Where did all the Employees Go?
We are seeing a lack of employees in many different areas of our economy. Why? What happened to all the workers?
(10-Minute Read Time)
Cartoons of the Week:
In a normal slowdown, growth, inflation, and employment weaken.
But this downturn has not been normal.
There is something holding up abnormally well that is giving investors “hope” we may see a soft landing (lower inflation without a recession) instead of a full-blown recession.
That one thing is the U.S. employment market.
Why is this? Where did all the employees go?
Very Strong Employment Market
Each week we receive US jobless claims, one of the best real-time macro indicators you can watch.
This past week, we saw stronger-than-expected data yet again (lower jobless claims).
When we look at the official US Unemployment rate, for December we printed a 3.50% unemployment rate.
What does this mean?
It means the market demand for employees is very strong. How strong you may ask?
Well, I pulled data from 1948 to today. Looking at the data, we have seen 900 monthly unemployment rates during that time. Out of these 900 observations, only 59 of those months have seen unemployment rates at 3.50% or lower!!! That is only about 6.50% of the time.
That is the definition of a strong employment market.
Besides jobless claims and unemployment rates, the market also watches another indicator of jobs. The US Jobs Opening or JOLTS data.
The JOLTS data shows how many job openings are out there in the market.
This is important data to watch as it usually leads to turning points in the data above.
As of November, there were 10.5 million job openings in the US. If you look at the unemployment chart above this, you can see there are 5.72 million people unemployed currently.
That is nearly 2 job openings for every unemployed person!!!
So this brings us to the question of why. Where are all the workers?
Are they banging on their drums all day?
After diving deeper into this topic, I found a few valid reasons for the lack of workers in today’s market.
Immigration
COVID had a massive impact on our immigration policy as a country.
People immigrate to our country in many different ways. Some legally….Some illegally…
Both measures dropped significantly during the COVID pandemic.
The Migration Policy Institute, published in June 2022 outlined the following:
“Due to a combination of people’s concerns about travel during a pandemic, bans on international travel, and processing slowdowns at U.S. immigration agencies, the number of immigrant visas (for permanent residence) issued fell 48 percent between fiscal year (FY) 2019 and FY 2020, while grants of temporary visas fell 54 percent. The number of immigrant visas issued recovered a bit in FY 2021 but remained far below pre-pandemic levels, while temporary visa issuances dropped another 30 percent.
When we look at refugee status, Refugee resettlement numbers in FY 2020 and FY 2021 fell to lows unseen since the modern refugee resettlement program was established in 1980.”
As you can see below, between 2019 and 2020, we saw a drop across the board of about 5.5 MILLION immigrants!!!
Looking at the data on visas, you can clearly see this process came to a standstill in 2020.
Most of these immigrants work in important service sectors of our economy.
Recent data shows about 17% of our entire workforce are immigrants, with a significant portion working in our healthcare and food service systems.
One manager of a large healthcare facility I talked to late in 2022 stated they cannot find employees. They have nearly doubled their starting wages but still just hear crickets when it comes to new employees.
As he told me (paraphrasing):
“I don’t know what to do. We need a change to our immigration policy in this country. It is broken and as a result, we have no one to watch the most vulnerable in our society – our elderly. The only way this will get fixed is through a better immigration policy.”
When you start to talk about immigration, audiences go to what they have heard.
Those on the right think of open borders, drugs, and illegals while those on the left think of DACA kids and policies separating kids from their parents.
No matter the direction you may lean, I think if we get past the noise of the 24/7 news channels and sit down as a country to talk, we would all agree our immigration system is broken.
To give you an example of how broken the system is, let me discuss for a moment documented dreamers (different than DACA kids).
Documented dreams are kids who moved with their parents legally to the United States. Their parents come to the US on business visas and can work for decades on these visas. When you come to the US on these types of visas, there is no real way to work towards a green card or citizenship.
So as these parents start businesses, and work hard to grow their businesses to live the American dream, their kids are raised as American citizens. They play sports with your kids, they go to school with your kids, they try to get good grades and go to college like your kids. English is their first language, just like your kids. But there is one big difference between them and your kids.
Unlike your kids, when these kids turn 21, they have to self-deport. Yes, if they came here legally with their parents at ages 12, 10, or even 4 or 5, when they turn 21, they have to leave the country.
I think we all would agree this is not right.
Below is more detail on this from John Stewarts’ podcast.
The reality is we are a country that is aging quickly, as you can see by the green, blue, and orange lines below.
When you are an aging population, you need to feed the system with younger workers to stay productive and grow. Immigrants fill this void.
Immigration is critical to our long-term success as a country.
COVID created a lot of disruptions, and one of those not talked about enough is immigration and the impact it has had on our job market, job openings, and inflation.
Low Wage Earnings
Bloomberg recently published an article highlighting the work of Raj Chetty of Harvard. Raj went down the rabbit hole to try to answer the question about worker shortages. Per his analysis, we are missing about 2.6 million workers who should be in the workforce but are not.
As the article stated:
“Metrics like job listings, consumer spending and small business revenue are surging back above January 2020 levels, the US is missing about a fifth of its pre-pandemic low-income workforce. Employment for the poorest quarter of the workforce was still 13.5% below pre-pandemic levels at the end of 2021.”
When we look at the economy as a whole, nearly everything has recovered except low-wage employment levels.
Immigration may have a lot to do with this, as most immigrants fill this void of low-wage earners. But others think there are other drivers at play here.
“People who had a year and a half to figure out what to do with their lives figured out they wanted easier jobs, or jobs that were more rewarding,” said Philippe Massoud, who has struggled with staff shortages at his Lebanese restaurants, named Ilili, in New York and Washington. “They moved to places they didn’t have to commute one hour each way to get to work,” like North Carolina, he said.
As housing prices and rent skyrocketed higher, many lower-income wage earners were forced out of the big cities.
We are also seeing the push to work from home by higher-income workers having a huge impact on those smaller businesses that used to service these employees on their way to work.
From the gas station clerk to the office cleaner, to the restaurant or coffee server.
These low-wage industries have been impacted hard and have yet to recover from the Pandemic.
Everyone seems to want to work from home now which has impacted the jobs many low-wage earners have filled in the past.
Women Leaving the Workforce
Kayla Cooper, a 34-year-old mother of three young children, lost her job in 2020, then worked for two years as a contact tracer from home. But the trained social worker now can’t find anything that provides the same flexibility or sufficient pay and benefits to compensate for crushing childcare bills.
“If I’ll be making $24 an hour but daycare is $25 an hour, why am I going back to work?” she said. “I feel pushed out of the workforce.”
This story has been told for many years prior to the pandemic. When my wife and I had our second child, putting two kids in childcare cost more than what my wife made as a teacher. As a result, she decided to stay home with the kids.
As schools closed around the country, those with kids really felt the pain of juggling work and home life. As these policies progressed, many women were overwhelmed and decided enough was enough and they quit to stay home with their kids.
The US once led the world in the proportion of women who worked, but nearly every developed nation now surpasses the US in their labor force participation rate for women.
There has always been an issue with weighing work-life balances, especially for women, but the pandemic increased this issue significantly.
Since the pandemic, we are seeing fewer women return back to the workforce.
Retirements
In my view, I think this is the big one. The one that has really moved the needle.
Recently, the Federal Reserve Board of Washington DC published a paper titled “The Great Retirement Boom”.
In this paper, they highlight the dramatic increase in what they call excess retirements.
This detailed paper outlined the huge wave of retirements that would not have happened without the pandemic.
As stated in the paper:
“The percent of the population that was not in the labor force and retired (the “retired share”) has steadily increased and in October 2022 was almost 1½ percentage points above its pre-pandemic level, representing an increase of more than 3½ million retirees and accounting for essentially all of the total shortfalls in the Labor Force Participation Rate.”
In the 5-years prior to COVID, the retirement share increased by about 0.2% per year. As of October 2022, the retirement share has increased to 0.6% above pre-pandemic levels. You can see above the actual dark line versus the forecast (dotted line).
This does not sound like much of a difference but we are talking about 1.6 million extra people. When we compare directly to the trend prior to the start of COVID, the excess retirement is about 0.8% or 2.1 million people.
This data clearly shows anyone near retirement in 2020 just said to their employer, take this job and shove it. I am out. I had enough. Peace out my peeps.
And as the pandemic continued, more and more younger workers decided they had enough.
“One important observation from these figures is that the initial runup in retirements in 2020 was concentrated among those age 65 and older, with a particularly large increase in excess retirements among those aged 70 to 74. Since then, excess retirements have remained elevated among ages 70 and older, while excess retirements among age 65 to 69 appear to have peaked in the middle of 2021. Starting in the second half of 2021, excess retirements have started growing among those age 60 to 64 as well. Despite this increase among younger ages, excess retirements among those age 65 and older still account for about two-thirds of total excess retirements.”
One thing that helped all these people make this very important decision was central bank policies.
Since these policies pushed up the prices of stocks, bonds, and housing, many hit their target for retirement and said enough is enough.
Still, others were shaken by the pandemic. Many were forced to reevaluate their life.
Most of us have been on autopilot for so long that when we were forced to stop, the reality of what life is all about smacked us in the face.
Many finally woke up and realized wealth is just not about money, but about a much deeper meaning to life.
The Meaning of Wealth?
Wealth is much more than money. Money is only a tool we use to accumulate wealth.
As we progress through 2023, I will be transitioning more of my posts to educate on not just investing but on wealth and happiness.
I feel many people’s assumptions of wealth are backward.
Wealth, at least to me, is the ability to use your most precious resource, time, in any manner to fulfill your life’s mission of happiness.
This is a very different definition than most use for wealth.
What COVID did was force many to stop, reevaluate their lives, and say to themselves, is this worth it?
Is an extra dollar worth missing my kid’s football or soccer game? Is working a few more years worth trading in the time I have with my loved ones? Is an extra $100,000 or $1 million or $10 million worth it if I may drop dead tomorrow?
COVID opened a lot of eyes.
Many over 65 saw friends, loved ones, and relatives dying which forced them to look in the mirror and ask,
“How do I want to spend the rest of my TIME on this earth?”
Why are you doing this thing that you are doing?
Dealing with that next email was us on autopilot. It was just something we did. At least until it stopped. Many then woke up, did not like what they saw, and decided to change their lives.
They decided they have worked enough and wanted to spend more TIME to travel, with loved ones, doing that hobby they always wanted to do, or just to be. To sit in nature and just be.
For many, COVID was the wake-up they needed.
I for one cherish the time I have with my kids and the ability to work from home. I also am hopeful I will never again have to buy a tie :)
At the end of the day, all we got is our TIME. How you choose it is up to you.
Final Thought
I feel the idea of work for most has changed because of the pandemic.
The employment issues we are seeing and the lack of employees are just the manifestation of this change of perspective.
The US has always been the place where you live to work. I think COVID just changed that for many who now work to live.
Have a wonderful Weekend!!!
https://www.bloomberg.com/news/articles/2023-01-18/job-market-update-2-6-million-missing-people-in-us-labor-force-shakes-economist
https://www.federalreserve.gov/econres/feds/the-great-retirement-boom.htm