What Is a Labor Shortage?

When a labor shortage occurs, it means that employers are having a difficult time recruiting qualified applicants for available job openings. There aren’t enough candidates to fill the roles they are hiring for, and the few available candidates are hard to find.

However, labor shortages can be more complicated. Some jobs are harder to fill, and some industries have a more challenging time recruiting and retaining employees than others.

Here’s what you need to know about labor shortages, the industries and occupations with the highest demand for workers, and how a labor shortage can benefit your career.

Definition and Example of a Labor Shortage

When the demand for workers for a particular occupation is greater than the supply of workers who are qualified, available, and willing to do that job, there is a labor shortage. That shortage is based on supply and demand—are there enough workers to meet an organization’s hiring needs? If not, there is a labor shortage.

During a labor shortage, the labor pool is low, recruiting qualified workers is difficult, filing open positions takes longer, and the retention rate is poor. Employers may need to pay higher wages and improve benefit packages to attract and retain employees.

• Alternate name: manpower shortage, occupational shortage

An example of a sector experiencing a labor shortage is nursing. Investment and asset management firm Mercer’s 2021 Healthcare Labor Market report explains that there are over 3 million registered nurses in the U.S. The demand for nurses is expected to increase by 5% over the next five years, and 1.1 million nurses are predicted to retire or change careers. If this trend holds, it could leave a shortfall of about 100,000 nurses in more than half of the states in the U.S.1

Labor shortages aren’t limited to certain industries or occupations. As the economy and the job market shift over time, impacted sectors will also change when the demand for workers increases or decreases.

Types of Labor Shortages

Labor shortages aren’t simply based on the number of jobs compared to the number of workers. It’s complicated because of the different factors that impact hiring. Job applicants’ training and experience level, the qualifications the employer needs in an ideal candidate, and the wages an employer is willing to pay all factor into whether there is a labor shortage in a particular industry or occupation.

The basic types of labor shortages include:

• Quantity of people: There can be a labor shortage when there aren't enough qualified applicants to fill an organization’s needs.
• Quality of job candidates: When an employer has difficulty finding employees with the qualifications they need, there also can be a labor shortage.

Reasons for Labor Shortages

Labor shortages are caused by a combination of factors, including:

• An aging workforce
• Early retirement
• Health concerns
• Workers leaving the labor market
• A decline of blue-collar workers
• Limits on immigration
• People opting for self-employment
• Workers quitting their jobs
• Higher demand for information technology (IT) services

One cause of a labor shortage is employees quitting at high rates while demand for workers remains high. In September 2021, for example, 4.4 million U.S. workers quit their jobs—the highest on record—while job openings remained steady at 10.4 million.2

Labor shortages can also impact industries with higher-than-average quit rates. For instance, the Bureau of Labor Statistics (BLS) reported that 867,000 food services workers quit their jobs in August 2021. This quit rate of 6.6% was more than double the national average of 2.9%.3 Employers in hard-hit sectors often offer hiring incentives and increase pay to attract and keep workers.

Industries and Occupations With Labor Shortages

A Society for Human Resource Management (SHRM) survey found that 73% of employers are experiencing a decrease in applications for jobs that are hard to fill. The hardest jobs to hire for, according to SHRM, include hourly, entry-level, and mid-level nonmanagerial positions, especially in sectors such as manufacturing, hospitality, food service, and health care.4

Meanwhile, nonprofit research firm The Conference Board reports that recruiting and retention of blue-collar and manual services workers is challenging for employers, and there is also a tight labor market for tech employees.5

Labor Shortages vs. Job Openings

Labor shortages are impacting some industries more than others. Even though there is a shortage of workers in some sectors, overall, there are fewer jobs than there were before the pandemic. The BLS reports that as of October 2021, U.S. employment is still down by nearly 4 million workers compared to pre-pandemic levels in February 2020.6

Labor Shortages vs. Unemployment

While the job market has fewer jobs than in prior years, there are still more job openings than there are unemployed workers. In April 2020, there were five unemployed workers for every available job. By September 2021, however, there was less than one (0.7) worker per job opening.

In that same month, there were nearly 7.7 million unemployed people, 10.4 million job openings, and 6.5 million new hires. Over the 12 months ending in September 2021, there was a net employment gain of 5.6 million jobs.278

Even though there are more job openings than unemployed workers, not all people who are unemployed are currently job seeking, and applicants may not be qualified for the jobs that are open.

As the job market continues to grow, the likelihood of labor shortages in impacted industries will continue to increase. To compete, employers are offering sign-on bonuses, higher salaries, and expanded benefits to attract candidates.

How a Labor Shortage Can Benefit Your Career

If you’re in the job market or considering a career change, a labor shortage could potentially benefit your career—and your paycheck. It can be easier to get hired in a tight labor market because employers may lower hiring requirements and raise wages to attract applicants.

An SHRM employer survey reports that 57% of employers are offering referral bonuses, 55% are hiring external or temporary workers, 44% are upskilling and reskilling staff, and 43% are boosting pay.9 In addition, according to ADP’s Q3 2021 Workforce Vitality Report, there was an average salary increase of 6.6% for workers who switched jobs compared to 2.5% for entry-level jobs and 4.8% for existing employee salary increases.10

If you’re considering a job search and have the skills employers are looking for, you’ll be well-positioned to make a change in a job market where there’s a labor shortage.

Some ways a labor shortage can benefit job seekers and career changers include:

• Increasing your chances of getting hired because employers are lowering the job qualifications for applicants for some positions
• Getting hired faster as employers are shortening the recruiting process to onboard new employees quickly
• Earning more money when employers offer hiring bonuses, retention bonuses, and increased pay to attract applicants
• Gaining new skills and opportunities for advancement as organizations increase on-the-job reskilling and upskilling programs

Key Takeaways

• When a labor shortage occurs, there aren’t enough candidates to fill the roles employers are hiring for and it’s hard to find applicants for open positions.
• A major cause of a labor shortage is when employees quit at high rates while demand for workers remains high.
• Some of the industries that have been hardest hit by recent labor shortages include manufacturing, hospitality, food service, retail, and health care.
• Getting hired in a tight labor market can be easier than at other times because employers may lower hiring requirements and raise wages to attract applicants.