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The Great Resignation and the Demographic Drought - How Are They Related?

America’s current labor shortage is an early symptom of a much larger and more profound problem.

Despite headline-grabbing layoffs from several big companies over the last few weeks, the February 2023 jobs report found that America’s labor market remains exceptionally strong. In fact, the 517,000 jobs created in January pushed unemployment to its lowest rate since 1969, which is the year when Neil Armstrong first set foot on the moon and the famous Woodstock music festival occurred.

Conventional wisdom says that today’s extremely tight labor market is a byproduct of the covid-19 pandemic. However, it’s more accurate to describe the pandemic as a catalyst for forces that were already working to transform the American economy from within. The 98 million resignations that occurred in 2021 and 2022 cannot solely be chalked up as a bizarre artifact of covid, but must instead be understood as a sign of a much deeper and more alarming truth about America’s workforce.

The turnover tsunami that we’re living through today is merely the warm-up act for a much larger and more consequential transformation that’s often referred to as the Demographic Drought. An in-depth analysis of the Demographic Drought is available here, but it’s essentially shorthand for a confluence of powerful trends that are causing America’s working population to shrink in relative and perhaps even absolute terms.

Today’s Great Resignation is merely the opening phase for this Demographic Drought, and the Demographic Drought is simply the new normal that employers will need to live with for literal generations to come.

This phenomenon is a systemic, inescapable change in the constitution of the country’s labor pool that is fueled by social, economic, reproductive, and political factors beyond the control of America’s business community. Although the effects of this decline in the labor force have recently been highlighted by the pandemic and its aftermath, it is by no means a new issue. In fact, this shrinking workforce has been a burgeoning, imminent threat to the economy for decades and is projected to continue for the remainder of the 21st century. Businesses that accept this reality today will have a leg up on those who choose to bury their heads in the sand.

Why is there a Dearth of Human Capital?

It is important to note that this problem does not discriminate by industry, company size, or geographic region, meaning that this issue truly has the potential to affect any and all employers. Some of the most visible contributing factors to today's chronic labor shortages are highlighted below:

  • Changing Demographics – With millions of baby boomers leaving the workforce since 2020, declining American birth rates, and early retirements becoming more common, there is a large gap in the number of new workers versus those exiting the labor market.
  • Rise of the gig economy – fed up with poor working conditions and low pay, millions of non-exempt workers are opting out of conventional jobs in favor of independent employment.
  • Post-covid social changes – in the aftermath of the covid-19 pandemic, new expectations around flexibility, culture and wellbeing are playing an increasingly decisive role in employment decisions.
  • An unfavorable political climate – short term incentives in the American political system make the country less capable of addressing long-term, systemic problems such as the demographic drought and accompanying labor shortage.

Due to these issues and many others, America’s labor woes are here to stay. Although the storm of the demographic drought has been brewing for quite some time, it appears that a confluence of unusual circumstances instigated by the pandemic prematurely kickstarted the terminal phase of our national workforce shortage. With that in mind, it is important for forward-thinking employers to develop a proactive approach to combat this long-term problem.

Progressive companies can work to address the challenges of the Demographic Drought by designing customized benefit policies that boost employee satisfaction, identifying ways that new technologies can close productivity gaps, and developing a strong employment brand and employer-of-choice culture. By planning ahead and preparing for an indefinite worker shortage, organizations can work to create a resilient, dynamic playbook that insulates them from the worst effects of America’s shrinking workforce.

To learn more about the Demographic Drought and what businesses can do to prepare, check out this podcast: America’s Demographic Drought and the War for Talent