How Much for Your Time? Fifth District Firms Struggle to Find Workers

Over the course of the COVID-19 pandemic, businesses in the Fifth Federal Reserve District have reported challenges from large-scale lockdowns to fluctuating input costs to supply chain disruptions. For many months, businesses have noted very strong demand for their goods and services and unprecedented challenges finding workers. In fact, this is a national challenge, with record high job openings and labor force participation that is still well below pre-COVID-19 levels. In November, we used our survey tool to ask Fifth District firms for more information on the nature and implications of the challenges finding workers.

Expected Sales Growth Drives the Continued Need for Workers

In our November survey, most firms stated that they plan to maintain or increase employment over the next twelve months. This is not surprising, given that more than two in five respondent firms report employing fewer workers now than before the pandemic, and most of these firms expect to reach pre-pandemic employment levels by the end of 2022. In a recent Regional Matters post, we highlighted how increasing demand and labor levels that have not recovered from the pandemic have made it difficult for firms to meet current (and expected) demand.

About half of the respondents in November reported that their primary reason to increase employment in the next twelve months is strong growth in expected sales. In addition, about one in four firms cite that the primary reason for increasing employment is overworked staff. For example, a North Carolina manufacturer commented, “Our current work force … is getting burned out as we have been unable to find experienced technicians as well as qualified trainees.”

To Find Workers With the Necessary Skills, Firms Are Increasing Wages

For firms that were hiring, we asked if they were having challenges finding workers. Of the 64 percent that were having challenges, about four in five cited a lack of qualified applicants. This is consistent with other Fifth District survey measures: Our manufacturing and service-sector surveys show that the index for the availability of workers with the necessary skills was only slightly higher than the historic lows reached over the summer, indicating unprecedented challenges among our firms to find the skills that they need.

If firms cannot find the workers that they need, what are they doing to attract workers? First, firms report raising wages. In fact, nearly all businesses in our November survey reported that they are raising starting wages, with the majority of firms reporting that the wage increases span most job categories.

Not only starting wages are rising, but firms are raising wages to retain workers. Our November survey found that 83 percent of Fifth District firms are raising wages to retain workers, with over half of firms reporting that the wage increases affect most jobs.

Raising Wages Might Help, But Firms Need to Increase Applicant Pools

Even with the increase in starting wages, the flow of job applicants has not increased for most respondent firms: Less than 20 percent of responding firms reported an increase in the flow of job applicants per job, and about a quarter have seen a decrease in the number of job applicants.

Anecdotally, many firms in the Fifth District report challenges hiring and retaining workers. In a recent speech, Richmond Fed President Tom Barkin laid out several ways firms can increase their pool of candidates — tactics used by many firms in the district. For example, several businesses started on-site job training; some firms have dropped prior educational requirements or drug screening; and some have purchased apartments to house apprentices or interns that need to complete their training. Changes like these will likely be increasingly necessary as district firms try to grow employment and meet the demand of their customers.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.