The Labor Shortage Is Creating Unprecedented Hiring Challenges. Who’s Coming Out on Top.

Less than two years after 20 million people lost their jobs in one month, those same people are facing a job market that values them more highly than ever—one with 57% more job openings than before the pandemic, lower barriers to entry, better pay, and better working conditions.

People in traditionally lower-paying occupations—janitors, bus drivers, factory workers, and wait staff—are suddenly being regarded as diamonds by the labor market. Employers who once paid workers less than the minimum wage, forcing them to rely on tips, are now offering starting wages of $15 per hour or more, and providing signing and referral bonuses to entire classes of workers, not just superstars.

Macy’s will pay for your college degree. Amazon.com, Walmart, and Starbucks will let you control your own work schedule to a significant degree. A San Francisco florist recently posted a sign saying she would hire “anyone who shows up.” Gig economy companies like DoorDash are voluntarily classifying workers as full-time employees.

That is because 2021 has seen the tightest U.S. labor market ever recorded. Employers are trying to fill 11 million job openings, but only about 6.9 million unemployed people are actively searching for them. That record-low ratio of 0.6 unemployed people per opening would be remarkable in normal times, when there are usually more than two job seekers competing for each opening. It is doubly remarkable so soon after a recession, when there can be as many as five or six.

The reason: the coronavirus recession was actually very short, lasting only two months, from February to April 2020. Many forms of economic activity, such as retail spending and home building, fully recovered in months—versus the four-plus years it took after the 2007-09 recession.

Yet many employees have been reluctant to return to the workplace, partly due to fear of the pandemic.

So, businesses are having to pull out all the stops to attract new candidates. At the same time, they are also struggling to retain the workers they have. In recent months, record numbers of workers have been quitting their jobs, and unusually high numbers have been retiring. Furthermore, over 50% more workers than usual have been calling in sick, due to the pandemic.

Small and medium-size businesses are hurting most. In fact, data from the Department of Labor show that the Great Resignation is largely a small and medium-size business phenomenon, where quits have been concentrated.

Larger companies have endured the labor shortage, thanks in part to past investments in human resources technology that helps them adapt to changing labor market conditions.

But smaller businesses need not despair. One of the emerging tools is proactive recruiting: the ability to find well-matched candidates and reach out before they’ve even applied for a job.

The U.S. military has more than 15,000 recruiters in thousands of recruiting stations, who invite young people to enlist. They have been critical to the military’s success since conscription ended and the military became an all-volunteer force. Military recruiters understand that young people have other options. So, their campaigns make several powerful appeals: patriotism, career growth, education, adventure, travel, challenge, and social status.

They also tell young people how valued they are: “Uncle Sam wants YOU.” That appeal taps into our fundamental human desire to be needed, to feel significant in the eyes of others, and to play an important role in an organization or community.

Recent research by Ines Black and Sharique Hasan of Duke University’s Fuqua School of Business and Rembrand Koning of Harvard Business School shows that U.S. workers outside the military are increasingly being recruited personally for their jobs.

Their 2020 survey found that nearly 18% of U.S. workers were hired through their current company’s outbound recruiting efforts. By contrast, only 4% of workers in the 1991 General Social Survey said they had been recruited to their jobs. That’s because the old model of hiring involved companies advertising positions in the newspaper classifieds section and waiting for applicants to send résumés. Now, companies are proactively targeting prospective employees on digital platforms and social media, often with a recruiter’s help. It works even for employers that don’t have recruiting stations across the country, and even in a labor shortage.

This is the future of hiring. And it is a reminder that while labor shortages can create acute problems for businesses, they can also help them transform their practices in ways that make them stronger in the long run.

The labor shortage is likely to persist through 2022. But companies that adapt to the new world in which employees expect greater independence and personal outreach from employers will have a lasting advantage.

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