Why are workers missing?

Why is there a lack of workers if there is high unemployment? This is the paradox that keeps the minds of many economists busy in the aftermath of the pandemic. In Economipedia we have analyzed it, and we have something to tell you.


The last quarter of 2021 begins, marked by the recovery of the world economy. And with it, companies have encountered a major challenge: there is a shortage of workers.

This is a concern that authorities have expressed in the world’s largest economies. From the US Bureau of Labor Statistics to the Bank of England, this problem is also visible in other countries such as China, Mexico or Spain.

It is probably difficult for many people to understand this problem.

Mainly because the pandemic has destroyed millions of jobs and many of the workers who have lost their jobs are still unemployed. The figures are difficult to calculate, but the estimates are conclusive: according to a study by the International Labor Organization (ILO), some 255 million full-time jobs would have been destroyed worldwide in 2020 .

However, the figures that show the respective labor markets in the world’s largest economies indicate a very clear recovery trend, in many cases reaching the situation of not finding enough workers to satisfy the demand of the companies. All this, while millions of people are forced to live on subsidies or to work in the informal economy, due to the difficulty of finding a job.

Thus, we ask ourselves: How can we understand this paradox? How is it possible that there are companies that cannot find workers and, at the same time, unemployed who cannot find opportunities to work? Let’s see it!

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Why are workers missing ?: The great paradox

«The recovery of the labor market coexists with unemployment rates that remain above the levels of 2019. »

Let’s put, first of all, some figures on the table.

In July of this year, the labor shortage in the United States peaked in the all-time series, with nearly 11 million unfilled job openings. In the United Kingdom, the official statistical institute ONS warned this summer of almost 1 million jobs available only in the services sector, the highest number of the entire century. If we talk about the case of China, the World Economic Forum (WEF) has also pointed out the lack of workers as one of the great challenges that the Asian giant will have to face in the coming decades; especially if you want to maintain your growth rate.

However, we must not forget that in these large economies, and also in other more modest ones, the recovery of the labor market coexists with unemployment rates that remain above 2019 levels. Even in the United States, one of the economies that has recovered faster, unemployment in August affected 5.2% of the workforce, still far from the historic low of 3.5% reached shortly before the pandemic.

That said, we are going to focus on what has happened in the largest economy on the planet, as your example can help us understand what is happening in the rest of the world as well.

The growth figures

«The trend is generalized, but there is a special growth in sectors such as industry, construction, commerce, health and leisure. »

As we can see in the graph below, in 2018 and 2019 the number of unfilled jobs in the United States was very similar to the number of unemployed; even slightly higher.

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In 2020, on the contrary, we see a sharp increase in unemployment, accompanied by a stagnation in the demand for labor from companies. A fact that can help us understand the historical increase in unemployment that took place that year.

Missing Workers1

In 2021, with an economy driven by the reopening of many sectors and by the monetary expansion policies of the Federal Reserve (FED), the data shows a rapid growth in the demand for labor. A trend that, as we can see, infects all sectors, but is especially evident in industry, construction, retail, health and leisure.

Fortunately, this greater economic dynamism has had a positive impact on unemployment, reducing –by some 3 million– the number of unemployed between January and July of this year. However, as we can also see, growth is still insufficient to return to full employment figures for the last quarter of 2019.

Do you have to pay more to workers?

«The cost of keeping an average worker is growing faster than the product that this employee can offer to your company. »

It is therefore, without a doubt, a very complex problem, and as is natural in economics, we can find different explanations in this regard.

One of the simplest is that employers still offer relatively low wages, perhaps conditioned by the uncertainty that still prevails in some sectors.

In this view, stagnant wages can be a brake on many unemployed people returning to the world of work. Remember that with inflation that makes the cost of living more expensive, the incentives to accept low wages are reduced, especially if there are alternative ways to earn income, such as state subsidy programs.

On June 25, Joe Biden was clearly in favor of this hypothesis. Asked at a press conference about employers’ concern about the difficulty of finding workers, the President of the United States responded with a simple recommendation: “Pay them more!” (Pay them more!).

Missing Workers2

However, as we can see in the graph above, employers have been paying their workers more for almost two years (at least on average). If we analyze the evolution of labor cost, we see a strong increase since the last quarter of 2019, growing faster than productivity per hour worked.

This is a very important data to take into account, because it can be an indicator that the cost of supporting an average worker is growing faster than the product that this employee can offer to your company. In the labor market, we can find situations of this type in contexts of economic expansion and low unemployment rates, where companies continue to demand employment, but there is not enough supply. As a result of this, the price of the labor factor increases, that is, the wage.

So far we can agree with this argument, but the problem is that it is not consistent with the persistence of more than 8 million unemployed.

In other words, the supposedly low level of wages cannot explain such a high level of unemployment, as employers increasingly pay their workers and yet many people remain outside the labor market.

In the same way, it also does not explain why in some states the minimum wage has doubled and, however, this has not served to incentivize employment.

A time of change

“It is possible that many changes in consumer habits are here to stay, and of course, the production of goods and services must adapt to what customers want. »

At the beginning of the pandemic, we already warned that when there is a shock supply strong enough on an economy, it is practically impossible to bet on a recovery based on returning to the initial situation.

It happened in Ireland in the 19th century and in almost all pre-industrial crises. The example may seem distant, but, in essence, it is about crisis situations triggered by the irruption of an external factor (health, climate, etc.) that prevents a large part of the economic agents from carrying out their activity and, as a consequence, the economy as a whole suffers.

Faced with economic crises of this nature, societies can react in two ways: try to restore the initial situation or, alternatively, adapt to changes and reallocate resources, introducing the new opportunities offered by the market in the distribution. In the first case there is nothing that can prevent the arrival of another similar crisis in the future, while in the second the chances of this happening are reduced.

Throughout the pandemic we have seen numerous examples of companies that changed according to the new situation, not only applying teleworking, but also adapting the offer of services to their clients. In this way, we have seen how SMEs launched themselves to advertise on the internet, restaurants delivered food at home or banks strengthened their online platforms. All of them, changes that could not only respond to a specific context, but that, on occasions, could indicate permanent changes in consumer preferences.

In other words, it is possible that many changes in consumer habits are here to stay and, of course, the production of goods and services must adapt to what customers want. This does not mean that total employment in each sector should change, but the workload corresponding to each task could vary.

We can understand this phenomenon by observing what is happening in bars and restaurants, which in many cases employ fewer waiters, but more food delivery people. We can say something similar about banking, which requires fewer and fewer people in face-to-face care and more in digitization projects.

To this we can add the effect of monetary expansion policies, designed to stimulate investment and the consumption of durable goods in the United States.

We must bear in mind that, in addition to generating inflation, these policies tend to cause imbalances in the labor market, since by boosting the demand for goods in the most benefited sectors in a very short time, the demand for labor in these activities also grows. It is no coincidence that this occurs at the same time that the prices of raw materials rise, as a consequence of the “bottlenecks” that these policies tend to generate in production processes.

The problem, therefore, is that if much more work is required from the employee in previous years, it is likely that there will not be enough human capital to cover the new jobs. This is the case, for example, of construction and some sectors of the industry, which is why some American businessmen decided (with little success) to transfer this concern to their president.

The challenge of converting

«Today, millions of workers face the challenge of adapting the human capital they can offer to the new needs of companies. »

As a consequence of all this, we can say that the paradox experienced by companies that do not find workers and the unemployed who do not find opportunities is due, above all, to a mismatch in the labor market, a mismatch between supply and demand. In other words, many people who have lost their jobs have skills and knowledge that are no longer in demand in the market and, on the contrary, companies are looking for profiles that are not always abundant.

It is important to take this mismatch into account, as it also allows us to assess the effectiveness of economic policies. The explanation is simple: if we think that the problem is low wages, policies such as raising the minimum wage or cutting subsidies could increase the labor supply, and thus, companies could find workers. The problem, then, is that if we are facing a supply and demand mismatch, none of these policies will be able to work.

And it is that, no matter how much politicians insist on giving simple explanations to complex problems, economics continues to be one of the most complex sciences of human knowledge, and this problem, like any economic paradox, is no exception. Thus, economic science is as complex as the challenge faced by millions of workers today, who are forced to reconvert, change activity, acquire new knowledge and try to return to the labor market, all this, while consumer preferences change every minute.

A historical challenge for those of us who have had to live in the 21st century, and which, as always, we explain in detail in Economipedia.

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