The Bottom Line
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The Bottom Line

Pandemic unemployment benefits are ending, but for big companies, labor shortage worries aren't

Key Points
  • The September expiration of Covid-19 unemployment benefits is not resulting in more confidence among large corporations about their ability to find and hire workers.
  • The CNBC Global CFO Council survey for Q3 2021 finds an increasing percentage of U.S.-based companies saying it is harder to hire, and over 90% say they are raising wages.
  • The delta variant, back-to-school season and the unclear impact of the unemployment programs are adding to labor market uncertainty, and the CFO survey results imply that worker shortages and wage inflation may persist longer than many pundits predicted.
A woman walks by a "Now Hiring" sign outside a store on August 16, 2021 in Arlington, Virginia.
Olivier Douliery | AFP | Getty Images

As pandemic unemployment benefits programs end in September, the belief that will push more workers back into jobs is going to get another test. But big corporations, even with more power to offer higher pay and more generous benefits than small businesses, don't seem confident that their ability to hire workers amid a record labor shortage is going to get any easier fast.

Among a select group of CFOs of major U.S. corporations recently surveyed by CNBC, 95% say it is harder to find workers for open positions now, up from 18% who said that it was harder in the first quarter of the year. That's according to the Q3 2021 CNBC Global CFO Council survey, which found on a global basis 84% of CFOs saying it is harder to hire.

The labor shortage isn't a new phenomenon. It predated the pandemic and was then compounded by Covid-19 and has been a major topic of concern throughout this year. But the sharp spike in CFOs of large corporations citing concerns about hiring suggests that the supply and demand imbalances in the market for workers isn't going to correct itself quickly. That has economists more worried that the labor shortage and wage inflation may last longer, and be more severe, than expected. 

The CNBC Global CFO Council survey was conducted August 13 to August 26 among 39 members of the Council, which in all includes companies with over $5 trillion in combined market capitalization.

Delta variant concerns impact return to office plans
Delta variant concerns impact return to office plans

For large corporations, hiring may remain as tough, or even get tougher, than it's already been in 2021 because the hiring they have already been able to do may be exhausting the pool of available workers. Between the first half of June and second half of August, unemployment data shows that many workers were hired, according to Gad Levanon, founder of the Conference Board's Labor Market Institute, but he said that might have been the "low-hanging fruit among workers willing to work."

The Conference Board's latest Consumer Confidence Survey indicates that workers continue to believe they have the upper hand. Those saying jobs are "plentiful" remains near 55%, while those saying jobs are hard to get is roughly 12%, a finding that has been consistent in recent months and remains near a record high. In Q1 2021, the percentage of people saying jobs are plentiful was roughly 25%.

Daniel Zhao, senior economist and data scientist at Glassdoor, said this crisis is different from previous periods of labor shocks with a huge pool of workers temporarily laid off or furloughed and those workers have already been rehired or found other opportunities.

"We think it's gotten tighter since earlier in the year," Zhao said. "Job openings continue to reach record highs and are well above historical levels. ... At this point, any hiring needs to draw from unemployed workers or pulling workers in from those out of the labor force, which is always hard, and even harder now with pandemic," he said.

The unemployment benefits debate

With some states having already ended enhanced unemployment benefits and looming expirations this month, labor experts including Levanon had expected an easing in the labor shortages, but now he says there is less reason to be confident in the unemployment benefits as a swing factor. "It still could make a difference in the weeks ahead, but it hasn't yet," he said.

Some early data on the topic from states that cut the benefits supports the view of critics who said the argument it was the reason for labor shortages was wrong. Levanon said there isn't enough data yet to conclude that the end of the enhanced unemployment benefits won't lead to some effect on the labor market, but he added, "I don't think once people run out they will all at once stampede into the job market. It could take some time before we see this effect." And he added, "we should be less confident that lower unemployment benefits will make a big difference."

With the full withdrawal of programs coming in the days ahead, Zhao said the effect may increase, but it also may take more time than many people thought, with the increased savings that have been amassed by Americans during the pandemic enabling workers to hold out for better jobs a little longer. "Some folks were overly optimistic on how much of an impact the labor market would draw from enhanced unemployment benefit programs ending," Zhao said. "The debate on the empirical data isn't settled and we will need months to know," he added.

The delta variant, the economy, and workers

The end of the unemployment benefits is occurring as the delta variant of Covid continues to surge and school season begins, which should ease child-care issues for workers. But between the second and third quarter of 2021, the impact of the delta variant has increased and that makes the issue of worker health concerns bigger than many hiring firms may have expected coming into the fall.

And at the same time, firms remain confident in the consumer outlook, economy and market, which means demand for labor remains strong even as more workers remain hesitant about coming back. A majority of all CFOs surveyed by CNBC (64%) say that the delta variant of Covid-19 has only changed their outlook "a little," while 20% of all CFOs surveyed say that it's changed their outlook "a lot." Among U.S. CFOs, 68% said it has changed their outlook "a little"; another 16% said it hasn't changed their outlook at all.

The CNBC CFO Council survey shows broad economic confidence from CFOs, with the U.S. economy described as "improving" for the third-straight quarter; no CFOs citing consumer demand as the biggest current external risk to business; and more than half of U.S. CFOs (52%) saying the Dow Jones Industrial Average is more likely to reach 40,000 than correct.

"There is still a significant level of labor demand and with rising health concerns from the delta variant, it seems likely fewer workers available as a result," Zhao said. "Demand for workers remains high because companies are still confident in the outlook for the economy," he said.

Even if consumer demand softens, Zhao said it won't change conditions in the labor market, because it is reasonable to suspect that would also mean fewer workers willing to take health risks. "That would only make labor shortages worse," he said.

Hard to quantify factors also remain a complicating factor in the labor market and reason for firms to remain on edge when it comes to hiring leverage. Among these factors, the idea that there is a "great resignation" taking place among America's workers and a general reconsideration of life and work priorities during Covid cannot be discounted, even if hard data is lacking.

That's the "fourth factor," Levanon said, after the delta variant, unemployment benefits and school reopening season, in trying to understand the labor market dynamics. "It's kind of more vague, but Covid gave people a chance to reflect on their lives and what they want careers to be and maybe they don't want to work at all. It is a mushy concept, there's no way to quantify it, but what if it is a big deal? Then lots of assumptions about labor shortages ending in September and the labor market going back to normal will be postponed," Levanon said. 

Almost all companies raising wages

In his recent remarks at Jackson Hole, Federal Reserve Chair Jerome Powell described wage inflation as being where the central bank wants it to be, rather than being at a level where there should be concern about the historical relationship between wages and consumer pricing, the "wage–price spiral" where companies pass along those costs to consumers stoking general inflation. But he added it is a situation that the Fed needs to monitor "carefully."

It is of growing concern to economists as labor shortages persist. Among U.S. CFOs responding to the CNBC survey, roughly 90% say they are raising wages.

The most likely scenario, according to Levanon, is some easing of labor shortages and the off-the-charts wage growth in some industries that have struggled to bring back workers will come down, but the situation is far from comfortable for the economy.

The "wage-price spiral" hasn't been an issue in four decades during a period of low inflation, but for the first time in a long time, it is "something we should at least be thinking about," Levanon said. "We should be more worried about wages and inflation than we were even three to four months ago."  

Some of the recent wage inflation is a "catch-up" from earlier in the pandemic when wage growth was slow, but tightness in the labor market is the biggest factor now. "I expect it to remain tight at least for the next few months, if not longer," Zhao said. It is not only the pandemic effect, but how tight the labor market was pre-pandemic due to economic expansion and demographic factors, including an aging workforce and fewer experienced workers available.

More than wages needed to win war for talent

"You never get a pass in any labor market, particular a hot one, if you're not getting the basics right," Nickel LaMoreaux, chief human resources officer at IBM, said about raising wages on a CNBC Workforce Executive Council LinkedIn livestream on Monday.

"It's a pretty dynamic time in the marketplace right now, and you're seeing some pretty big trends and changes so you need to start with ensuring you are offering competitive wages," said Synchrony chief human resources officer DJ Casto speaking during the same CNBC WEC livestream. The company recently increased its wages for entry-level workers to $20.

Even as they all hike wages, large companies realize they need to do much more in this job market.

That is the "flipside of the labor shortage," Zhao said, the degree of difficulty companies face retaining workers is as high as it is for hiring new workers right now.

"It's a two-sided problem. Some of these larger companies are experiencing higher competition for labor," he said. "Quits are at record levels and an indication of not only how tight the labor market is but how difficult it is to retain workers."

Falling into a "fire-fighting, reactive mode" is easy right now, LaMoreaux said, but hiring firms need to take a longer-term view in the war for talent, especially in light of statistics suggesting a labor shortage that is not going to slow even after the pandemic imbalances are sorted out. There may be as many as 120 million open jobs in digital and tech jobs in the years ahead. "You must pay competitively but companies that paint this as a wage issue will miss out on great talent," she said.

The confluence of factors pressuring hiring efforts in the current labor market make the outlook uncertain, but Indeed economist AnnElizabeth Konkel wrote in an email she thinks it is still too early to know how labor market supply and demand will trend in the fall.

"The labor market is going through a transition period right now. School reopenings, federal UI benefits ending and the delta variant surging are all colliding at the same time. All of these forces play a role in workers' decisions about going back into the workforce. ... Later into the fall, we will hopefully have more clarity."

Raising wages isn't enough to win the war for talent: IBM, Synchrony, Realtruck HR leaders
Raising wages isn't enough to win the war for talent: IBM, Synchrony, Realtruck HR leaders