What’s The Matter with the American Labor Market? Puzzles, Anomalies, And Some Solutions!

Why is the American Labor Market like a Drunkard on Steroids, with so many Confusing Signs?

Is something “wrong” with the American labor market? Even seasoned experts are puzzled by the contradictions, anomalies, and puzzles that define the American labor market?

Sample this! Job openings are at a record high, though the Federal Reserve is doing everything to “cool down” the “red hot” labor market.

Next, Millions of Boomers (the generation now past 60 years of age) are retiring and leaving the workforce, with not enough replacements from the Millennials and the Gen Zers, and to some extent the Gen Xers.

As if this was not enough, there was The Great Resignation, where Millions of the aforementioned age cohorts simply quit their jobs, without having alternative plans in mind.

Now, it is Rage Quitting and Rage Applying, which as the terms imply are nothing more than “viral” in the moment impulsive actions, with no real thought applied.

Worse, inflation is making life difficult for the American workers, though there has been a rise in the real wages, and despite the fact that pandemic era savings are yet to be depleted. So, what is the matter with the American labor market at the moment?

The “Transition” From Manufacturing to Services in the 1970s Caused Structural Problems to This Day

To answer this question, one has to look back decades as well as to 20290 when the Covid pandemic made its appearance. Let us first go back in history.

The “problems” with the American labor market began much before in the 1970s or so, when the American economy made the “shift” from a Manufacturing to a Services economy.

In other words, the type of jobs that were available was now in the services sector, with the IT (Information Technology), Financial Services, and to a lesser extent, the Business Process segment.

Moreover, the other segments of the services sector, including hospitality, tourism, and travel along with real estate, healthcare, and food and beverages sectors saw an humungous increase in the number of jobs that were open.

What this “transition” meant is that American workers now needed the so-called “soft skills” more than muscle and brawn, along with the need to be based in urban areas, to be employed.

This was the first “paradigm shift” in the American labor market, the repercussions of which are being felt today as can be seen from the mismatch in the demand and supply vectors of the American labor market. So, this is the partial answer.

The Double “Shock” Of the Pandemic and Putin Has Led to “Problems” For American Employers

The next aspect has to do with the immediate past, when during the pandemic years, American employers retrenched Millions of workers overnight, as they were unsure about when the economy would be “back in business”.

This led to a glut of unemployed Americans, who were equally frightened about the future and so, began to rely on governmental assistance as well as doing Gig work to keep them afloat.

Once it became clear (by end 2021 or so) that the American economy was recovering, then the same employers began to rapidly fill their job openings and by doing everything possible to retain their workers.

This was because of the “shock” of the pandemic that made them both fire and hire with alacrity, lest they lose out in the process.

As if this was not enough, the Ukraine war, coupled with the “easy money” of the pandemic years and the “generous” dole by the Biden administration led to inflation, thereby necessitating higher real wages.

As mentioned earlier, the “abnormal” puzzles of the Millennials and the Gen Zers in the aftermath of the pandemic made it worse for American employers to retain workers, which in the process pushed up the demand for workers.

The American Labor Market would be “Weird” Unless Steps are taken to solve The Problems

So, where is all this leading the American labor market and by extension, the American economy to? Our bet is that the market for workers would be “weird” until and unless there is more immigration into the American economy.

This has been the standard “solution” since the late 1960s when successive administrations, irrespective of party lines, encouraged immigration, especially of highly skilled workers.

Of course, with all the tech layoffs, there are enough laid off skilled workers to fill the jobs and so, the focus should be more on semi skilled and low value adding workers from neighboring Latin American countries.

Moreover, there is a crying need to up skill the American workforce and make them move to higher value adding work, leaving the present low productivity work.

Above all, there is a need for business leaders to address why the Millennials and the Gen Zers are finding it hard and facing problems and take steps to rectify the imbalance.

Indeed, the American economy risks a “lost generation” of workers until and unless these age cohorts are fully functional.

So, in a nutshell, these are some of the solutions that we recommend, based on our research and insights into the economy.

ChatGPT: The New Normal for the American Labor Market Might not be so “Normal” After All!

Last, with the Generative AI or Artificial Intelligence tools like ChatGPT, there is every chance that the “contradictions” of the American labor market would again burst out into the open as the former can lead to job losses, without the market having the capacity to absorb them.

At the same time, demand for low skilled work might zoom ahead, again exacerbating the problems of the American labor market.

In brief, there is a need for urgent action on “normalizing” the American labor market and ensuring a New Normal where there is stability and predictability instead of chaos and confusion all-round.

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