Labor Shortage Explained

         Recently, we have witnessed a strange situation in regards to job availability. The construction industry has a very hard time finding employees to fill its vacant positions. Though this crisis is not unique to the construction sector, it seems that we are one of the hardest hit. The great labor shortage is also not specific to a country or state, but appears to be generalized. But why is that? What caused it? What will be the consequences of it? Is it here to stay? This text seeks to explore in depth the question of labor shortage in the construction industry and answer these questions.

 

The Unemployment Rate

         One of the aspects that is the strangest today is that the unemployment rate remains quite high. Economists don’t agree exactly on what the optimal unemployment rate should be, but it certainly is not 0 nor is it 20%. To give you an idea, during the great depression of the 1930s, the unemployment rate was close to 30%; meaning that almost one in three people were out of work. Today, the rate in Canada is around 8% whereas in the US it is closer to 6.5%.

         Politicians like to boast about low unemployment rate numbers but believe it or not, low unemployment doesn’t necessarily mean a prosperous economy. The NAIRU is a term that you might have heard recently. It is an acronym for the Non-Accelerating Inflation Rate of Unemployment. Ok, so what is it really? Well, an economist by the name of William Philips found that there was an exponential correlation between the unemployment rate and the rate of inflation. The lower the unemployment rate is, the higher the rate of inflation will be.

         It is impossible for an economy to have an unemployment rate of 0 since there will always be a few people out of work. These people could be in transition from a job to another, at school waiting to begin on the job market or unable to work.

         But what a low unemployment rate results in concretely is what we are seeing right now: fast food chains offering bonuses, opportunities to grow people’s career, etc. That’s great isn’t it? Well not necessarily. The cost of employment is bound to increase due to its rarity (that’s econ 101 for you). Basically, since the demand for employees is so high and the supply low, a surge in price occurs. This increase in price is then transferred to you and me, the consumers. That’s why groceries are increasing in price and the cost of living in general is gradually ascending. That is the NAIRU point, where the unemployment rate starts to have a major impact on the inflation.

         That being said, what are the root causes of the labor shortage? As anything, it’s hard to pinpoint an exact reason, but this one is mostly because COVID. When the pandemic first hit, a large wave of people found themselves unemployed, so governments across the world implemented stimulus packages and fiscal advantages to keep companies afloat. As people became more used to the new norm, they returned gradually on the job market. The demand though almost never fell. You can also add to that the fact that the governments have maintained artificially the interest rates very low to encourage consumers, which resulted in a major boom in the housing market.

         The construction industry was already in the midst of a labor shortage before the pandemic, but COVID hit the nail right on the head. The demographics of the construction industry was and is quite dangerous. The average age of the construction worker is high, so a lot of people are retiring, and the younger generation is not coming in to fill these positions. What lacks most is the skilled workers, those who require some education before entering the workforce. Part of that is due to a social bias, where schools and parents tend to push their kids to go to college and High Schools in the US are often funded based on the number of students accepted in college. What we are also seeing is that due to an increase in technology, the workforce has to be more qualified and trained.

         But the unemployement rate isn’t that low, why then is it so hard to find people? Well, that could be in great part attributed to mental health issues due to the confinement as well as the jacked up Employment Insurance. These make it quite hard for people to get back on the horse and so what we attribute as being the low employment rate number is higher than usual.

         It is not all bad though. These things are cyclical, so as the inflation rises, people can’t afford luxury as much and the demand lowers and so does the prices. These crises also push us to innovate and look for alternative measures to boost our productivity. Products like the FramR (Yes I’m shamelessly plugging our product!) can help increase productivity thus lowering the need for a highly qualified worker such as a tracer.

         If you are an employer who has difficulty filling in positions in your company, know that you are not alone. An option for you is to find new innovative ways to promote your business, such as referral bonuses, bonuses if the employees stay a certain amount of time, opportunities within the company to grow. If this interest you, we have a whole article dedicated to this subject. In the meantime, you have to ride the wave and keep your head above water. Your competitors are in the same position than you and rest assured that this situation remains temporary.