Why pay raises alone won't help fill America's 11 million open jobs

Fg Trade | E+ | Getty Images

Millions of American are quitting and starting new jobs at record pace while openings remain at an all-time high, and employers are at a loss over how to solve the talent crisis.

Some 6.7 million people were hired into new jobs in February, according to the Labor Department's latest Job Openings and Labor Turnover Survey, with the biggest gains happening in construction.

Hiring outpaced 6.1 million separations for the month, including an elevated 4.4 million people, or 2.9% of the workforce, who quit their job voluntarily. Quits rose across retail trade, durable goods manufacturing and public education workers for the month.

With job openings high and not enough people to fill them, economists say that even more money and flexibility won't stop record turnover, and it could make America's burnout problem worse.

99 million people aren't looking for work

Even though quitting and hiring is happening really fast, the job market isn't pulling people pushed out of the labor force during Covid back in, says Ron Hetrick, senior economist with Emsi Burning Glass, a labor market analytics firm. He tells CNBC Make It the level of churn happening is like "recycling the same workers back and forth without bringing in new people."

The U.S. labor market had 11.3 million job openings in February, with the biggest increases happening in arts, entertainment and recreation; educational services; and federal government. A lot of openings are for in-person jobs, so "we're going to have an imperfect labor market. You won't always have people where they need to be" to fill vacancies, Hetrick says.

Meanwhile, there were only 56 unemployed workers for every 100 job openings.

Though the average unemployment rate is ticking down, the number of people not actively looking for work remains high — nearly 99 million people according to the Census Household Pulse Survey from March 2 to 14. Of that share, nearly half, or 42.4 million, were retired. For comparison, in the survey's first week from April 23 to May 5, 2020, the Census Bureau reports 117.8 million American's weren't working, and roughly one-third, or 37 million, were retired.

After retirees, the next-largest group of people not actively looking for work in March 2022 include 18.8 million who gave "other" as their reason, and another 7 million didn't report a reason at all. Elsewhere, people reported they were unable to work because they were sick or disabled not related to Covid; responsible for caregiving; sick with Covid or caring for someone else who was; or concerned about Covid risks.

It's not about pay — yet

Employers are scrambling for a solution to reach these tens of millions of Americans, Hetrick says: How do you advertise that you're willing to be flexible in a job to someone who's not actively looking for one?

With companies raising wages and offering flexible benefits, Hetrick doesn't think money is the main issue keeping people out of the workforce.

"I don't think this is about pay," Hetrick says. "It's about, 'is this job going to fit with the circumstances of my life?'"

For example, workers with caregiving responsibilities might not think an employer will be accommodating to their schedule, Hetrick says. "If there are people out there who think, 'I don't see how work can fit into what's going on in my life right now,' and if employers are willing to work with them to make it fit — that's the disconnect we have to fix."

He says companies will have to do "earnest, intentional discovery" to figure out how to make jobs more accommodating to people not in the workforce. Until then, "employers are wishing this problem away."

More people could come back to the labor force out of financial necessity, too. According to the Census Household Pulse Survey, many people not actively looking for work are paying their bills by relying on credit cards or their savings accounts. Rising inflation could draw down those resources and require people to take new jobs.

A tight job market could make burnout worse

Rucha Vankudre, senior economist at Emsi Burning Glass, says she expects the tight labor market with record churn and openings to continue, unless employers make a drastic decision to cut back their workforce.

But Hetrick says the level of churn during the ongoing Great Resignation could lead to burnout among the people who stay put. "If you're an employer asking workers, 'Hey, I just need you to give a little more until we staff up,' you're now five to six months into doing that."

Productivity has remained high even in industries facing supply chain issues and labor shortages like manufacturing, he adds. Leaders in those sectors should be concerned for the resilience of their strained workforces, Hetrick says: "Can we continue these [business] gains, or do we risk burning people out?"

Check out:

Project management is an in-demand skill—here's how much 3 people make doing it

How to get your old job back if you hate your new one

How people have changed the way they think about work, according to their therapists

Sign up now: Get smarter about your money and career with our weekly newsletter

This 27-year-old former NYSE trader went from making $12,000 to $650,000 in 4 years
27-year-old former NYSE trader went from making $12,000 to $650,000 in 4 years