A recent WALL STREET JOURNAL article talked about the effect the COVID-19 pandemic had on unemployment and staff availability.

The pandemic has caused worker availability to drop — either through absenteeism, voluntary resignations and / or enforced leaves (due to low production demand or quarantine policies). Hiring new workers or replacements should not be an issue, due to the prevailing unemployment rates ... but workers are still hard to find. Let's look into some possible reasons why this is happening.

Definition of Unemployment

The International Labor Organization (ILO) quotes the following definition of unemployment: According to the Resolution concerning statistics of work, employment and labour underutilization adopted in 2013 by the 19th International Conference of Labour Statisticians (ICLS), the standard definition of unemployment refers to:

(A)ll those persons of working age who are:

• without work,
• seeking work (carried out activities to seek employment during a recent past period), and;
• currently available for work.

Future starters, that is, persons who did not look for work but have a future labour market stake (made arrangements for a future job start) are also counted as unemployed.

Source: ILO

Now let's look at some unemployment rates for 2020, to give this concern some context. The figures below represent people that are actively looking for work (and are not working) in their respective countries.

Selected 2020 Unemployment Rates

• North America: United States: 8.31% / Canada: 9.48%
• South America: Mexico: 4.71% / Brazil: 13.67%
• Europe: Germany: 4.31% / France: 8.62% / UK: 4.34% / Italy: 9.31% / Spain: 15.67%
• Africa: Egypt: 10.45% / South Africa: 28.74% / Niger: 0.69%
• Middle East: Saudi Arabia: 8.22% / Iraq: 13.74% / United Arab Emirates: 5%
• Asia: China: 5% / Japan: 2.97% / Thailand: 1.02% / Philippines: 3.36% / Russia: 5.73%
• Oceania: Australia: 6.61% / New Zealand: 4.55%

Source: WORLDBANK / ILO Total Unemployment Estimates

All the countries mentioned above, with the sole exception of ITALY, experienced an increase of unemployment levels from 2019 to 2020.

Italy was one of the first European countries to enter a lockdown due to COVID-19 — and the impact of the lockdowns on GDP and industrial production was so significant, that a sizable number of Italians stopped looking for work.

Using the definition stated above, once people stop looking for work, they are no longer deemed unemployed. So one thing to keep in mind when evaluating unemployment figures is that unemployment numbers are computed by determining the ratio of employed vs. those seeking employment during a specified period.

Therefore, the drop in unemployment in ITALY actually did not reflect an improvement of employment conditions, but rather a degradation of the overall job-seeking environment.

Now, unemployment can be somewhat explained by the overall economic environment during the COVID-19 pandemic; including recent company and business closures — due to flagging or much reduced demand — but what about the low staff / worker availability? Let's look at some of the possible reasons behind unemployment and low worker / staff availability, and see if there is a strong relationship between the two:

Reasons for unemployment:

• Nonexistent consumer demand (for some self employed workers and professionals) — it is important to note that some industries experienced a large spike in demand during the pandemic (e.g. delivery services, health services, online services)
• Companies closing / short staffing / retrenching due to low demand / sales
• Low staffing requirement, due to low production caused by limited material and part supplies
• Employment contracts not being renewed / Organizations not hiring
• 'Seasonal Unemployment'

Reasons for few (available) workers:

• COVID scare (unwilling to report for work)
• Stricter work (pandemic-related) policies, such as government-imposed quarantines, social distancing and shifting
• Health-related issues: Worker either is sick, under quarantine or needs to take care of someone who is sick
• Work elsewhere pays better / has better benefits / easier / less risk
• Workers already employed
• High demand

Although both issues are of concern, the “few workers” (aka Worker Drought) issue is a more pressing concern, as it goes against the expected increased in worker availability due to higher unemployment.

Few Workers — Is this for the Short, Medium or Long Term?

Photo credit: Pete Wright from StockSnap

Let's go over the reasons above, and see if they will most probably have a short, medium or long term impact on the worker market.

COVID Scare

As COVID-19 vaccines are still unavailable at this point in time, this issue will only die down once vaccination programs are already widespread and immunities to the disease have been built up in the general populace.

Stricter Work Policies

These go hand-in-hand with the current lack of vaccines, and the general risk of infection when going out of your home and / or going to your workplace. Countries with high infection rates and / or infection surges can be expected to implement stricter work policies, especially for seasonal workers (such as fruit and produce pickers), in order to curb the spread of the disease.

Health-related Issues

Although COVID-19 infection rates have been dropping over the holidays, there are no guarantees that this trend is sustainable, as evidenced by the various surges noted in the United States and in Europe. When people get infected, they should be removed from 'general circulation' (i.e. quarantined) in order to contain the infection. Plus, while under quarantine or under treatment, these patients will need to be taken care of, either but health workers or by family.

Work Elsewhere

The COVID-19 pandemic has disrupted the workforce market in many ways — with one of the biggest changes coming from a shift of a notable portion of the workforce to “Working-At-Home”. However, for some industries (e.g. manufacturing firms, construction, health care), the concept of Working-At-Home cannot apply, since work can only be done in the factory or worksite.

This shift in workforce has resulted in a huge change in mindsets — from the mindset of the managers / owners of organizations, to the mindset of employees working in those organizations. Although we are less than a year into “Working-At-Home”, several US-based technology and finance organizations (e.g. Google, Microsoft, Morgan Stanley) have already mentioned that this arrangement may be here to stay.

A CNBC article entitled “More big employers are talking about permanent work-from-home positions ” talks about this Working-At-Home shift in some detail.

Some organizations that implemented a Work-At-Home policy may need to review this policy once vaccines are more prevalent and risks are much less — due to productivity issues noted (e.g. JPMorgan) amongst some employees.

With this Work-At-Home shift, organizations may come to the conclusion that the labor pool is no longer limited by physical boundaries (i.e. hiring locally) — this change has the potential to eventually disrupt the labor market in ways unforeseen. On the other end of the spectrum, this period of Working-At-Home has also had a huge effect on the labor market — as some workers (especially knowledge workers) now realize that they CAN work-from-home, for companies that are not within commuting distance.

Workers already employed

For some contractual workers, their regular contracts were not renewed due to a slump in production and service demand. This forced them to look for other contracts or alternative sources of income (like in the industries that experienced a large increase in demand during the pandemic).

As production and service demand started to pick up, some contract employers found out that they were no longer able to tap their previous labor pool, as those workers were already gainfully employed.

High Demand

For skilled workers, the short supply has resulted in higher wages for some, while others just take the offers they find agreeable. For organizations (in a tight labor market) that cannot match higher wages being offered by competitors, the only option is to make do with a smaller workforce.

Impact Breakdown

Short Term Impact ( < 1 year )

• COVID scare (unwilling to report for work) — Vaccines should be out sometime this year, based on the news briefs released by the various pharmaceutical firms. With the gradual rollout of vaccines, we can expect a gradual reduction in “COVID-fear”, however, we cannot expect the fear to disappear until the efficacy of COVID-19 vaccinations becomes very evident.

Medium Term Impact ( 1-3 years )

• Stricter work (pandemic-related) policies — The effects of the pandemic can be expected to linger even after a full rollout of vaccinations, so stricter work policies may still be the norm 1-3 years from now. Economic activity can be expected to start ramping up within the medium term, barring other unexpected black swan events.
• Health-related issues — We still do not know what the long term prognosis for COVID infected persons will be, but initial feedback is that some previous COVID patients experience issues even after they "get well". This may have a noticeable impact on workforce availability in the short and medium term.
• Workers already employed — The term of employment would depend on whether the worker is a full-time employee, a seasonal worker, or a casual contractual worker. For seasonal workers, chances are high that they will only be available during the next harvest season.
• High Demand — Some industries, like construction and health care, were already experiencing high demand before the COVID-19 pandemic. We do not expect the demand for heath care nor information technology workers to go down anytime soon, however, the demand for construction (and other) workers will greatly depend on the speed of recovery of the local economy.

Long Term Impact ( > 3 years )

• Work elsewhere — The full impact of employees lost to other organizations and / or industries (due to improved benefits or work convenience), may only be noticeable in the long term. Some industries may find it easier to recruit, due to increased "Work-At-Home" arrangements, while other may find it increasingly difficult to recruit workers for local jobs. The final impact on the workforce is too earlier to tell, but it is already obvious that the work environment come 2024 will be markedly different from the one today.

Effects of a Worker Drought

What can we expect if the Worker Drought continues? Whenever there is an inequality between supply and demand (such as a situation brought about by a high demand for workers), several outcomes can be expected.

Expected effects of a Worker Drought

1. Operational and Opportunity Losses — For industries that have seasonal worker requirements ( see the Sydney Morning Herald article titled “Destroying spinach and sacrificing cabbages: The worker drought wasting Australia's produce” ) or project-based requirements, the Worker Drought will impact their bottom lines directly.
2. (Potentially) Higher wages — Increased labor demand usually means increased wages, but see the comment below on Higher Wages reported for 2020.
3. Lower output / Less supply — Low worker / staff availability means reduced output and capacity to supply.
4. Higher prices — Increased costs and / or reduced capacity to supply will result in higher prices for goods and services.
5. Slower recovery — With a lack of much required workers (as well as reduced production and servicing output), industries and business will not be able to ramp output quickly once demand starts picking up.
6. More outsourcing — Organizations that will be able to outsource part of their requirements will most probably do so, if able.

Note on Higher Wages: The reported higher wage statistics during 2020 may be deceptive, and — as discussed in a recent WASHINGTON POST article entitled “The awful reason wages appeared to soar in the middle of a pandemic” — may actually not translate into higher take home pay for still-employed workers.

Conclusion

Due to reasons stated above, we estimate the Worker Drought to last for around 1-3 years. However, the lingering effects of the COVID-19 pandemic cannot be fully determined at this point in time. Organizations and workers are still reeling from the effects of the pandemic and most are firmly in survival mode, simply taking things on a day to day basis.

However, we feel the resilience of the human race cannot be underestimated. Plagues, catastrophes and wars have come and have gone — and people have always managed to survive and metaphorically rise from the ashes.

COVID-19 vaccines are already coming online — this is the first step in solving this pandemic, as possibly, a strong signal that we will soon conquer and overcome this COVID-19 plague.