Baltimore-area businesses may need to re-evaluate their recruiting, hiring and even workplace cultures in the face of persistent and severe labor shortages — a byproduct of the pandemic that could persist for years — economists warned during a regional economic outlook conference Friday.
More than a year and a half into the COVID-19 pandemic, the economy has come roaring back in terms of demand from consumers, experts said during the Greater Baltimore Committee’s annual economic outlook conference. Consumers have generally benefited, they said, from federal stimulus packages, excess savings and higher net worth, and demand has rebounded in most areas outside of leisure and hospitality.
But businesses are struggling to keep up with a surge in demand, stymied by worker shortages and supply chain and transportation bottlenecks that could persist, speakers told about 100 business leaders who participated in the virtual event.
“Unfortunately, the supply situation is absurdly tight, and this is just all about unpredictability,” said Tom Barkin, president and CEO of the Federal Reserve Bank of Richmond, based in a region that includes Baltimore. “I think this pressure is going to last a while, because I hear businesses being conservative in terms of making big capacity investments.”
Barkin likened the unpredictability over the past year and a half to driving in the dark on an icy road while trying to avoid fishtailing or hitting the guardrails.
Federal labor statistics show the U.S. has 10.4 million job openings, the second highest monthly number on record, and nearly a third higher than the number of people seeking work.
“I had really hoped that we would see a significant return to work this fall, because you had unemployment insurance expiring, you had kids going back to school, and I thought you’d have COVID easing,” Barkin said “But that doesn’t yet seem to be the case.”
Labor force participation is down significantly, with people reluctant to return for numerous reasons, the experts said.
Retirements are higher than normal. Job turnover, now at an all-time high, will continue to increase because workers can be more selective as entry-level wages rise and workers rethink career choices or gravitate toward remote work.
Prior to the pandemic, the U.S. had added jobs for 113 consecutive months. But the U.S. lost nearly as many jobs as it gained in that period in just March and April of 2020, said Anirban Basu, chairman and CEO of Baltimore-based Sage Policy Group, an economic consulting firm.
“Here we are, 19 months later, roughly, and we are still in the midst of a pandemic and that has economic consequences,” Basu said. “Because the pandemic has endured, it has changed behaviors. It has caused Americans to rethink what is important to them.”
While monthly job growth picked up after initial job losses at the start of the pandemic, it has once again slowed down, Basu said, not because of demand for workers but because of supply of labor.
“It’s too bad that job growth has slowed so profoundly in recent months because along this dimension … we’re not fully recovered,” he said. “There should be lots of Americans looking for work. They should be racing to work.”
But, restaurants, for instance, have had to limit hours because of staffing issues. Industries such as construction, manufacturing and transportation also face shortages.
“One of the factors at work, is that a lot of Americans are looking for a different kind of job,” Basu said. “Compensation matters, no question, but so too does flexibility and work/life balance. A lot of people out there are looking for those remote jobs.”
Barkin said he supports policies that will bring more workers into the workplace, such as more legal immigration, better education, broader workforce preparation programs and better access to child care.
“If you don’t have more workers in the workplace, employers are going to raise wages, raise prices, reduce service levels and automate jobs,” he said. “This is going to be our defining issue for at least the next decade.”
The potential for future economic recovery is delayed but not derailed, said Mark Vaselkiv, a vice president of Baltimore-based T. Rowe Price. The delay is caused by higher inflation, supply chain problems, gridlock in Congress on future fiscal stimulus plans and some falling consumer confidence.
In his view as chief investment officer of T. Rowe Price’s fixed income division, 2021 has been one of the most “confounding” years, Vaselkiv said.
“The financial markets never experienced anything like this,” he said.
But the firm believes more positive economic trends are on the horizon.
For one, the U.S. and rest of the world will learn to live with COVID, and more innovations will emerge to combat the disease. Also, inflation can have somewhat of a positive impact, helping to raise wages and incomes for the working and middle classes.
And, “We do see supply chains normalizing, and we see a lot of significant pent-up demand … not just in goods but more continually in demand for services and experiences that’s going to grow substantially,” he said.
One area that may not be resolved in the near term however, are “troubling numbers,” in the U.S. as birthrates have dropped in the last five decades, Vaselkiv said.
That will likely hurt higher education, particularly in the Baltimore region. In the short term, the decline in births that occurred during the 2008 and 2009 global financial crisis will lead to a “demographic cliff” for colleges and universities in 2025. The class of 2029 is expected to shrink considerably.
“That’s probably bad for our regional economy,” he said “Baltimore is a college town.”