Worker Shortage or Common Sense Shortage? Or Both?

By Mike Koetting September 28, 2022

Everyone seems to accept that the US is facing a labor shortage. But labor shortage is one of those concepts that seems straightforward until you start to look into it. Turns out the whole thing is—and I’ll bet you’re not surprised—really complicated.

For example, take the issue of trucker drivers.  According to the American Trucking Association, America has a shortage of 80,000 drivers with the number that could reach 160,000k by 2030. That is probably a reasonable estimate of the number of truckers who could be hired if suddenly there were people to hire.

Complications arise immediately. It’s not like you can simply answer an ad in the newspaper and become a trucker. It requires a Commercial Drivers License (CDL) which both requires training (which can cost up to $10K) and then an apprenticeship. But the training is not the bottleneck. There are plenty of people with CDLs. The issue is that turnover in parts of the trucking industry is astronomical, often in the vicinity of 90%, and most of them out of the industry. The current configuration of the job is miserable.

The root of this problem seems to stem from the de-regulation of trucking under Carter. As more carriers got into trucking post-deregulation, union representation fell, and wages followed. Total employee compensation fell 44% in over-the-road trucking between 1977 and 1987. Turnover has been much lower in those places with higher wages and better working conditions, including those that retained union representation. There is no doubt deregulation led to lower costs of transporting goods, benefits that accrued to all consumers. Conversely, better wages will drive up costs for everyone. But the current model isn’t really working, and lack of truck drivers is making a material contribution to supply chain woes.

Virtually every other specific job I looked at that shortages are being written about had a similarly complex story. What appears to be a society-wide “labor shortage” turns out to be a story of lots of smaller things that have impacted one job or another. Anyone offering a one-size-explains-all approach is going to miss a lot.

That said, there are also some structural factors that are affecting the overall labor market and will have even bigger impacts in the future. As I noted in my post on school closings, society is very poorly served by trying to ignore underlying structural changes instead of facing up to them and making proactive, if hard, choices.

Structural Factors

Population Aging. The Boomer generation is retiring. (Sorry, folks.) There is no way around it. Try as we might, we’re just not going to live forever, let alone work that long. This has several consequences. The most obvious is that large numbers of well-trained workers are leaving the work force. Many of them are professionals–physicians, nurses, lawyers, engineers, pilots, teachers and so forth. This will get worse for the next few years as the biggest bulge in the boom actually steps away from work. It also appears that enough “young” Boomers are retiring earlier than anticipated that they are having an impact on the overall work force.

Declining Birth Rate. This hasn’t yet had a big impact on the overall size of the labor force, but it will. Just as lower fertility inevitably leads to lower school enrollment, it will inevitably lead to a smaller work force. It is projected that there will be 16 million fewer babies between 2008, the last year fertility was sufficient for population replacement, and 2030 if fertility had continued at replacement rate.

Immigration. Roughly one-quarter of the “missing” workers are the result of lower immigration, legal and illegal, during the Trump era. This flow is starting to return to pre-Trump, pre-Covid levels, so some of the shortages will be addressed. But we have also shown conclusively that there aren’t Americans willing or able to take many of the jobs the immigrants would fill. In all events, immigration remains a major factor in determining the size of our overall workforce, and more so in certain fields. For example, a larger percentage of personal care workers are immigrants. This is an area with exploding demand as the Boomers get older still.

Work Force Participation Rate. Another suggested factor in the shortage of workers is the apparently low participation in the work force—that is, more people who would be expected to be working are neither employed nor looking for work. Some of this argument has a kind of moral tone—as in, kids today aren’t working. However, it seems fairly clear that most of this decline is the statistical implication of an aging work force. For instance, between 2010 and 2019, overall labor force participation decreased, but within every age category it increased. It is simply that older populations have less work force participation, so as their relative size increases, they exert greater drag on the aggregate. Still, when looking at specific age/gender groups, it seems there is some decrease beyond what can be explained by age distribution alone, even before Covid. It wouldn’t surprise me if there has been some overall decrease in labor force participation, or, as I suspect, participation in the formal labor force. People must be getting resources from somewhere. A 2014 study by the Boston Federal Reserve estimated that 26% of the people “not in the labor force,” as defined by the government, were in fact in engaging in the informal economy. I’ll bet the percentage is higher post-Covid. Another factor is that female work force participation had stagnated in the 20 years before Covid, and probably much more during Covid. Part of the culprit here is the lack of family friendly policies, particularly around parental leave and day care, that would make female participation easier (even if family responsivities remain unequal by gender). Our lack of family friendly policies is unique among developed economies.

Implications

There is one blindingly obvious conclusion and a lot I don’t understand.

The obvious conclusion is that we need a sensible immigration policy. In a country with a fertility rate well below replacement and an aging population rapidly retiring, making sense out of the immigration policy would seem a self-evident move. This is not to say that we could solve all our work force problems this way, let alone that it would be easy. As long as the distribution of welfare around the world is so lopsided, there will be impossibly difficult issues. But the fact that our culture wars have made it impossible to even address this issue suggests that the country may be in the grip of terminal stupidity.

Beyond that, I am confronted by a lot I don’t fully understand about the link between workforce size, economic growth and general welfare. In my reading for this post, it seems economists take it for granted that a larger work force leads to more economic growth. But, even if this is true, is total economic growth the right measure for a society’s economy—as opposed to, for instance, economic resources per capita. It seems to me that in terms of economic wellbeing, the distribution of the economy is relevant; a society with fairly evenly distributed resources might be better off than one with greater aggregate resources that were distributed much less equitably.

All of which, in my mind, leads to questions about how we think about machines replacing people. I know many people who say you shouldn’t use self-service check-out because it takes away jobs. But does this make sense? If as a society we have more jobs available than people willing to take them, shouldn’t we be investing in labor-saving machinery? The case may be more obvious with replacing people at the fry-station in fast food places or replacing truck drivers since these jobs are difficult to fill. But the fundamental question is ultimately the same.

On the other hand, what happens when people who want to keep working are replaced? Presumably the overall economy is just as robust, but putting people out of work will create significant disruptions. How are those people who are displaced reabsorbed into the economy?

And how is immigration factored in? In the short term, it is clear we need immigration to meet the needs of our economy. In the longer term, we might have a situation where we have “too much labor”—that is, more people than we can productively employ given the current economic model. At that point, we might be able to cut off immigration from a strictly economic stand-point, although practical and moral problems would remain. More immediately. we don’t know how far away that is or, indeed, if we will ever reach that point.

In the meantime, the United States clearly has jobs it would like to fill. Since there don’t seem to be people willing to take them—and the trends point in the wrong way—we need a longer-term plan. Unfortunately, our political system is manifestly unable to address this issue. We are surely digging a huge hole for ourselves.