Low unemployment rates are putting the squeeze on today’s economy—and it’s an issue that will challenge U.S. employers for years to come, said Jeff Korzenik, chief investment strategist at Fifth Third Bank.
“The workforce shortage is not going away,” said Korzenik, the keynote speaker at IBJ’s annual Economic Forecast event on Friday morning.
And that means employers will need to bring more potential workers off the sidelines by tapping into nontraditional sources, including former convicts.
Using baseball as an analogy, Korzenik said the nation’s economic expansion is nearing its end, in part because of the tight labor market. Companies won’t be able to carry out growth plans if they can’t hire enough new employees.
“We’re in the bottom of the eighth with two outs,” he said. “We’re clearly running out of room to grow, and we think the top example of this is labor.”
The unemployment rate in October was 3.6%, and Indiana’s rate in September (the most recent data available) was even lower, at 3.2%.
Economists consider these rates to be within the definition of “full employment,” meaning they’re unlikely to go much lower. The nation’s unemployment rate hit a historic low of 2.5% in 1953, Korzenik said, but that was likely a one-time event related to the post-World War II boom.
Population trends suggest that workforce shortages will pose a continuing challenge, Korzenik said. Millennials tend to delay having children, and as a result they are expected to have fewer children than previous generations.
And birth rates in America and many other developed nations are already below the population replacement rate of 2.1 children per woman. The one exception, Korzenik said, is Israel where the birth rate is 3.1 children per woman.
These dynamics all add up to fewer potential workers in the decades to come.
Employers looking for new workers might find success within certain targeted groups including women, older workers and those with felony convictions, Korzenik said.
The U.S. incarceration rate is 0.7%—the highest in the world—and the unemployment rate among former inmates is 27%, Korzenik said.
Employers can tap into this pool by working with not-for-profit organizations and corrections officials to identify ex-offenders who are good candidates for jobs, he said. They can also examine their risk management policies and figure out what accommodations they might be able to make—offering flexible schedules, for instance, so employees can meet with parole officers.
Korzenik offered Nehemiah Manufacturing Co. in Cincinnati as an example of success. The company’s employee turnover rate is much lower than average, and most of its 180 employees are “second-chance” hires whose backgrounds include incarceration, substance abuse or homelessness.
“If you do this right, they’re very good employees,” Korzenik said.
Older workers also prove valuable, he said.
According to the Bureau of Labor Statistics, in 2018 27% of people ages 65-74 participated in the labor force. That’s up from 25.1% in 2008, and the rate is predicted to climb to 32.5% in 2028.
The U.S. might also have success in coaxing more women into the workforce, Korzenik said.
In 2018, 75.3% of women ages 25-54 were in the workforce, a number that has remained relatively steady in recent years. In comparison, 89% of men in that age range are in the workforce.
As an example of what’s possible, Korzenik cited workforce trends in Japan. For decades, female workforce participation rates in Japan lagged those in the U.S. But, in part because of national policy initiatives, Japan’s female labor participation rate has grown significantly over the last decade and it now surpasses the U.S. rate.
“We think there’s room to grow here as well, based on the Japanese experience,” Korzenik said.