The Post-Pandemic Labor Market Deficit

Forecasts suggests that some people may be reluctant to return to the labor market. Employers may need to change their approach to address workers’ post-pandemic concerns to navigate the labor market successfully.

As of March 2021, the labor force was almost 5 million people smaller than it was in March of 2020 due to the pandemic. The forecast remains as much as half a million lower through the entire forecast horizon.

Here are three reasons why we might see a smaller labor force going forward:

  • Slower Population Growth – The US State Department issued only 240,000 new immigrant visas of all types in fiscal year 2020, about half the 460,000 issued in fiscal year 2019. Foreign-born residents are slightly more likely to participate in the labor force. This is only a fraction of those 5 million missing workers. However, it’s also the most likely way that the United States can increase the growth rate of the labor force in the future.
  • The Childcare Deficit – The pandemic illustrated how much the economy depends on schools and daycare to allow people with children the ability to work. The labor force participation rate of people with children under 18 fell by one percentage point in 2020, representing about a million potential workers. Although schools are not primarily for childcare, the pandemic demonstrated that the availability and productivity of many workers depend on children being in school. These workers are likely to return to work this year, if they haven’t already, due to reopening of schools and daycares. The return of those who left the labor force to take care of relatives other than their children is more uncertain, and while we don’t have estimates of this group, it is likely to be small.
  • A Retirement Surge – About half of the decline in the labor force was accounted for by people over the age of 55. The participation rate for these older workers fell almost two percentage points. Although the 55+ cohort made up less than a quarter of the labor force in 2019, before COVID-19, the Bureau of Labor Statistics had been expecting this group to grow more rapidly than the population as a whole and to account for 63% of the total growth in the labor force between 2019 and 2029. COVID-19 has clearly reduced the participation of the current older workforce. Moreover, recruiting older workers presents two problems for employers.
  • Older workers are more likely to have taken early (or perhaps even not-so-early) retirement. Employers may, despite this, be able to entice some of these workers to return to work. But it will take some effort and imagination on the part of recruiters to convince people to come out of retirement once they have gotten busy with grandchildren and hobbies.
  • Older workers are more likely to be affected by COVID-19, and they know it. They are, therefore, likely to be more sensitive than younger workers to risks associated with a return to work. Hiring managers who want to re-employ older workers will need to take those concerns into account to successfully entice older people back to work.

While a permanent decline in the labor force after COVID-19 may be inevitable, employers can take steps to mitigate this issue.  nextSource recommends:

  • Look for new ways to expand access to talent such as curating talent communities and utilizing new technology resources to find talent.
  • Develop hybrid models for office return, leveraging the remote collaboration tools implemented during the pandemic to help improve the flexibility of work and as a “safer” option for those with heightened concerns (I.E., 55+ community)