Economic Growth & Labor Shortages

Labor shortages in the post-COVID economy have been much discussed in recent months. Everywhere signs in front of businesses are advertising the need for workers. Many signs highlight bonuses if hired. Economists Eric Thompson of University of Nebraska and Ernie Goss of Creighton University both cited labor shortages as the main challenge to the state’s economy in a recent Lincoln Journal Star article. Goss said lower labor force participation is a “significant and negative factor slowing growth in the state.”

Labor markets are complex. There are many factors contributing to the worker shortages. One factor often cited is the boost in benefits provided to unemployed persons during COVID-19. In Nebraska at least, the extra benefits are no longer an issue as they ended June 19. Other factors include persons not wanting to return to their previous jobs, but not having the skills or experience for jobs in other industries. Also, some people decided to retire early after being laid off during COVID-19. And other persons are fearful to return to the work because of concerns of contracting COVID-19.

Another factor is the declining prime working-age population. According to the University of Nebraska-Omaha College of Public Affairs and Community Service, the prime working-age population, those between the ages of 25 and 54, has started to drop in much of the country (Figure 3). Retirement of baby boomers is the primary reason for the drop. All Nebraska counties saw decreases in the share of their populations which are of prime working-age.

For rural areas, the decreases are probably even more acute making it difficult to attract businesses and difficult to sustain existing businesses. Lack of labor can be overcome with increased use of capital (machinery and equipment) or greater productivity through the adoption of new technologies. Increasing the population by attracting people to rural areas, or increasing immigration, can also help. In the end, unless something is done to overcome the decline in workforce participants, it will continue to be a drag on economic growth.

Figure 3. Change in Share of Prime Working-Age Population from 2010-2020
(Red indicates prime working-age share increased; Black indicates it decreased)