When COVID-19 entered the U.S. in early 2020, it struck an economy experiencing serious worker shortages, especially in blue-collar and manual services jobs. Within weeks, pandemic layoffs and restrictions sent unemployment soaring from historic lows to a peak of 15 percent (April 2020). Labor shortages appeared to be a thing of the past for the foreseeable future.

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One year later, the unemployment rate remains elevated, at around 6 percent. But qualified workers are once again hard to find, with the National Federation of Independent Businesses reporting that 44 percent of firms have job openings that they are unable to fill—an all-time high on their survey.

Labor Shortages Are Making a Comeback, a new report from The Conference Board, examines the unique factors and long-run forces driving this return to extremely tight labor markets.

“Just as job losses in the COVID-19 recession were unprecedented in speed and severity, the post-pandemic recovery has set off a historic set of recruiting difficulties,” said Gad Levanon, Vice President, Labor Markets at The Conference Board. “Some of these reflect unique factors likely to fade by the end of 2021, easing acute hiring troubles. But they are accompanied by a return—or even acceleration—of the same long-term drivers behind extremely low unemployment before the pandemic. Together, these short-run and structural causes will keep labor markets tight until the next recession.”

Among the report’s key findings:

Though unemployment rates remain high, labor shortages are already back in many industries—reflecting the unprecedented nature of the pandemic recovery:

• The combination of a surge in demand with stagnant labor supply created historic recruiting difficulties in April and May of 2021.

• Usually, businesses form and expand gradually during periods of economic growth, creating a steady demand for workers. Now, however, as the economy reopens all at once, demand for workers is surging across the board in many sectors.

• The Conference Board®-The Burning Glass® Help Wanted OnLine® (HWOL) reports rapid growth in the volume of online job ads over recent months. When in-person services reopened in early 2021, demand for labor in food servicestour and travel guides, entertainment attendants, and hotel occupations exploded—pressure that is extending to construction and freight transportation as well.

• On the supply side, quit rates remain historically high and many working-age adults may be slow to re-enter the workforce because of lingering factors driven by the pandemic—including fear of getting infected, childcare and remote schooling, elder care, and high federal unemployment benefits.

Employers are deeply impacted, forcing new strategies on recruiting, retention, and wages:

• The most basic and intuitive way to solve labor shortages is to raise wages—and according to the Employment Cost Index, Q1 2021 saw the fastest wage growth in 20 years.

• Beyond pandemic factors, the massive retirement of baby boomers is further reducing labor supply. Because the pandemic was riskier for older workers, some may have had more incentive to leave the labor force. And unlike the 2008–2009 financial crisis, stock and home prices rose sharply during the pandemic, making older workers more financially prepared for retirement.

• Overall, the working-age population is shrinking for the first time in US history—a force poised to exert long-term downward pressure on the unemployment rate.

• Labor shortages can be somewhat alleviated—though not completely resolved—by adopting a mix of new recruitment strategies. These include employee referral programs, contracting with staffing firms, employing technology to better find and target candidates, and streamlining the recruitment process with fewer interviews and faster hiring decisions.

Recruiting and retention difficulties are more pronounced in blue-collar and manual services jobs—reflecting both short- and long-term trends:

• While demand for these workers is rapidly growing, blue-collar and manual services labor supply is low: These workers face high infection risk and elevated unemployment benefits are an attractive option for workers with relatively low wages.

• Unsurprisingly, wage acceleration is fastest in these blue-collar and manual services jobs, with growth already above pre-recession rates. For management and professional workers, wage growth is more moderate (and had already begun to slow before the pandemic).

• While employers may struggle, the tight labor market is great news for workers —especially those in the lower-paid jobs facing major shortages. Respondents to The Conference Board Job Satisfaction survey who say that openings are “plentiful” in their area are much more likely to be satisfied with their jobs than respondents who say that “jobs are hard to get.”