In previous posts, we’ve touched on the labor shortage in specific industries. In this article, we plan to take this topic one step deeper. Jobs is a big and complicated topic to tackle in a newsletter let alone as second fiddle to another topic. 

Job Losses During the Pandemic

Prior to the pandemic, the number of people who were temporarily laid off stood at 640k. That number skyrocketed to over 18 million in April 2020 as lockdowns were enforced nationwide. Workers hit hardest were the ones working in leisure and hospitality. This is a very broad industry ranging from restaurants to hotels but most of these jobs had an element of human contact in common. It made sense that these were the types of businesses that were negatively impacted in our efforts to tamp down the spread of Covid. Whether by government orders or general fear of catching Covid, travelers, diners, or just people in general were not leaving their homes. Hindsight suggests we could have done things differently and possibly allowed enough time for these businesses to adapt but we’re here to explore what actually happened…because it happened. 

Stimulus Payments

The government made payments not only to the recently displaced workers but also made payments to everyone with a pulse. This allowed the Treasury Department to deploy the cash quickly and directly into the hands of the US population. We agree that some form of direct cash injection was needed, as opposed to the response in 2008 where money went to the banks. It was a matter of how much stimulus was needed. Not only with the government response, but the Federal Reserve also dropped rates to zero over the course of a single night. Now we had dual quantitative packages which were designed to stave off a severe recession. It worked, and most likely justified shutting down our entire economy for a period of time. Sprinkle in enhanced unemployment benefits and aggressive bond-buying, we suddenly had the biggest stimulus that we have ever had in American history. 

The US deployed roughly 26% of our GDP in the form of stimulus packages. When it was all said and done, our GDP shrank by 15% where it bottomed in April of 2020. The tally so far is over $4 trillion.

It’s easy to look back and say we took a bazooka to a knife fight. I’m also writing this with the pandemic lockdowns two years in my rearview mirror. In 2020, more than 80% of polled Americans wanted a monthly stimulus check. Just as recently as last year, an overwhelming majority of Americans supported the second stimulus package of $1.9 trillion. Vaccines were only starting to roll out and were being rationed very tightly. Uncertainty of the pandemic was still very high until recently. 

The majority of stimulus recipients spent that windfall on paying down debt or increasing savings. This sets the table for what comes next. Having more financial freedom allows some job hunters to wait out for better offers, even if just for a few weeks. 

Part of the stimulus was enhanced unemployment payments, which some states cut off in the summer of 2021, citing the need to get people off the couch. 26 states ended the unemployment benefits early and found that it did not bring people back to work.   

The Great Resignation

47 million people quit their jobs in 2021, compared to 42 million in 2019 which was the previous high. The biggest shifts occurred in leisure and hospitality, retail, and professional services (white-collar jobs). To see hospitality and retail shifts makes sense. Those workers had rough working conditions with typically inconsistent work schedules. Many workers didn’t get their shifts until the week before which is disruptive to childcare needs or other planning, and this was before the pandemic. The general narrative was that these workers were simply tired of poor treatment and were looking for something better. 

We should dig further into professional services. This is a wide-ranging group, but their skillsets should be the most transferrable. A project manager for a finance firm can probably project manage at a law firm and still do reasonably well. The reasons for leaving their jobs probably aren’t the same as the restaurant worker, outside of the long hours. Some quit because their jobs wanted them back in the office and they could do just as well working remotely. The sense of trust wasn’t there with their former employer who now has to offer more to attract a replacement. 

Employees have suddenly found a collective wakening and are looking for greener pastures. We’re playing a game of musical chairs where it can take years for the music to stop.

Job Satisfaction

Revisiting the industry impacted most by lockdowns, leisure and hospitality workers were already reporting a disturbingly high dissatisfaction rate at their jobs. Restaurant workers report long hours with low pay. Throw in post-pandemic shifting, the employees who chose to stay at their current jobs are carrying a heavier burden as many of their coworkers left. The cycle continues as understaffed restaurants receive the ire from patrons who forgot how to act in public. We have all probably seen viral videos of a customer berating a restaurant employee, and it’s probably safe to say this mistreatment of restaurant workers has gotten worse. 

Across all industries, many companies are making the effort to improve, which includes higher pay, better benefits, discounts, and stable scheduling. Some workers have left their respective industries in search of all of the above. This could be their window to go after the job they’ve always wanted, one that is hopefully a better fit for their work-life balance. 

Teachers are another area of concern. 65,000 public education employees left the profession in September and October of 2021 alone. Schools have had to reinstitute remote learning and remove school days to make up for staff shortages. Every industry is facing shortages like this, but less schooling has near-term and long-term ripple effects. Parents will need to find alternative daycare solutions or stay home on days when schools are closed. 

Business Starts

An unfortunate consequence of shutting down everything is many small businesses will struggle without proper cash flow. Restaurants have notoriously thin margins where missing just a few days of business can swing them into deficits. Many neighborhood institutions have shuttered for good which leaves opportunities for others to build something of their own.

In the past two years, new business starts have set consecutive records. 4.4 million business applications were filed in 2020, 5.4 million applications were filed in 2021. Sure, some of the shuttered businesses will rise from the ashes but the data suggests that workers are creating something of their own, too. With opportunities abound and money that’s easy to access, it does look like the economy will continue to grow through small businesses. 

The chart below from the US Census Bureau shows the number of total applications broken down by “high propensity” and “other”. The majority of businesses start as a dream but typically end there. “High propensity” measures a business’s ability to get off the ground and actually start paying workers. The spike in overall and high propensity applications is a very encouraging sign. 

This doesn’t capture the number of people starting a business from their house, at least not yet. This will take a few years to unfold but the spirit of American entrepreneurship typically blossoms right after tough periods. 

Creating a business is tough business. The applicants who are unsuccessful will most likely return to the workforce or stay retired. We celebrate their courage to try something new. After all, it is small business and small employers that power jobs in America. 

Hiring Practices

In addition to offering better pay, companies have gotten creative in their hiring to encourage more applicants. Besides remote flexibility, companies have offered hiring bonuses, and perks for vesting milestones in an effort to attract and retain talent. Even as companies scramble to attract talent, they aren’t just hiring anyone with a pulse. Unfortunately, we’re seeing bias in age when it actually comes to hiring. About a third of those considered as long-term unemployed are 55 and older, the largest of the group looking for a job.

Whether implicit or explicit (hopefully not, for legal reasons), companies have gravitated towards hiring younger candidates. Some job listings plug-in requirements such as “social media savvy needed” or “recent college graduates” to skew the applicant pool younger. Some go as far as screening contact email. If a candidate has an email from AOL or Yahoo, they’re most likely being removed from consideration.

Social media posts are reviewed as part of the hiring process too. Any red flags could be potential exposure for companies who don’t want to deal with publicly available opinions of their employees. In the current interconnected and hyper-aware environment we’re in, the last thing CEOs want to address is an employee’s militaristic opinion on toilet paper shortages at their local grocery store.  

Demographics

The Gray Wave started in 2010 when the first of the Baby Boomer generation turned 65. Being previously America’s biggest generation, this was going to be a seismic shift in new retirees. Only it wasn’t quite yet. Baby Boomers were woefully unprepared for retirement because their savings rates had generally been insufficient. Like their parents, much of their wealth had been disproportionately tied to their homes. 

Imagine it’s the year 2006, things are going great, and you aim to retire in just a few years in 2010. Home values are going nowhere but up and your rental property is generating positive cash flow. Fast-forward to 2008 and many “retirement” plans are down the tubes along with the rest of the economy. Delaying retirement was not uncommon for the ones lucky enough to still have a job. To be fair, anyone who had a misaligned retirement portfolio in the stock market wasn’t doing well either. 

Now more recently, savings have recovered, and the housing market is looking strong again. We’re in the heart of the Gray Wave with many planning to retire this decade. The pandemic condensed several years of planned retirements to just two. Anyone who was anticipating retirement in 2023 probably had a chance at early retirement due to severance, early retirement packages, selling a suddenly appreciated home, and stimulus checks. This is an amazing windfall for any near-term retirees. Congratulations.

The remaining working labor force needs to continue to grow to backfill the recent retirees. Assuming those vacated jobs aren’t absorbed or automated, the sudden rush of retirees creates a vacuum. 

The birth rates in the US have been in steady decline for more than a decade. Actually many countries are not growing through births. We probably don’t need as many farmhands like we did in previous generations. If this keeps up, there won’t be enough new workers to replace outgoing workers.  

Prior to the pandemic, the US had started to tighten its borders and limit immigration. The shrinking immigrant population accelerated when the pandemic hit, and we closed international travel. Regardless of political viewpoints here, the hard fact is immigration is a vital component to population growth and available labor. 

Work Outlook

Higher pay is a part of attracting and retaining talent but other benefits are increasingly getting more focus. More millennials compared to baby boomers are seeking out flexible work schedules and locations. Some of the more nimble employers have started a variety of programs such as uncapped vacation, mental health days, surprise trips, onsite daycare, paid volunteer work, and gym memberships.

The millennials are the first generation to be able to work and communicate digitally. Many of them had been preparing their whole lives for this new world that seems so normal to them. AOL instant messenger was one of the biggest forms of communication, so much so that when it shut down in 2017, it was eulogized. There have been many iterations of instant messenger type communication since 1997 which allowed such quick adoption to Zoom and Slack. 

The idea of work had already started to change where younger generations weren’t as willing to sit in traffic, drag themselves to their cubicle, and plug away mindlessly at a spreadsheet. A few tech companies that were typically run by Gen Z saw this and drastically made changes to fit their vision of work. See Google.

The distancing from pay has made workers less attached to their employers who only relied on salaries as a mode of retention. The idea that work is one of the biggest parts of our identity is starting slowly fade. 

Humans have now found creative ways to generate income where even in my wildest imaginations would never think possible. Viral video stars making very good money by dancing or playing pranks on unsuspecting strangers is still beyond me. Gig economy workers are defining when they work down to the minute. Podcasters are presenting the news, sometimes better than traditional news! Doctors are meeting patients through video chat. Blink and we’ll realize the world has already changed and will continue to evolve. Work is the current frontier that pioneers are finding their niche.  

Disclosures

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

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