The Current U.S. Labor-Market Conundrum

GORDON REPORT, February 2024
By Edward E. Gordon, Imperial Consulting Corporation

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The February 2024 BLS jobs report showed a surge of 353,000 jobs added in January, more than double than what was predicted in economic surveys. This follows a gain of 330,00 jobs in December. Another surprise in this February report is that average hourly wages grew rather than holding steady. Over the past year they have grown 4.5 per cent. What factors may be behind these unexpected numbers?

An average of 10,000 workers from the large baby-boomer population have been retiring each day. This year the average will grow as the baby-boomer retirements peak. This flood of retirees will continue until 2030. Therefore, this year and until the end of this decade, many job openings will arise from the need to replace retirees.

In at least some sectors of the economy, it appears that employers are raising wages to find workers with the skills they need. Chief Economist Bill Dunkelberg of the NFIB (an association of small business owners) reported on their January survey, “owners continue to raise compensation to retain and attract workers with the skills and willingness to do the job, but hiring remains a struggle in a tight labor market.” So far, this strategy has not been very successful. In that same survey 39 percent of the respondents reported having unfilled job openings. Members of the Association of General Contractors also have high levels of unfilled jobs despite providing a wage premium of almost 19 percent over that of the average for private-sector production employees.

In some cases, higher wages may attract people who have not been participating in the labor force to seek a job if the pay level would offset the costs of childcare, a long commute, or obtaining additional training. A recent Korn Ferry survey of job seekers, however, found that many applicants do not have the skills required for open jobs. In some case this is due to the development of new types of jobs with recently updated skill sets.

The above data points to a current labor market with a significant skills-jobs mismatch. But the Training Industry Annual Survey of 2023 reported that business investment in employee training remained flat. Going forward, predictions are that companies will cut their training budgets. The irony is that one way or the other business will have to pay more to find skilled workers either through continuing to raise wages or by investing in more in-house or collaborative training programs.