy and an endemic virus 

S&P researchers agree with Yellen's logic to an extent — people don't want to go to work if it means exposing themselves to the virus. 

Although the vaccine is now available for children over the age of 5, children younger than that are still at risk, which is why researchers say that their parents might be hesitant to return to the workforce. They predict as more children become eligible for the vaccine, virus fears will decrease. 

"The wild card," they said, "is whether those reluctant to get themselves or their children vaccinated will decide to get the shot." 

Wages aren't keeping up with inflation 

Mass resignations have increased business costs for companies, which means that wages are going up. Inflation is also going up, currently at a 31-year high in the US. 

This means a few things: workers that businesses can find are ones who require higher pay. Goods such as food, fuel, and household supplies cost more. "That leaves real wages in negative territory," S&P writes. 

Researchers predict that as pandemic fears subside and more people become vaccinated, the work force will increase again. "Negative real wages squeezing household purchasing power will also help moderate inflation," they said. 

 

This article was written by jlalljee@insider.com Jason Lalljee from Business Insider and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.