How can we fix the labor market?

Published January 12, 2023

By Michael Walden

There are several worries about today’s labor market. The first is the on-going “labor shortage.”  The percentage of adults who are working or looking for work – termed the “labor force participation rate – has substantially recovered from its low during the pandemic, but it has not fully recovered. If the same labor force participation rate that existed prior to the pandemic was applied was applied today, there would be over 2 million more adults in the labor force nationally and 46,000 more in North Carolina.

The second concern is the possibility the labor shortage will only worsen in the future. Lower birth rates are causing slow growth in the nation’s population and workforce. North Carolina is in better shape due to the large number of people who continue to move to the state from other states. But even with this interstate in-migration, North Carolina’s prime labor force – considered to be adults aged 25 to 54 – is projected to increase by less than 1% annually in future years.

The last worry is about skills. Will the education and training of our workforce be sufficient to provide workers the skills needed for future jobs? This question is made even more important as the nature of jobs and the skills required for those jobs rapidly change as technology takes on a more important role in shaping the economy.

The good news is that total jobs in North Carolina are actually 6% higher today than immediately before the pandemic. But this growth in jobs is 25% less than the state’s economic expansion over the same time period, resulting in two job openings for every unemployed person.

One way that businesses in our state have responded to the labor shortage has been to substantially raise wage rates. Since the last month prior to the pandemic in early 2020, the average wage rate in North Carolina is up 17%, actually slightly higher than the total inflation rate over the same period of 15%.

Interestingly, the sectors with the highest wage gains have been those with moderate or low pay scales, including leisure/hospitality, personal services, and construction. These sectors increased their wage rates by between 22% and 25% from early 2020 to late 2022. But while construction saw its workforce increase 8%, jobs in leisure/hospitality only expanded by 3%, and personal services jobs increased a modest 4%.

There is an important take-away from these results. While sectors like leisure/hospitality and personal services have significantly raised their pay, it may not be enough, especially in a growing state like North Carolina where jobs in better paying sectors are expanding and labor supply will continue to be tight. Firms in these sectors will need to decide if they can afford to pay even more. If the answer is “no,” then we may see the firms turn to technology to replace humans in the accomplishment of work tasks.

Nationally, college enrollments are expected to decline in coming years. With a downward trend in the number of high school graduates in North Carolina, there is concern the number of college students in our state may also drop. Together with on-going concerns over college tuition and student debt, the role of colleges and universities in training future workers could be on the verge of changing.

Indeed, with the potential need to re-train thousands of workers for new skills needed in the post-pandemic economy, universities and colleges may be motivated to step up and expand their program offerings to adults who are in-between occupations. 

Such programs will likely be much shorter than the traditional four-year degrees common to higher education. Many adult students will have family and other responsibilities that make quick re-training a necessity. Degree programs will therefore be shortened to meet this need.  The result could be that future universities will no longer be dominated by 18–24-year-olds.   “Middle-age” may ultimately be the common description of future college students.

Let me close by being very futuristic. While today’s labor market issues will likely prompt changes in businesses and in educational institutions, advances in interactive technology may create entire new methods of both education and of work.

The pandemic caused an explosion in computer technology for learning and interacting. During the pandemic, “zoom” classes and meetings offered ways to learn and meet without personal contact. While not as prominent as during the peak of Covid, “zooming” has continued after the pandemic due to its advantages in convenience and cost.

A big disadvantage of zooming is the inability to directly interact with other persons like company colleagues, other students, and instructors. Yet, futurists say it is only a matter of time before technology overcomes this limitation. From the comfort of your home, technology would create duplicates of yourself – called “avatars” by some – that provide sensory experience from a distant location directly to you.  It’s like you being there! Such a capability could enhance both learning and working, even from long distances.  Versions of this technology already exist.

The labor issues we see today may be a bridge to new ways of learning and working in the future. Decades from now, people may look back and consider our current educational and work methods to be exceedingly primitive.  Sound exciting, or scary?  You decide.

Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.