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Greenville Business Magazine

Workforce Challenges Likely to Outlast Pandemic, Fed President Says

Jul 01, 2022 03:49PM ● By David Dykes

We can all agree the U.S. economy is in a prolonged period of uncertainty, with inflation the focus of monetary policy, stock markets wavering in volatile sessions, and consumers trying to make sense of it all.

Yet, top Federal Reserve officials remain hopeful, businesses see promise in Covid-recovery efforts, and labor market friction shows signs of easing.

But here’s a warning from Tom Barkin, president and CEO of the Federal Reserve Bank of Richmond: Labor shortages could last far beyond the pandemic.

As our workforce ages and birth rates decline, we could find workforce availability limiting our economic growth, says Barkin, who has held his position since 2018.

Barkin serves on the Fed’s chief monetary policy body, the Federal Open Market Committee, and is also responsible for bank supervision and the Federal Reserve’s technology organization. 

He is “on the ground” continually in the Fed’s Fifth District, which covers South Carolina, North Carolina, Virginia, D.C., West Virginia, and Maryland. His engagement in the region has brought real attention to areas facing economic challenges.

Prior to joining the Richmond Fed, Barkin was a senior partner and CFO at McKinsey & Company, a worldwide management consulting firm, where he also oversaw McKinsey’s offices in the southern United States. 

He earned his bachelor’s, MBA, and law degrees from Harvard University.

In April, Barkin spoke virtually at the United Community Bank Economic Outlook Forum at the Gunter Theatre in downtown Greenville.

And in a subsequent telephone interview, he said South Carolina is an economic development winner, as evidenced by the Greenville-Spartanburg corridor. In his view, the state has done a very good job with an influx of talent and job training.

But coming out of Covid, he believes there is a new basis for competition, and that is workforce. “Everybody I’ve talked to is short workers,” he said.  

He added: “It’s been noteworthy to me that during Covid not only has the economic development landscape continued to be strong, but states like South and North Carolina are among the few states that are actually growing their workforce at some proportion—I want to say 1½, 2 percent a year—at a time where the workforce in this country is basically flat, and there are a lot of states losing workers.

“And so, I think this notion of being attractive to workers —whether that be more open space, affordable housing, good jobs—is going to be co-equal with the ability to attract companies.”

Another stumbling block—and it can be a big one—is the concern that rural areas aren’t benefiting to the extent of their big-city brethren.

In Barkin’s mind, that picture isn’t improving much.

“There’s potential for improvement,” he says. “The ability to work remote gives you potential for improvement. Investment in and access to broadband gives you potential for improvement. But it’s still the case that while unemployment is quite low across South Carolina, (labor) participation is also low. And it’s disproportionately low in the smallest towns.”

He’s talking about prime-age worker participation (those 25 to 54 years old). And he says that has to do with education and workforce preparation, the availability of good jobs, and workforce role models.

“I do think that’s a place for South Carolina to reach its full potential,” Barkin says. 

What the stats say. 

Statistics bear out what he’s saying.

In April, the seasonally adjusted, monthly survey of households estimated the number of South Carolinians working increased to 2,312,616. That was a significant increase of 9,017 people over the March estimate, and a significant increase of 51,896 people over the April 2021 estimate. 

The estimate of unemployed people declined to 79,176. That was a decrease, state officials said, of 1,571 people from March’s estimate and a significant decrease of 20,143 over the April 2021 estimate. 

The state’s seasonally adjusted unemployment rate decreased to 3.3 percent from March’s estimate of 3.4 percent. Nationally, the unemployment rate was unchanged at 3.6 percent.

The state’s estimated labor force (people working plus unemployed people looking for work) increased to a new high of 2,391,792, or 7,446 above March’s level of 2,384,346. That was an increase of 31,753 individuals over the April 2021 estimate. 

The labor force participation rate was up a tenth of a point to 57.3 percent.

S.C. Department of Employment and Workforce Executive Director Dan Ellzey termed April’s data “good news all around,” and said wages continue to grow.

In the past year, according to DEW data, wages in South Carolina have risen 4.38 percent, from $26.70 in April 2021 to $27.87 in April 2022. 

Ellzey said some of the increase is due to movement between industries. He said as individuals leave lower-paying jobs for work in manufacturing, for instance, that leaves more openings, which creates competition for workers and compels the lower-paying jobs to increase wages in order to attract jobseekers.

From April 2021 to April 2022, South Carolina’s economy picked up 66,400 seasonally adjusted, nonfarm jobs. 

Industries with strong growth were reported in leisure and hospitality (+20,300); trade, transportation, and utilities (+18,100); manufacturing (+9,200); professional and business services (+8,200); financial activities (+7,300); other services (+3,900); information (+2,200); and government (+200). 

Education and health services industry declined over the year (-2,600) as did construction (-600).

The No. 1 challenge DEW hears from employers is not being able to find enough workers. The second most common difficulty is that young people entering the workforce do not have adequate soft skills.

In Dillon, Barkin said he talked to a distributor who invested in a soft-skills initial training program. The distributor spent the first four to six weeks with new hires investing in soft skills so they can come to—and keep­—a job.

The challenge, especially in smaller towns, has a lot to do with isolation and role-modeling, Barkin said.   

But, he added, those skills can be developed and grown.  

Ellzey said his agency recognizes the predicament, and is leading an initiative to come up with a statewide soft-skills certification. Those include the ability to relate to people, communicate, listen and manage time.

Constraining economic growth

In a speech to the South Carolina Chamber Annual Workforce Development Symposium in Greenville last fall, Barkin said we’ve seen that shortages in labor supply can constrain economic growth. 

This might seem unique to the pandemic, but as our workforce ages and birth rates decline, we could find workforce availability limiting our economic growth, he said.

He added:

There were nearly 108 million on the sidelines. Approximately 8 million were unemployed and roughly 100 million were out of the labor force.

The pandemic exacerbated four key barriers to employment: mismatches, family care, health, and incentives.

“Overall, this is a math problem,”  he said. “Over time, we can’t grow without more workers. The best source of more workers is those on the sidelines. And those on the sidelines won’t come back to the labor market unless the math makes better sense to them, whether it be child care, benefits, compensation, transportation, or investment in education.

“It’s a challenge to improve the real and perceived benefits versus the costs of employment.”

But it is doable, he said. 

“That’s the task ahead for us, as employers and community leaders.”

David Dykes is editor of Greenville Business Magazine, Columbia Business Monthly, and Charleston Business Magazine.