Mind the Gap: The Long-Term Effects of Declining Workforce Participation

A U.S. Chamber of Commerce survey of unemployed workers who lost their jobs during the pandemic and have not returned to work detailed their reasons for remaining out of the workforce, including an unwillingness to accept jobs that do not offer remote work (49%), prioritizing personal growth, like education or training, over job searching (36%), and changes to their livelihood, such as transitioning to part-time employment, (14%), retirement (17%), or homemaker (19%). While many of these employees are finally returning to the workforce, these effects are lingering. The U.S. labor participation rate is 62.7%, down 5% from January 2001.

“For a variety of reasons, the number of working-age citizens actively seeking or currently participating in the workforce is lagging behind the number of jobs in the U.S. workplace,” said Ed Pratt, CSP, Director of Risk Control at Safety National. “With the economy’s recovery and projected growth, the labor participation rate forecast is dismal. Additionally, the elephant in the room is the birthrate of the various generations. With the aging baby boomer reaching retirement age and lower birthrates for the following generations, we are emptying the bucket faster than we have been refilling it. All these issues have coalesced into a serious dilemma for employers seeking to fill openings and replace outgoing retirees.”

Here, we break down several factors contributing to the labor shortage and the potential effects on U.S. businesses.

Early Retirements

Additional risks presented by working through the pandemic drove more than three million adults into early retirement. Many organizations were unprepared for this mass exodus, leaving talent gaps without a succession plan. Abrupt replacement of these workers, particularly in physically demanding roles, coupled with a lack of training, could lead to increased injuries for their successors. Employers can better prepare for these retirements by cross-training, upskilling, and formalizing succession planning.

Lack of Childcare Resources

Childcare access in the U.S. is a growing concern as women’s workforce participation rates have reached their lowest point since the 1970s. According to the U.S. Chamber of Commerce, more than 3.5 million mothers left their jobs in 2020, which drove their labor force participation rate from 70% to 55%. For many working parents, it comes down to costs. In 2023, the annual average cost of childcare for one child was $11,582. Much of the labor force relies on working moms, and in female-driven industries like nursing, teaching, and customer service, this shortage leaves current employees at risk. Labor challenges in healthcare have led to longer working hours, increased workplace violence, and increased responsibilities. Teachers face similar concerns with larger classroom sizes, too. Employers seeking to fill these roles might consider enhanced benefits plans with childcare assistance and flexible scheduling to accommodate a parent’s changing needs.

Reduced Legal International Migration

Authorized immigration to the U.S. is rebounding, but below-average levels are still contributing to workforce shortages. Limited immigration policy during the pandemic led to a loss of approximately 1.65 million working-age foreign nationals. For industries that rely heavily on foreign-born workers, like construction, manufacturing, healthcare, and agriculture, a workforce shortage can lead to more demanding workloads for existing employees. Compromised safety standards and poorer working conditions ultimately lead to increased workplace injuries. A labor shortage can dramatically impact industries that already face a higher rate of catastrophic injuries.

Alternative Income and Startups

New business applications continue to reach record high numbers, with 5.5 million started in 2023. Some of these businesses were started by employees who left the workforce during the pandemic and did not return. Additional income sources, like the influencer market via social media, have driven a younger workforce to seek nontraditional jobs. With this cultural shift, employers will need to adapt their recruiting efforts to make more traditional roles more attractive, with many already adding benefits like unlimited paid time off and work-from-anywhere policies. However, in the near term, these job openings that younger applicants once filled remain vacant, leading to a widening gap in industry knowledge and creating further challenges for succession planning.