Severe labor shortages leave firms understaffed

Firms are struggling mightily to hire workers. According to a survey conducted by the National Federation of Independent Business, 49 percent of small firms were unable to fill open positions in October 2021. Acute labor shortages continue to impact low-wage sectors including leisure & hospitality and retail.

Such struggles are historically unprecedented, especially given an unemployment rate that remains above pre-pandemic levels. Low labor force participation explains firms’ staffing issues. Rapid wage increases and the decline of the Delta variant could boost participation over the coming months. Though participation will likely not return to pre-pandemic levels in the foreseeable future, a low and declining unemployment rate could bring about full employment nonetheless, which may justify an interest rate hike in the Fed’s eyes. We expect the unemployment rate to fall below 4 percent by June, meaning any potential relief for understaffed firms could be short-lived absent increased participation.

For more insights and keys statistics related to the US labor market, please visit our Labor Market Charts Hub.