Labor Shortage Being Driven by Higher-Than-Expected Retirement Rate

The labor shortage may continue, as many who dropped out of the workforce have retired.

While it had been thought that the labor market would return to normal as pandemic restrictions went away and things returned to normal, a significant portion of the “missing workers” of the pre-pandemic workforce who had been expected to go back to work have retired, The New York Times reported Tuesday (Dec. 27).

Of the 3.5 million people missing from what would have been expected to be today’s workforce, based on pre-pandemic trends, 2 million have permanently retired, according to the report.

Many of these workers would have been expected to retire soon anyway, but the pandemic accelerated their move as many are concerned about being exposed to COVID-19 at the workplace. Beyond that, some older workers have chosen to enjoy retirement, some are in poor health and some are in a financial condition that allows them to choose retirement, the report said.

As a result, the labor force participation rate among Americans aged 65 and up is well below where it was before the pandemic — a shift that amounts to 900,000 fewer people being in the workforce. This has happened while the labor force participation rate of younger workers — those between the ages of 18 to 64 — has largely returned to the pre-COVID level, according to the report.

“Despite very high wages and an incredibly tight labor market, we don’t see participation moving up, which is contrary to what we thought,” Federal Reserve Chair Jerome H. Powell said during a speech in November, per the report. “Part of it is just accelerated retirements.”

As PYMNTS reported Dec. 16, the U.S. economy added 263,000 non-farm jobs in November — roughly in line with the average growth over the prior three months but lower than the year’s average.

Job vacancies have been particularly challenging for Main Street retail small- to medium-sized businesses (SMBs). November’s biggest job losses occurred in retail trade, which is a backbone of Main Street SMBs.

Restaurants have been hard hit by the labor shortage too. Many are turning away would-be diners due to acute labor challenges, losing sales opportunities and potentially negatively impacting customer loyalty.