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Positive feedback loops can have negative consequences. The U.S. job market right now, dealing with the twin challenges of a labor shortage and the Great Resignation, is a good example. Half of the nation’s workers describe their workplaces as being understaffed, according to a new CNBC|Momentive Workforce Survey, and they are the workers more likely to say they’ve recently thought about quitting, a huge threat to attrition that compounds the hiring challenges employers face.
The fifty percent of workers who describe their companies as currently understaffed are nearly twice as likely as workers with adequate staffing to say they’ve considered quitting their jobs in the last three months (43% vs. 23%), according to the survey. Overall, one in three workers (33%) say they’ve seriously considered quitting in recent months.
“It’s a vicious cycle created by labor shortages,” said Daniel Zhao, senior economist at Glassdoor. “Workers at short-staffed businesses face increasing challenges and harder working conditions. This vicious cycle is definitely a real phenomenon. Labor shortages are a double whammy for employers. It’s not just hard to hire but hard to retain.”
The CNBC|Momentive Workforce Survey was fielded among 11,227 workers in the U.S. from October 18-25.
Workers who describe understaffed conditions are less likely to say they are very satisfied with their job (42%), compared with 55% of other workers. One quarter of these workers (25%) say they are less loyal to their company now than before the pandemic, compared with 14% of all other workers.
“People seem to be fed up and leaving work,” Betsey Stevenson, professor of economics and public policy at the University of Michigan, said at Wednesday’s CNBC Workforce Executive Council Summit. While job movement can ultimately be a good thing, “it certainly is a lot of chaos while it’s happening,” she said.
Getting high levels of productivity from workers was a feature of work before the pandemic and it was compounded by the switch to remote and hybrid work during Covid.
“We removed things like driving to work, walking to the office, saying hello to someone in the hallway, we took out the breaks in the day. And people, you know, just kind of worked all of the time in many companies in many contexts,” Heidi Brooks, senior lecturer on organizational behavior at the Yale School of Management, said at Wednesday’s CNBC workforce summit. “So the problem that we had before, of over-indexing on hyper productivity, we didn’t get any wiser about that.”
The understaffing issue isn’t the root cause of the labor market issues, but a problem that naturally results from high demand for workers and not enough workers to go around as employers try to attract workers away from competitors and have a harder time retaining workers.
“In lots of people’s minds, when they think about the Great Resignation, they think workers just can’t put up with it anymore, but the element of it probably more common is because they received a better offer or feel confident that they will get a better offer,” Zhao said.
The Conference Board’s Consumer Confidence Index finds over half (55%) of consumers saying jobs are “plentiful,” while only 11% of consumers say jobs are “hard to get.”
“It’s certainly true workers are feeling increased pressure because of short-staffing issues and have more leverage to go out and find a better job, so you might see workers quitting without something lined up and feel confident,” Zhao said.
Understaffed companies may also be perceived by employees, rightly or wrongly, as struggling enterprises. Recent Glassdoor research on attrition shows that one of the biggest contributors to turnover was the business outlook. “Workers are savvy about understanding if a business is doing well and is a good opportunity for their career and pay to grow, but if doing poorly will jump ship.”
Nearly half (45%) of understaffed workers in the survey describe morale at their company as poor or fair, twice the rate among all other workers (22%).
Covid has put businesses to the test and exposed workers to which businesses are adaptable.
“If a worker sees their boss doesn’t seem to be able to manage staffing and isn’t able to find enough workers to keep me around, maybe that says something about the health of the business moving forward,” Zhao said. “Even if they are okay with the level of work they might rather do it at a company where the level of work will contribute to business success.”
Reasons to quit vary from the push of a bad job situation to the pull of a better offer and right now, the big reason for the record quit rate is more on the pull side of the equation as job options proliferate and workers become more selective in the type of jobs they are willing to consider.
“Even if working conditions were normal, and not difficult because of understaffing, we would still see very high quit rates,” said Gad Levanon, founder of the Labor Market Institute at The Conference Board. “But understaffing is contributing. It’s another reason for the high quit rate.”
If employers are hoping for a surge in unemployed workers coming back soon to solve the problem, the survey provides reason to be concerned: among 4,807 people who are not currently employed but were also surveyed by Momentive, about one in five (21%) say they are currently looking for work, though more than half did indicate that work-from-home, higher wages and flexibility in scheduling could convince them to come back into the labor force.
Private sector job growth in October tracked by ADP came in at 571,000 jobs added earlier this week, the best month since June and with pandemic-sensitive sectors like leisure and hospitality leading gains. The government’s nonfarm payroll report released on Friday showed a gain of 531,000 jobs, well ahead of the 450,000 jobs forecast by economists and the highest figure since July, with the leisure and hospitality sector leading at 164,000 jobs added. The unemployment rate fell to 4.6%, according to the Labor Department, but the labor force participation rate didn’t rise, at 61.6%, and is still below its February 2020 level from before the pandemic, which represents three million fewer Americans in the workforce.
Job growth should be strong as the economy continues to reopen, led by in-person services which are still well below pre-pandemic levels, but individuals looking for a job will be “scooped up pretty quickly,” Levanon said. That means any easing in the labor shortage will still be within the context of a historically difficult period to find qualified workers.
A majority of the workers (54%) responding to the survey support President Biden’s mandate that companies with more than 100 employees have all their workers vaccinated against Covid-19, with the political divide clear in the results: 27% of Republicans, 53% of independents, and 87% of Democrats express support. Some business groups have expressed concerns about the mandate.
More workers will feel comfortable returning to the labor force as the public health situation improves, but the labor economy will not be the same as a decade ago when it was relatively easy to hire. Already in the pre-pandemic world of 2019, the labor market was tight and it was difficult to find workers, and after the extremely rapid recovery in demand the persistent difficulty in hiring, caused by factors like population demographics and aging workers, hasn’t gone away. “It’s going to be a grind trying to pull workers back into the labor force. It will be hard for employers to hire for some time,” Zhao said.
By the end of 2022, the unemployment rate may be back below 3.5%, but that will only mean a “normal” labor shortage. “The labor shortage is here to stay,” Levanon said.
“What I hear from employers repeatedly now … I’m probably talking to two to three a day, is it’s becoming harder and harder to recruit people,” Nicholas Bloom, Stanford University professor of economics, said at Wednesday’s CNBC workforce summit.
Levanon expects that annual raises for 2022 will increase at the fastest rate in a long time because of the very tight labor market dictating that wages for new hires continue to grow rapidly and because the cost of living is rising at the fastest pace in almost 40 years.
“Unions and other workers will demand a cost of living adjustment,” he said.
How much employers will raise the salaries of current employees, either through across-the-board higher annual raises or special, one-time adjustments to retain workers at risk of jumping ship, is a serious issue for organizations.
Just 23% of understaffed workers say they are very well paid, compared with 33% of other workers.
“There are a lot of different things to think about besides the wage, but I do think this is a time where there is some pretty serious upward pressure on wages,” Stevenson said at the CNBC workforce summit.
Smart businesses are paying attention to the need to pay existing workers more in order to retain them, and if a business isn’t paying attention it represents a big attrition risk. “It’s inertia. Businesses feel like they can continue the status quo without having to make significant changes, but when the market is moving quickly and workers turning over quicker than ever it’s a reminder you need to pay attention to existing employees and what you pay employees,” Zhao said.
Thirty-seven percent of workers in the CNBC|Momentive survey said they expect to get a raise in the next year.
But raising wages doesn’t necessarily solve the root cause of the problem if the worker is quitting because they feel like they are under too much pressure and the conditions are not healthy for them.
“Once you reach a certain point, wages can convince anyone to stay, but we’re not at that point,” Zhao said.
Getting feedback from workers to understand their pain points and take targeted action is just as important, and if understaffing is an issue, the business might need to try to find additional workers, alternative labor pools or simply cut hours to prevent their current workers from getting even more burned out. “Those things are not palatable, but are really important to retain the workers you do have rather than ruin the business by running them into ground,” Zhao said.
Examples of enticements being offered more frequently by employers include providing workers with a “work from anywhere” option for a month, or even up to a year, and that in addition to the hybrid work model now becoming standard. “Go to Alaska, go to Mexico, wherever it is,” Bloom said at the CNBC workforce summit.
For the many U.S. workers who don’t have the option of remote or hybrid work, on the front lines of the labor force in service industries and in health care, Bloom said more flexibility in scheduling is key, including the option to work more hours per day but fewer days per week. “Obviously, you can put up pay, but that’s expensive. … I think being creative about work-life balance is another way to retain and recruit,” Bloom added.
Many employees feel like they aren’t being seen while they are also experiencing increased velocity and volume of projects, emergencies, and tasks that they have to address quickly, according to Steve Pemberton, Workhuman chief human experience officer. “What they’re asking for is simply the moments of acknowledgement, of saying, ‘I see you. I appreciate the extra hours that you put into this. I appreciate that you dropped what you were doing to see this project to completion or you handled an immediate task.'”
“We overcomplicate this,” Pemberton said at the CNBC workforce summit. “For an organization’s self interest, that drives retention … it drives innovation when you tell people that they matter.”
Full results and analysis from the CNBC|Momentive Workforce Survey.