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How to Get the (High-Skilled) Workers?

Regional Matters
October 6, 2022

Over the past year, the labor market has been extremely tight, with record high job openings and historically low unemployment. So, it's no surprise that firms have struggled to find workers. To overcome hiring challenges, firms have been using various strategies, the most common of which is wage increases. Those strategies may be paying off to some extent: Our Fifth District business surveys suggest that the worst of the challenge finding workers has passed. Nonetheless, firms are still reporting difficulties, and our most recent survey revealed a notable shift in the type of workers firms are having the toughest time hiring. Firms now report that it is relatively difficult to hire mid-to-high skilled workers, whereas earlier in the year they were struggling to hire low-to-mid skilled workers.1

Finding Workers Has Been Difficult

In our monthly business surveys, we ask manufacturing and service sector firms about changes in activity, including changes in the availability of employees with the skills needed by the firm. In mid-to-late 2020, when demand bounced back following the initial economic contraction of the pandemic, an increasing share of firms began reporting difficulties finding employees. That difficulty intensified into 2021, as indicated by the continued decline in the availability of skills index for both manufacturing and service firms. (See chart below.) At the low point in the indexes in May 2021, 46 percent of manufacturing firms reported a decline in the availability of skills, while only 1 percent reported an improvement; for service sector firms, the gap was 35 percent to 3 percent. The indexes have improved since mid-2021, although they remain low. Firms continue to report that it's hard to find the skills they need.

We've gained additional insight into firms' hiring environments in the past year through a number of special questions. For example, our September 2021, February 2022, and June 2022 surveys all indicated that a lack of labor was the primary barrier to meeting demand. In May and August of this year, firms reported that hiring and retaining workers was a key concern. Back in March, we also asked firms how difficult it was to hire for different skill levels compared to before the COVID-19 pandemic. Although firms said it was difficult to hire at all skill levels, low- and mid-skilled workers were the most difficult to hire. More recent evidence suggests that's changing.

Hiring Difficulty Is Shifting to Higher-Skilled Jobs

In our September 2022 survey, we again asked firms about difficulty hiring workers at different skill levels but this time compared to the beginning of the year. We saw responses shift from the low-to-mid skilled range toward the mid-to-high skilled range. Over 40 percent of firms said it was harder to hire high-skilled workers compared to the beginning of the year; less than 30 percent of firms said it was harder finding low-skilled workers. (See chart below.) Our third quarter CFO Survey had similar results at the national level. More than half of respondents to The CFO Survey indicated that it was becoming more difficult to find high-skilled workers, while only a third said the same about low-skilled workers.

What Explains the Shift, and Where Are We Headed?

The shift could be the result of firms' own efforts to attract workers. In our March 2022 survey, firms said they were using wage increases to attract low- and mid-skilled workers more than they were for high-skilled workers. This result is also supported by the Atlanta Fed Wage Growth Tracker, which shows that growth in wages for low- and mid-skill occupations has outpaced that of high-skill ones. Perhaps the increases in wages for lower-skilled workers have made it easier to hire. Going forward, we might start to see an acceleration in wage growth for high-skilled workers.

Alternatively, perhaps recent signs of softening demand and growing concerns about recession will restrain firms' hiring plans. Although our surveys indicate that firms expect to keep increasing employment and wages over the near term, firms also expressed economic uncertainty. And according to CFO Survey responses, firms' expectations for economic growth have shifted down. We'll learn more about hiring and wage plans as conditions evolve.

We use the following definitions for skill levels in our surveys. Low-skilled: perform routine, manual tasks that do not require a college degree or specialized training. Mid-skilled: require more education and training than a high school diploma but less than a four-year college degree. High-skilled: perform nonroutine, creative tasks and are college educated or highly trained.