The Shortage Economy

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

Early in the pandemic, consumer hoarding led to shortages of items like hand sanitizer, toilet paper, and yeast, to name a few.   These early shortages were driven by safety and health concerns, hoarding instincts that kick in during survival mode, or just looking for things to do to “pass the time” (a Cajun expression).    We now have a new set of shortages that are linked to the country moving out of the pandemic.   The big question, both nationally and locally, is the length of such shortages, and the overall impact on the economy.

Today, we will look at the latest in the labor shortage.    Last week’s April JOLTS (Job Openings and Labor Turnover Survey) report indicated that job openings surged to 9.3 million, the highest on record.  This was an increase of about 1 million job openings since March.   The largest number of openings existed in leisure and hospitality, followed by professional and business services, education and health services, and retail trade.  The largest increase in openings occurred in the leisure and hospitality sector.  Restaurants and tourism destinations are reopening nation-wide, and the labor pool is very scarce.

Calculating a simple ratio provides another look at the degree of tightness.  Openings divided by the number of unemployed conveys the number of job openings per unemployed individuals.    A ratio of 1 implies that for every job opening, there is one person unemployed to fill the position.   A number greater than one implies that there are more openings than the number of unemployed, and a number less than one means that there are more unemployed for every job available.   Industries with the highest number of job openings have ratios greater than one, implying that more openings exist than the number of unemployed.

Unemployed(U) Openings(O) Ratio(O/U)
Total 9,812 9,300 0.95
Leisure/hospitality 1,407 1,586 1.13
Pro. Bus. Services 1,049 1,517 1.45
Retail/Wholesale Trade 1,238 1,285 1.04
Educ. Healthcare 994 1,439 1.45

Note:  Unemployed and Openings expressed in thousands.

Another back of the envelope calculation we can make is to remove the number of unemployed that existed prior to the start of the pandemic.    That number stood at 5.7 million.  If we remove 5.7 million from the current number of unemployed, we get a number equal to 4.1 million.  We can think of 4.1 million as the number available from unemployed ranks, or certainly a number less than the 9.8 million.

Prior to the start of the pandemic, there was already a tight labor market and the nation had unemployed ranks that totaled 5.7 million.   Regardless of the economy’s strength, there will always be the number of unemployed (due to frictional, structural, seasonal, cyclical reasons).   If the labor pool from unemployed ranks is scarce, then an option is to hire someone already employed.     This will require competitive wages and benefits, and attractive work environments, or some combination.  The importance of employee retention only intensifies.

The JOLTS report also tracks the number of quits.  Quits signal that workers have more confidence in employment prospects elsewhere.    The Quit rate usually goes up when the economy is booming and goes down when there is less confidence in finding another job.  The Quit rate hit an all-time series high of 4 million in the last report, reiterating the significance of employee retention.

Turning to the Southern Indiana region, we also see evidence of a very tight labor market.  Last February 2020, Burning Glass data indicated job postings of approximately 3,300 (author’s rounding).   The number of unemployed across the five Southern Indiana counties stood at 4,800 (author’s rounding).   Fast forward to the pandemic exit phase, there are now 4,200 (rounding) job postings and approximately 5,000 (rounding) unemployed.      After adjusting for seasonality, the region’s labor force is smaller by about 3,500 workers since February 2020, thus further compounding the shortage.

Unemployed(U) Openings(O) Ratio(O/U)
February 2020 4,800 3,300 0.69
May-June 2021 5,000 4,200 0.84

Employers were already familiar with the labor market challenges prior to the pandemic.   The higher ratio above indicates that it has only gotten tighter.


Data sources:  FactSet, Burning Glass, BLS JOLTS

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