After navigating and hopefully surviving a year filled with COVID-related disruptions, shutdowns, furloughs and hiring freezes, businesses need to prepare for a very different labor market in 2021. The U.S. Bureau of Labor Statistics (BLS) reported a 6.7% unemployment rate for November 2020 with 10.7 million unemployed. With a high unemployment number, business owners might assume that there are plenty of job seekers looking for work and they can continue with the same hiring practices they always have. The reality is very different.
The current labor market is unlike anything we have ever experienced before. If you are planning to hire new employees in 2021, it is important to take some time to understand what you are facing in the current hiring environment and plan accordingly.
Widespread Talent Shortage
Although overall unemployment numbers continue to be high, we are still facing a very tight labor market. Businesses are struggling to find the people they need, particularly in entry-level jobs. When the pandemic hit, millions of people lost their jobs, were furloughed, or made a decision to stay home with their kids due to school closures and childcare issues. Many of these individuals are not actively seeking new job opportunities for a variety of reasons.
Furloughed workers may be waiting for the chance to return to their jobs. These individuals along with those who permanently lost their jobs may not be actively looking for work due to federal aid they have received from the CARES Act. A significant number of parents with children in grades K-12 are also not actively searching for work due to the need to be at home with their family. This has especially impacted the number of women who are not actively searching for employment. And finally, there are individuals who are choosing to stay home due to health concerns and the risks they perceive in rejoining the workforce.
All of these factors are contributing to low labor force participation. According to BLS, the labor force participation rate (LFPR), which is the number of people working or seeking work, was 61.5% of the total population in November 2020. This is lower than the 63.4% LFPR in February 2020 before the full impact of stay-at-home orders. BLS reported the U.S. economy gained 245,000 jobs in November which is similar to monthly numbers reported prior to the pandemic. As businesses relax hiring freezes, the number of job openings will significantly increase, and employers will face wage inflation for their positions.
When you have a high labor shortage and low labor participation, the result is wage inflation. It will take longer to find and hire the right person for your job, and you will likely have to pay higher wages because of the tight labor market.
How to Find the Talent You Need
To be successful with your hiring goals in 2021, you need to first understand the competitive landscape in your region and what comparable compensation is for the types of jobs you would like to fill. Keep updated on the local labor statistics and understand the overall number of job postings in your area. Learn which companies are posting jobs, the skills they require and the wages they are offering.
The next step is to determine the essential skills, which ones are required and which ones are “nice-to-have” for your position. Your expectations need to be balanced with the wage you are planning to pay. It is important to realize that if you are planning to pay at the low end of the scale, you need to adjust your hiring expectations. You will likely need to hire someone less experienced and train them. If you pay at the top of the scale, you are going to be able to attract top talent and fill the position faster.
Employee benefits are another important part of your overall compensation package. Benefits that may have been popular prior to the pandemic, such as gym memberships and catered lunches, may not carry as much value to employees today. If you are a small business that is finding it difficult to offer competitive benefits programs, one solution would be to partner with a Professional Employer Organization (PEO).
PEOs can provide cost effective employee benefit programs such as health insurance, dental and vision care, life insurance, accident and critical care insurance, flexible savings plans, employee assistance plans and retirement saving plans that will make your business more competitive when it comes to hiring the talent you need.
As the hiring landscape continues to be reshaped by COVID-19, hiring managers need to stay updated on the latest employment data for their area and expect intense competition for talent. Reset your recruiting strategy and hiring budget, focus on essential skills for job postings and power onward through the ever-changing job market.