Why Is the Labor Market So Tight?

The labor market tightness has been felt across the United States. But what does it mean when the labor market is “tight”? In this blog, we discuss the tight job market, factors that affect the job market, and how to find workers (and work) when the job market is tight.

What Does It Mean When the Labor Market Is Tight?

What does “tight labor market” mean? The job market is “tight” when there are more positions available than unemployed workers willing and able to fill them. The current ratio of job openings to unemployment suggests that there are nearly two job openings for every unemployed individual looking for a job. And when there’s more work than workers, it tends to give workers the upper hand. 

One result of the job market tightening is wage growth. Due to the tight job market, the International Monetary Fund (IMF) estimates that the annual growth rate of wages in low-pay industries increased by 4 to 6 percentage points between mid-2020 and late 2021. The labor market tightness has been good news for low-wage workers, but it’s also led to inflation.

When few workers are available, companies increase pay to retain employees and attract new ones. As labor costs go up, companies raise the price of goods, passing on their higher costs to consumers. Consumers then ask their employers for raises to afford the higher cost of living, so the inflation cycle continues. 

Unfortunately, inflation has been higher than wage growth since mid-2021. Interest rates are rising to help offset inflation, but the labor market tightness isn’t loosening.

What are some factors that affect the job market?

Factors That Affect the Job Market

Why is the labor market tight? Below are some factors that affect the job market and have contributed to its tightness.

1. Covid-19. Unemployment rates reached near-record highs as a result of the pandemic. However, since the start of the virus, high schoolers have shown new interest in skilled trades, giving hope for the future of the trades.
2. Immigration. Immigration has decreased since the pandemic and restrictive policies were implemented, but it’s another factor that affects the job market. According to research, the country experienced a loss in working-age immigrants at the end of 2021, contributing to the labor shortage.
3. Early retirement. The pandemic drove more than 3 million adults into early retirement. If there aren’t enough young people available to take the positions of retirees, it adds to the labor market tightness.
4. Skills gap. With the onset of new technology and the absence of experienced, skilled workers in the trades due to retirement, the skills gap continues to widen.
5. Entrepreneurship. Some employees either quit their jobs or took being let go as an opportunity to open their own businesses. In 2020 alone, more than 4 million new businesses were started.
6. Increase in savings. More unemployment benefits, stimulus checks, and limited spending opportunities during the pandemic contributed to Americans collectively saving $3.7 trillion. Those who made more money on unemployment than at their jobs could comfortably sit out of the labor force, adding to the tight job market.

Employers and workers alike are feeling the impact of the job market tightening. So, how does one find work and hire work when the job market is tight?

How to Find Skilled Workers (and Work) In a Tight Job Market

Skillwork is a skilled trades staffing agency that connects tradesmen with employers across the country. Whether you’re looking for a job or a skilled worker, we can help.

As the tight job market returns the upper hand to American workers, partner with Skillwork to find the best trade job for your unique skill sets. Additionally, our travel staffing model opens up even more opportunities for tradesmen to find work and gain experience in new places. 

Employers looking to fill vacant positions can also use Skillwork to find and vet skilled workers even while the job market is tight. Take advantage of our extensive network by working with us to find the most qualified worker for the job as soon as you need them. Our thorough 8-step vetting process ensures that every worker is a good fit.

Contact a Skillwork recruiter to learn more about how we can help you find a trade job or hire tradesmen.