Businesses Wrestle With Blue-Collar Labor Shortage Expected To Extend Through 2030
Low unemployment, among other factors, has resulted in a shortage of blue-collar workers and the situation isn’t expected to be resolved any time soon. While this should lead to bigger paychecks, higher job satisfaction and less wage inequality among blue-collar workers, it also means rising wages and labor turnover that will strain business operations and squeeze profits. The Conference Board has released a study, drawing on a survey of more than 200 human resource executives, exploring the factors behind the labor shortage and how companies are filling job openings.
The study notes that Baby Boomers now fill many of the blue-collar jobs in the U.S., but they are leaving the workforce in droves—a trend expected to continue through 2030. This is coupled with weak growth in the working-age population. The Conference Board warns that the U.S. economy has never experienced a swell of retirements amid near-zero growth in its working-age population.
Further reducing the supply of workers is that while the tight labor market has brought more individuals into the workforce, participation hasn’t grown fast enough to prevent it from further contraction. In addition, men without college degrees are less likely to work. Their declining workforce participation results, in part, from more of them being single, living with their parents and having less of a need to earn an income. The share of people not in the labor force due to disability has also soared to a record high, with a strong concentration in the South and the Midwest.
Instead, more young adults are avoiding the trades and pursuing college degrees. The number of working-age people with a bachelor’s degree continues to increase while those without a bachelor’s degree—those who typically choose blue-collar jobs—continues to shrink. The decline in labor force participation among 16-24-year-olds also significantly reduces the supply of workers in jobs that hire young, less-educated workers. The Conference Board notes, however, that this factor mostly results from more young people attaining higher education, which is a positive from a societal perspective.
As the supply of blue-collar workers shrinks, demand for their services is on an upswing. Among the factors driving this demand is a slowdown in overall labor productivity. Slow productivity growth means employers need to increase employment more rapidly to meet demand, further tightening the labor market. From 2010 to 2019, labor productivity in the non-farm U.S. business sector increased by 0.9 percent per year, on average, compared to two- to three-percent annual growth in the decade prior to the Great Recession.
Manufacturing is the largest employer of blue-collar jobs and over the past decade, its productivity growth has remained essentially flat, after having averaged over four percent annually for the prior two decades. Static productivity growth has helped spur a surge in demand for actual workers to the extent the sector has experienced its fastest growth in employment since the 1970s. The rapid growth of ecommerce has also spurred demand for blue-collar workers, as its surge in activity created increased for a range of jobs, particularly in transportation and warehousing.
This situation brings several benefits to workers, The Conference Board notes. Among them is a rapid increase in wages, particularly among new hires and blue-collar workers. The labor market for jobs that do not require a college degree is tighter than for highly educated white-collar workers, and for the first time in recorded history, wage growth for management and professional workers is significantly lower than for other occupations. The study also shows that, at the same time, rapid wage acceleration for new hires is contributing to historic levels of pay compression and higher labor turnover.
While companies are facing severe challenges in recruiting and retaining workers, plentiful job opportunities and rising wages have contributed to improved job satisfaction for nine consecutive years. Also, the prolonged tight labor market has led to wage gains for those at the bottom of the wage income distribution, resulting in record-low poverty rates for black and Hispanic workers.
On the opposite side of the coin, increased labor turnover is straining business operations. With the voluntary resignation rate well above that in 2007 and the time needed to fill positions reaching historic highs, many companies are operating with unfilled positions and overstretched workforces. In turn, due to the perceived difficulty of finding qualified candidates, employers are hiring less-educated workers, which the study points to as being partially responsible for historically high levels of concern about labor quality. Also, the acceleration in wages and quit rates, along with slow labor productivity, is reducing U.S. corporate profits, a trend that will continue in the coming years as the labor market continues to tighten.
In this environment, workplace diversity has also improved. Part of the labor gain reflects the rising share of women in traditionally male-dominated blue-collar occupations, especially in transportation. Companies are also widening their talent pools to fill positions and increasing their efforts to recruit other underrepresented populations such as minorities, mature workers, the disabled, immigrants, the previously incarcerated and veterans.
In its survey of human resource leaders, The Conference Board identified the actions they were taking to manage the labor shortage. Among the responses, it found that while increasing salaries and wages was the most popular tactic, raising pay helps only to a point. Given increased employment opportunities for workers and the financial constraints companies face, employers must innovate to attract and retain workers.
These efforts include what The Conference Board described as “tactical” HR solutions, as often the biggest difference between companies most and least affected by shortages is that those hardest hit are making tactical changes to the recruitment process. Solutions frequently cited included increasing referrals—51 percent of blue-collar-heavy companies indicated they had added or modified an employee referral program, compared to only 21 percent of white-collar-heavy companies; ramping up social media—increasing social media efforts ranked as the second most popular recruitment strategy (69 percent) among blue-collar-heavy companies, behind increasing wages and salaries (79 percent); and shortening the recruitment process—37 percent of blue-collar-heavy companies have experienced candidates ghosting interviews and subsequently the most affected companies are responding by not requiring multiple interviews.
Companies are also extending outreach beyond the usual recruits. The Conference Board found that 55 percent of blue-collar-heavy companies ranked expanding the target demographic as a key tactic; just 30 percent of white-collar-heavy companies said the same. It also identified what may be a blind spot for employers, as few of those surveyed indicated they were providing new incentives to retain older workers in a full or partial capacity.