Recession Aside, Are We Headed for a Labor Shortage?

This article was originally published by the Fiscal Times on Thursday, Aug. 26, 2010.

Despite one of the worst recessions of modern times, the U.S. economy could face significant labor shortages in the coming months because of a mismatch between the quality of the available labor and the demands of industry.

By Katherine Reynolds Lewis

Alan Yellowitz of Fairfax, Va., has been job hunting since January 2009, when he was laid off from his information technology sales job along with the rest of his department. Competing with hundreds of applicants for every opening, he has clawed his way to the final round of interviews several times — only to fall short of winning the position. "There are so many more people looking for the same jobs," Yellowitz, 47, said in an interview. "It's crazy how companies are picking and choosing. You feel beat up after a while."

Yellowitz — like many of the other 14.6 million unemployed Americans like him — wasn’t supposed to be in this bind, as the oldest Baby Boomers started to retire and the labor supply began to tighten. Nearly 20 years ago, the first in a series of economic reports predicted a dramatic labor shortage as an estimated 76 million Baby Boomers departed the workforce and the smaller cohort of Generation X workers — or Baby Bust — took their place. As recently as this spring, researchers predicted there could be five million more jobs than workers available to fill them by 2018, resulting in $3 trillion of lost U.S. economic output.

"We have this huge bump coming through of older people followed by a dearth of younger people," said lead researcher Barry Bluestone, an economist and dean of the School of Public Policy and Urban Affairs at Northeastern University. "We're going to have a huge labor market shortage."

Huge labor shortage? That’s hard to imagine amid the worst recession in modern times, with unemployment locked at 9.5 percent and many discouraged Americans simply dropping out of the market. One skeptic, Wharton business school professor Peter Cappelli, said. "They've been predicting a labor shortage since the mid-1990's and guess what, it's not happening.”

Yet some evidence suggests there may already be spot shortages of labor, as employers complain about the difficulty of filling open positions and the lack of skilled workers.