Academic journal article Business Economics

The Risk of Future Labor Shortages in Different Occupations and Industries in the United States

Academic journal article Business Economics

The Risk of Future Labor Shortages in Different Occupations and Industries in the United States

Article excerpt

In the next 10 years, there is likely to be a tight labor market, largely due to the ongoing retirement of baby boomers. This paper focuses on the details of occupations, industries, and regions in which there will be the highest risk of labor shortages in the United States. Twelve determinants of labor shortages were investigated to compile indices of labor shortage risk These indices are presented and discussed for those occupations and industries that face the highest risks of labor shortages.

Business Economics (2014) 49, 227-243.


Keywords: labor shortages, employment, occupations, industries

The rapid decline in the unemployment rate in recent years and the ongoing retirement of the baby boomers is raising the likelihood that the U.S. economy will face labor shortages in the next decade. Adding to the likelihood of the labor shortage scenario is weak labor productivity growth in recent years, which has led to robust employment growth despite disappointing growth in GDP.

A tight labor market and broad labor shortages could have important business implications. It will become more difficult to find qualified workers, retention rates of employees will decline, and compensation growth is likely to accelerate, all of which could put downward pressure on corporate profits. In the last period of a prolonged tight labor market--between 1997 and 2000--corporate profits declined despite strong growth in revenues.

Although employers care about the tightness of the overall U.S. labor market, they may be more interested in the potential for labor shortages in the occupations and industries in which they operate. The main goal of this paper is to measure the relative risk of future labor shortages for a large number of specific occupations and industries. To the best of our knowledge, no such measure currently exists. Beyond the obvious difficulty of accurately predicting the future, our exercise is complicated by our attempt to provide forecasts for 464 different occupations and 266 industries. Part of the challenge is to create measures of what we consider to be the determinants of future shortages for such a large number of unique occupations and industries.

We identified 12 measurable determinants of future labor shortages, the most important of which is the projected gap between labor supply and labor demand in 2022. The other occupation-level variables are average years of education, required years of education, required work experience, required on-the-job training, percentage of workers who work part-time, percentage of workers who are immigrants, percentage of workers who are unionized, occupation wage premium, occupational offshorability, and the probability of the occupation being automated.

Once we created this unique data set for 464 occupations, we combined the different components into a future labor shortages index. We then aggregated the index levels into broader occupational and industry groups. The majority of this paper is devoted to describing and discussing the occupations and industries that are at a higher risk of labor shortage in the coming decade. Although our results are for the United States as a whole, we also briefly discuss which states are more likely to experience labor shortages, given the current variation in labor market tightness across states. Finally, we discuss the potential business implications of our results.

1. Potential Future Labor Shortages in the United States (1)

As the rapid decline in the unemployment rate continues in the United States, the risk of labor shortages is growing. During the 56 months since October 2009, when the unemployment rate peaked at 10 percent, the unemployment rate has declined by about 4 percentage points. This decrease is faster than in the previous two recoveries, despite the relatively slow growth of GDP in this most recent recovery period: and the rapid decline in the unemployment rate is likely to continue in the coming years. …

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