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Baby Boomers account for 1 in 4 American workers. As they are exiting in droves, their absence will lead to an even wider workforce gap as companies will need to fill positions made available after the Boomers retire. Check out this article from The Washington Post to learn more: The boomers are retiring. See why that’s bad news for workers.
Who will fill the gap? Here are 3 possible solutions:
Mentorship – Baby Boomers have a wealth of knowledge to pass along. One promising option to help with the transition is the creation of a baby boomer knowledge transfer and replacement program that focuses on senior employees transferring their knowledge before they retire.
Remote workers – If given the opportunity, Baby Boomers as well as other generations who are willing to work remotely, possibly part-time, may also be a solution in some industries.
Immigrant workers – Foreign workers are already filling the gap in STEM fields. According to 2018 data from the Bureau of Labor Statistics, the U.S. workforce increased to 28.2 million foreign-born workers. There are several other fields where immigrant workers can help fill the gap.
Stay tuned for more solutions to the Labor Participation Rate issue!
When analyzing the labor participation rate, you have to look at the poverty rate and public assistance participation rate.
The current poverty rate in Alabama is 14.9%, which’s places us #7 in the nation for highest poverty rate. Given the high poverty rate, it’s important to look at the living wage and average wage rates paid. A living wage varies based on circumstances. For example, a living wage for one person with no partner and no children is going to be lower than it is for someone with a partner and children. Is your organization paying a living wage?
Alabama ranks among the worst when it comes to the percentage of residents receiving public assistance. Approximately 15% of Alabama residents receive SNAP benefits and 20% receive Medicaid or CHIP.
So what does this mean for the labor participation rate?
To enter the workforce and to advance in the workforce, many employees have to consider the impact wages and pay raises will have on their overall finances, and if there will be a negative impact. The chart below is an example of what the benefits cliff really looks like. (Data based on a Tennessee workforce study 2022)
The termination of each benefit creates a “cliff” for the employee at which an increase in wages creates a decrease in total income due to the loss of assistance dollars. Therefore, it may be more financially beneficial for the employee to terminate employment and find a lower paying job in order to keep their state benefits or to exit the workforce altogether.
In recent years, I’ve had multiple clients come to me for advice because they had employees who asked not to receive their pay raise because doing so would mean they lose their state benefits, and losing those benefits would mean that they actually have less income coming in. Some states are moving, or considering moving, to a gradual reduction in benefits versus an immediate loss.
What can employers do to positively impact the labor participation rate for those who are impacted by poverty and the benefits cliff?
Analyze your wages, looking not only at market data, but also the living wage for your region. Then keep your compensation plan up to date, adjusting regularly for cost of living.
Consider what resources you can provide that may not be wages, but may mean more money in the employee’s pocket. This could include things such as childcare assistance, flexible spending or dependent care plans, or even establishing a food pantry.
Understand how state assistance benefits work, what the income cutoff for each benefit is, and how this may impact employees.
Develop training programs to support employees increasing their skills to advance to higher level positions that would increase their income beyond the need for assistance.
What steps has your organization taken to address the benefits cliff?
What is the Labor Participation Rate and how does it impact employers and the economic outlook?
According to OECD.org, “The labor force participation rate is calculated as the labor force divided by the total working-age population. The working age population refers to people aged 15 to 64. This indicator is broken down by age group and it is measured as a percentage of each age group.”
There are many factors impacting the Labor Market in 2023 including the benefits’ cliff, boomers exiting the workforce, the rate of working-aged males declining, women leaving the workforce by the millions and the decline in fertility rates.
One reason some workers are deciding not to work or to stay in low paying jobs is the Benefits Cliff. The benefits’ cliff occurs when an increase in someone’s pay triggers a greater loss in public assistance such as food, healthcare, childcare and housing. This happens because public assistance does not gradually decrease as income rises. Instead, it “drops off a cliff” at a certain income. This leaves prime candidates stuck between a rock and a hard place. Some may be quick to fault those not participating because of this or not participating fully (working less than full time in order to keep their benefits), but these individuals are making an economic decision and a wise one at that.
Next, we have the mass exodus of the baby boomers. Boomers made an economic decision to remain in the labor force during the great recession, causing them to begin exiting the labor force much later than historically anticipated. Now, boomers are retiring at a staggering rate. While we are still living in a work world created by the boomers, they are no longer the primary contributors. According to PEW Research Center, the number of baby boomers exciting the labor force has grown by about two million since 2011. Then, from 2019 to 2020 the numbers jumped by 3.2 million.
Why does this matter? Well, this group is often vacating higher level positions in their companies and the transfer of knowledge can be a challenge. Not to mention boomers aren’t being replaced at the same rate of exit and some who are retiring are passing down tremendous amounts of wealth to their children. This creates children that more than likely won’t be filling their parents’ shoes.
According to The Demographic Drought by Emsi male millennials are the next group that are in sharp decline in the labor force. Males have been AWOL since 1980. With boomers having such wealth, it left men not taking on the responsibility of getting a job until after 20 or moving out of their parents’ home either. Another economic decision. Add in the opioid epidemic, and males of prime age are being taken away from the market. Also, among the Millennials, there has been a shift from full-time work to part-time work. The reason for this says Lightcast in The Demography Drought is video games, yes video games!
Men aren’t the only ones we are looking at here. According to the latest Women in the Workplace Study by Lean In and McKenzie & Company, women are demanding more from work and are leaving their companies in order to get it. Some are referring to it as the “Great Breakup”. In addition, childcare prices are soaring and quality care is a challenge to find. That leads to women taking on the majority of the child care responsibilities. Again, this is another group is making an economic decision. Paying for quality childcare is often more expensive than bringing home a paycheck to cover it, so women are opting out. One report found that from 2020 to 2021 mothers took on the majority of child care responsibilities, spending an average of 7.1 hours per day caring for their children.
Finally, BLS.gov shares that population is the single most important factor in determining the size and composition of the labor force. So, what does that mean for the downward trend in US Fertility Rates? There is a growing number of childless US adults who don’t expect to ever have children. Again, are they making an economic decision not to have children? What impact does this have on the future of the Labor Force Participation Rate? Evidence would point to the conclusion that it will continue to decline under these circumstances.
Many people are making decisions based on a variety of factors, including the economics of working, to opt out of the labor force or not opt for full time participation. What does this mean to our macroeconomic situation? And what does this mean for employers? In order for people to opt to enter and remain, we will all have to think about how to weigh costs and benefits of such decisions.
Supply and Demand. The first lesson of Economics, or at least I remember it that way. The most important lesson of economics as I remember it.
Maybe I’m remembering it wrong, but I think the issues of the supply and demand of labor need to be reinforced when we think about anything and everything that is going on in our world. And one of those things is union activity.
The issues at Starbuck, Amazon, UPS… the list goes on and on about union organization and in the media seems on the surface to be about wages, benefits, and the overall treatment of workers. As Jillian pointed out in our last post, People want to be valued and listened to. They need to feel like they have some sense of control over their lives, and that includes at work. Many employers don’t offer that. When people don’t have this at work, they aren’t happy.
But none of that matters from a union sense if only one person feels that way. Many people have to feel that way. And when many people feel that way and there aren’t enough people to go around to fill the demand for labor, they have power. Or in union terms, they have “collective bargaining” power.
And right now, there aren’t enough people to go around to fill jobs in many industries both in terms of the actual number of human beings available and or in terms of a desire to work in certain jobs or industries. And it is only going to get worse.
This challenge is not unique to the United States. Boston Consulting Group’s The Global Workforce Crisis- $10 Trillion at Riskhighlights the differences in labor supply and demand by country (both Germany and Japan are experiencing particularly acute issues with labor supply). Whereas some countries are currently experiencing a higher level of supply than demand, the piece emphasizes that by 2030 most countries will experience labor shortages. BCG postulates that this issue could result in $10 Trillion in GDP not created.
So, when there is more of a demand for labor than there is supply, employers better pay attention. We would hope they don’t have to pay attention because they are treating people like people. But when they aren’t, the most important law of economics will bite you. Workers will all leave and go someplace else, because someone else needs them, because there are more jobs than people available to fill them.
We can be distracted by the media saying artificial intelligence (AI) is going to take over all our jobs, but the data doesn’t show this. We may need to retool ourselves for the jobs of the future, and that may be where employers need to be focused to not only help with labor supply issues but also to employee engagement issues. Both impact union activity.
What are you doing to impact labor supply and union activity?
School is starting back, and that means I’m collecting the latest news on union activity – good, bad, and ugly – for a college-level labor relations course I’m teaching. Each of us at Horizon Point has a unique perspective on the union landscape through our work with various clients and projects, which we’ll be sharing in a series over the next few weeks.
I’m kicking us off with a look at union activity right here in our North Alabama region, featuring a snippet from the 2023 Wage & Benefit Survey. When asked if any employees are represented by a union, only 3% of participating companies said yes:
All of these companies are in the manufacturing industry. Is that surprising? Why or why not? (I won’t grade you on it!)
In the same wage survey, we ask questions about pay practices, compensation, and benefits – these factors contribute to employee satisfaction and whether or not they’ll seek unionization. You may have noticed that big names like Amazon, Starbucks, and UPS have been making news for employee union activity and the sometimes less-than-stellar response from corporate leadership. Workplaces are more advanced than ever before, but sometimes labor practices don’t keep up.
SHRM recently published “The Evolution of HR and Labor Relations” for the Summer 2023 edition of HR Magazine. The biggest takeaway for me? The last sentence:
“The worker of today isn’t so different from the worker of yesterday in terms of their core human needs,” [Steve] Bernstein says. “What people really want in the workplace is to be listened to, to have access to decision-making and to be in a position to at least influence their workplace.”
Stick with us over the next few weeks as we explore further the changing (and stagnant) trends around labor relations and why it matters for YOU.
