Perspective on the “tug-of-war” in today’s labor market

Workforce development professionals describe a bifurcated reality for their clients in the Ninth Federal Reserve District: experienced job seekers have never been easier to place, but lots of willing workers are still stuck on the sidelines. Meanwhile, employers stumble in their efforts to grow and maintain their businesses.

The Federal Reserve Bank of Minneapolis recently interviewed 34 executives and staff members from 17 workforce organizations. Our interviewees represented nonprofit or public agencies that connect people who are looking for work to employers that are looking for workers. These organizations also offer supportive services like job or skills training, access to computers, or case management for public benefits.

We reached out to these organizations in late February and early March as part of our ongoing efforts to understand how the economy in the Ninth District is working. Those efforts also include job-seeker surveys and focus groups with low- and moderate-income households.

During our workforce interviews, we heard about unaddressed barriers and potential avenues of support for job seekers and employers alike. We use our findings, summarized here, to help inform the Fed’s policymaking processes and the efforts of other entities focused on workforce challenges.

Smaller workforce but bigger demand for services

We conducted our interviews as communities across the country face labor scarcity. Reflecting labor force losses from the people of working age who died of COVID-19, accelerated retirements, and reduced immigration, the nation’s workforce has about 3.5 million fewer people in it than economists might have expected before the pandemic. Every state in the Ninth District has more job openings than unemployed workers and, aside from Michigan, relatively high labor force participation rates.

Competition for workers is tight. One interviewee said their workforce specialists used to be among the first people to talk to newly unemployed workers after companies announced big layoffs, but now, “other employers are already talking to those workers before we can.”

Despite the tight labor market, interviewees mostly described growing caseloads. The appeal of higher wages, combined with the financial strains caused by inflation, inspired more already-employed clients to seek out workforce organizations for better opportunities. Changes at the organizations themselves, such as new partnerships, more in-person outreach, and increased financial resources, also drove case numbers higher. And investments in hybrid delivery approaches have enabled more people to access services from afar, and during non-traditional hours.

“Before, people who were already working couldn’t take time off to come to us for services,” explained one workforce organization leader. “Now, they can just meet with us virtually on their lunch break.”

“Missing” workers and shifting mindsets

Workforce organizations are seeing shifts in the ways job seekers are approaching the labor market. A few interviewees noted that the challenges they see today are markedly different from the ones they saw during the Great Recession. Older workers are increasingly seeking out our interviewees’ services, reflecting long-term national trends. Interest in part-time work is increasing. Already-employed people seem more likely to hop to new jobs for higher pay or better working conditions.

Describing their clients who are still struggling in their search for work, every interviewee brought up housing, child care, or transportation as “one of” the biggest barriers. That parallels other national and local survey data. There are always workers “missing” for such reasons, but some interviewees argued that COVID-19 and its connected economic trends have exacerbated the issues. In communities across the Ninth District, child care providers have shut down, housing construction has been slowed by labor shortages and material costs, and gas prices have challenged commuters.

“There’s a misconception right now that there are so many jobs and so many opportunities,” one interviewee said. “But are those opportunities really available to everyone in the community? If [a job seeker] has barriers and walls around them, it doesn’t matter how many opportunities there are.”

Some workforce leaders also wondered if the pandemic shifted workers’ mindsets. Are people less willing to commit to an employer long-term, or spend their time and money on long commutes and child care, after spending months at home, making do with reduced incomes, and weathering all the challenges and loss that came from the pandemic?

“We’re seeing a population of individuals who want to work on their terms and conditions and what meets their ‘happiness level,’” said a workforce organization director. Others argued that many people who might work low-wage jobs found a way to get by during the pandemic with less household income—and those same people found they preferred to make do with less as opposed to working for low wages.

“The pandemic changed people’s sense of self-worth,” said a workforce program leader. “[Service] workers felt disrespected during the pandemic. To them, the pay today isn’t worth the effort it takes to get their job done anyway.”

Other interviewees noted that they have harder-to-employ clients who often struggle with soft skills, drug addiction, and mental health. Some described a disconnect between these clients’ needs and the services allowed under workforce-oriented grants or funding.

Adapting to attract—and keep—more workers

On the employer front, our interviewees help businesses adapt their recruiting and hiring methods to the current market. As one interviewee put it, workforce organizations can help employers understand how to market their open positions.

“Today, an open job is a commodity,” said one workforce organization executive. “You need to think about what your job posting says about the culture at your company, and you need to tell people why they should work for you.”

Interviewees noted that employers can also expand their pool of potential employees by thinking about how to make jobs more appealing to a broader set of workers. Even slight changes can bring in more applicants. For example, employers may post jobs with requirements that aren’t essential and that make the opportunities inaccessible to people with disabilities.

“We’re constantly asking things like, Could this position work for someone with a disability if they can do 80 percent of the job?” said one workforce program manager.

In other cases, interviewees named employer-provided supports that may improve recruitment and retention. They told us about employers training their human resources departments to better connect new workers with information and assistance, hiring managers who speak multiple languages, or ending a bias against people with a criminal conviction. More employers are expanding their applicant pools by offering to train people for jobs, noted one workforce organization executive. “If you ask me how many certified forklift drivers are available, I’d tell you, ‘not many,’” they said. “If you ask me how many people are out there who could be trained, quickly, to be a forklift driver, I’d tell you, ‘a lot.’”

On-the-job training also makes employers stand out in a crowded field, they continued. “[Job seekers] look at [on-the-job training] and see that an employer is willing to invest in them, and that’s a good feeling.” Another interviewee noted that on-the-job training benefits lower-wage workers in particular, as they don’t have to take time off or lose out on their already-limited income in order to gain skills.

For employers, getting people on their payroll is only the first challenge. Multiple interviewees said turnover rates among new employees are high. About a third of interviewees said current workplace cultures reduce employers’ ability to find or keep employees. Sometimes these cultural barriers are about the way work is done—but other times, they can be about something more personal.

“I’ve heard from employers in meetings that they only want people who fit in with the ‘local culture,’” said one interviewee, whose organization serves a geographically large rural region. “If they’re saying things like that to me, imagine what they’re saying in private.”

Where job seekers and employers are like ships in the night

There are some challenges job seekers and their would-be employers can’t reconcile. Most interviewees said workers are interested in working at home, or scheduling hours around family obligations. A Fed survey of job seekers in the Twin Cities found that half of them ranked the option to work at home among their top three motivations to look for work.

But this desire does not align with most open jobs or the skill sets of most job seekers, one interviewee explained. For many job seekers, technology can still be more of a hurdle than a tool.

“Lots of people got access to computers during the pandemic,” said one workforce organization program officer. “But they didn’t necessarily know how to use them.” Individuals might struggle to write resumes or fill out applications online.

Some employers continue to post what interviewees called “low-quality” jobs, despite the overall market trend toward increasing wages. As one interviewee put it, “If someone calls us with a job that pays $10 an hour with limited opportunities, I won’t pass it on to my clients. And even if I did, I’d tell them it probably isn’t in their best interest to take it.” More than half of our interviewees noted that compensation was still a primary reason job seekers decline open opportunities.

Weighing risks of losing the safety net

Interviewees noted that the public policy environment can influence the labor market—particularly the social safety net. About a quarter of our interviewees noted that low-wage workers must also navigate a benefits cliff. That is, as some people earn more money, their new income can be offset by loss of eligibility for public benefits. In some instances, this can leave a person worse off financially in the short term. In other cases, the perceived risk of losing benefits that have waiting lists—such as housing vouchers or child care subsidies—can give a low-wage worker pause before they pursue a new opportunity.

One workforce organization executive noted that in the first half of 2023, their state’s child-care-subsidy family co-payments would rise significantly. At the same time, health costs for low-income households would rise when a temporary Medicaid expansion expired. Out-of-pocket food costs would rise when emergency SNAP (Supplemental Nutrition Assistance Program) payments would end, even as food-shelf visits and other indicators of economic distress are high in many states. This executive noted that workers who are already struggling financially would face more challenges to their ability to have healthful, stable lives that make participation in the labor market more achievable.

Ending the tug-of-war

The workforce professionals we interviewed described people who have streamed through the cracks in a tight labor market. Interviewees spoke of individuals who want to work but think they can’t because of caregiving responsibilities, disabilities, criminal records, a lack of work experience, and other obstacles that can feel insurmountable.

Workforce organizations can provide valuable services to help their clients overcome some of these obstacles. Employers can act, too—and, according to one interviewee, may have the most important role to play in bringing more people to the labor force.

“There’s got to be a shift in how employers do business and what kind of life they’re willing to give employees on a day-to-day basis,” they said. “Until that shift happens, there’s going to be a tug-of-war … there will be a constant battle to get enough employees.”