Oct 26, 2021

Economist: Low wages, high demand result in Kan. labor shortage

Posted Oct 26, 2021 11:01 AM

Hays Post

Kansas continues to struggle to hire employees, not because of a lack of supply of workers, but a change in demand, a Wichita State University economist told a group in Hays on Thursday.

The Kansas economy has bounced back to pre-pandemic levels, and the federal stimulus helped that happen more quickly, said Jeremy Hill, director of WSU's Center for Economic Development and Business Research at the Hays Economic Outlook Conference.

However, with that surge in the economy has come problems in the labor market.

"I have probably been to 10 communities in the last two weeks, and that's the conversation," Hill said. "I've got all this growth if I could just find another person."

Thirty-three percent of Kansas businesses report they are struggling to find workers, while 17 percent have decreased hours.

Kansas' seasonally  adjusted unemployment rate was 3.9 percent in September. In Ellis County, it was 2.1 percent. Every county in northwest Kansas posted an unemployment rate at 3 percent or below, with some counties in the region below 2 percent.

Nationally for every job opening, there are 0.8 people available, and in Kansas it's likely closer to 0.5 people, Hill said.

This takes power from the employer and puts it back in the hands of the worker, Hill said. Workers are upwardly mobile, leaving lower paying, entry-level jobs or part-time jobs for full-time jobs that offer better pay and benefits.

National trends show the number of workers holding multiple jobs is down 16 percent. The number of part-time workers is down 10 percent, and the number of self-employed workers is down 7 percent.

"This is hard for companies, but great for households and wealth and upward mobility," Hill said. "This is a huge improvement for the economy, but that's a really big pill to swallow for businesses."

Middle class households that were lost over the last two decades are coming back, which will be an economic driver for more consumption moving forward, Hill said.

Retail sales are expected to be up 5.3 percent next year based on increased employment and wage growth, Hill said.

"All of this is good news," he said of American households. "Cash is in their pocket. They got rid of a lot of debt."

Businesses are offering incentives for new hires or shortening hours to try to deal with labor shortages.

"People are saying, 'Where is everyone? We have all these people out there who are lazy and not working,' " Hill said. "Labor reports and employment are above 100 percent. The whole time we're cooking. The labor market has been very active and very engaged."

In Kansas, participation in the workforce compared to population is higher than before the pandemic. The employment to population ratio counts everyone from 16 years old to death even if they are no longer seeking employment.

Hill said those figures show the Kansas labor market is extremely tight.

Labor supply issues, especially seem to be exacerbated in manufacturing, and hospitality and leisure, as people leave those jobs for other jobs, or in the case of manufacturing, choose not to enter that sector to begin with.

Some women who left the labor market to care for children during the pandemic may start re-entering the workforce as the pandemic eases and they no longer have to worry about school closings.

Some industries in Kansas have a big problem with an aging workforce. Baby boomers are retiring.

Businesses will need to look at the workers they have and decide how they can use those workers most efficiently. They may invest in technology to decrease the number of workers needed.

Some businesses may cut back on certain lines or aspects of their operations to further focus on aspects that are most profitable, Hill said.

 Companies are also reaching out to other labor markets and hiring employees to telecommute. Some Kansas workers are continuing to telecommute even as COVID restrictions ease. About 30 percent of the Kansas workforce was telecommuting in 2020, with a about 20 percent telecommuting now, Hill said.

Offering training may be one solution for businesses. When the labor market was less tight, employers were expecting to hire workers with experience. Now they may need to hire workers with little or no experience and train them to a point where they are more productive, Hill said.

A long-term solution to the Kansas labor shortage could be a change in federal immigration policy, Hill said. 

"You see I'm not saying lots of heads, because we're out. The U.S is out. Heads are not going to happen. How are you going to look at it differently?" Hill said.

Hill said Kansas is not facing a labor problem — it's facing a wage problem.

Kansas has continued to fall behind the national averages for wages, which is influencing population loss, Hill said. The national annualized wage average is $64,021, while the Kansas annualized wage average is $51,490. People are moving to areas where wages are higher, Hill said.

"Kids that were graduating high school and college looked around and saw opportunities where wages were up somewhere else, so they moved," Hill said. "We're telling them that we didn't value them as much as other industries were."

Kansas wages went up this year, but the state was still slightly below the U.S. average.

"If we really want labor, wages have to come up," Hill said, "and they have to come up after a year you did massive increases."

Forty-seven percent of Kansas businesses said they expect labor struggles to take more than six months to resolve.

Hill said the outlook for the labor market is going to be tough for businesses through the end of next year. He said it will take that long for businesses to see full employment based on pre-pandemic numbers.

A bright spot may be a new generation of workers moving up in the ranks. While millennials seemed reluctant to work during high school and college, young people now are more readily entering the workforce, Hill said.

This may not only ease some of the workforce shortage for food service and hospitality, it also means those workers will have valuable basic job skills moving forward.

It likely will not solve all of the labor shortages for eateries, which may cause price increases in the industry and a decrease in demand, Hill said.