Higher prices not likely to go away soon as businesses struggle to find workers, industry experts say

After being hit hard in 2020 by low customer traffic because of the COVID-19 pandemic, businesses have regained the customers but not the workers.

All across America, businesses of all shapes and sizes are looking for employees. Current employees, especially in the service industry, are working extra hours to make up for the labor shortage, while some businesses have reduced their hours because no employees are available to fill those hours.

“It’s a lot of factors running together,” said Todd Maisch, Illinois Chamber of Commerce CEO.

Many people lost their jobs during the pandemic, received financial assistance and chose to stay home longer, Maisch said. Now, as pandemic restrictions on businesses have ended, people are being more selective about where they work, weighing external factors such as child care, or choosing not to participate in the labor market.

“People are using this opportunity to go ahead and reassess what their next steps in their careers are,” Maisch said.

The unemployment rate is down to 4.6% in October from about 7% in October 2020, according to the Bureau of Labor Statistics.

Across the country, the number of people working is down, too. The labor force participation rate is at 61.6%, which is down from 63.4% before the pandemic. It’s the nation’s lowest participation rate since October 1976. In September, 3% of all workers, or 4.4 million people, quit their jobs as part of what is being called the “Great Resignation.”

The reasons people have stopped looking for jobs or haven’t started since losing work during the pandemic are varied, but in many ways are related directly to the virus’ unpredictability and whether its spread will slow or grow.

“Nailing exactly what is creating that reasoning is hard to understand. Is it because they had kids and there is still an extra level of fear that, ‘I have to be the one to take them if the school closes down?’ People are waiting, holding off,” said Tammy Batson, the director of Northern Illinois University’s Center for Economic Education.

Some of the labor issues and trends seemingly created by the pandemic already were present, but have just been exacerbated or accelerated by the outbreak, she said. Many Baby Boomers, for instance, already were on track to leave the labor force within the next few years before the pandemic struck. But the threat of catching the virus at work made an early exit from their jobs a logical choice.

The same is true for wage increases. Illinois already was on a course toward a $15 an hour minimum wage, starting in 2025. The risk COVID-19 has added to working, especially in service jobs such as at restaurants and hotels, means that the $15 hourly rate is the new floor many workers are willing to accept, Batson said.

“Because of COVID, I may ask you to pay me $15 anyways. As parents, I would have asked you to pay my student that. Otherwise the cost-benefit is not there. With COVID, I think that $15 may just be a new mandatory,” Batson said.

She said wage increases meant to lure employees will not take place evenly across industries. Women, who left the labor force at higher rates than men during the pandemic, may feel less urgency to return to the workforce, in part because of the temporarily expanded child tax credit President Joe Biden signed into law this year that provides up to $300 a month per child to many parents, she said.

“Wages are fluctuating up, but they’re also kind of realigning, because some will move up faster than others,” Batson said. “Some industries that worked this whole pandemic, I think those workers are worn out. People in health care, I think you’re seeing a lot of shortages around because the labor force is tired. You have to pay me more to feel less tired.”

Restaurants were hit especially hard by indoor dining restrictions during the pandemic. Now that people are back to eating out, restaurants are struggling to find enough employees to meet the demand. Sometimes, they’re forced to reduce hours.

“Even in good times before the pandemic, restaurants see 97 cents of every dollar go out to labor costs, fixed costs,” Illinois Restaurant Association CEO Sam Toia said. “When you have to close a day of the week ... no one puts their business model closing any days a week.”

This is making recovering from the economic downturn of the pandemic difficult, Maisch said.

“If you have to constrict the hours you’re open to customers because you can’t find enough people to go ahead and staff your restaurant, that is straining your margins even more,” he said.

Bar and restaurant workers in some cases may have had no choice but to look for other jobs, as far less traffic led to fewer tips, Batson said.

Labor shortages also are causing problems elsewhere.

The hotel industry, for example, also took a hard hit during the pandemic. Illinois Hotel and Lodging Association CEO Michael Jacobson said hotels are not filling all the positions they had before the pandemic and many are keeping occupancy lower because of the lack of staff.

“They could be selling those other 30 to 50 rooms, but they’re not because they simply don’t have enough people to clean them and people to take care of them,” Jacobson said. “It’s a shame they’re turning away what could be potential business and for the cities what could be potential tax revenue.”

Illinois’ longer and more restrictive pandemic shutdowns also are playing a role, Jacobson said, because many employees who were able moved to other states to find work while their jobs remained shut down in Illinois.

“If they see a hotel job open 50 miles north of us in Wisconsin, they left and moved to Wisconsin, and now we’re struggling to get them to come back,” he said.

The labor shortage also has consequences for consumers, Maisch said.

“It’s the higher prices, but then also availability of goods and services has already been impacted. And I think that will stay that way for a period of time,” Maisch said.

State Rep. Tom Demmer, R-Dixon, said Illinois is at a disadvantage to other states in recovering workers because of the state’s outmigration trend, particularly among younger workers.

Illinois lost about 18,000 residents in the past decade, according to the 2020 Census. The state’s population dropped to 12,812,508 in April 2020 from 12,830,632 in April 2010.

“Even if we get through this short-term pinch, in order to be successful economically long term, we’ve got to have a good workforce. You get that by attracting good people to move to your state, slowing the number of people who are moving out, and Illinois for a long time has not kept pace with the average state’s [population growth],” Demmer said.

Demmer said lawmakers can adopt policies in the short term to help businesses, but long-term solutions to make Illinois a more attractive place for people to work will have a greater impact.

On the restaurant side, Toia said his organization is working to make it easier for restaurants to hire immigrant workers, which he says make up a large portion of the industry’s workforce. He said he is lobbying federal officials to get hospitality workers on visas allowing them to work in the U.S.

“Restaurants are the soul of every neighborhood, so it’s important that we support the small businesses,” Toia said.

Hotels are trying to change the perception of what it means to work in the industry. The hotel industry is a place people can move up in their career quickly and it is not just a low-paying industry with blue-collar jobs, Jacobson said.

“Instead of just focusing on hiring the next person, how can we make sure the employees we have are valued, understand they’re valued, and hopefully we get them to stay instead of going out to look at other industries?” Jacobson said.

As for why this problem is happening, Maisch said, “it’s called the marketplace.”

Businesses must compete with each other to attract employees, he said, by offering more competitive benefits, flexible schedules and pay. He said it’s likely the country will deal with labor issues for months or years, unless a recession hits and businesses stop looking to grow their operations.

“It’s real difficult” Maisch said. “That’s why I continue to say consumers, be ready for cost increases. They’re going to continue to come.”

That may not necessarily be all bad, however, said Batson, the NIU economist.

Higher prices in some cases will reflect the delivery of higher quality products or services,. In others, it will mean workers are making more and are able to spend more, with both situations potentially leading to a better long-term economic picture.

“High prices are a difficult conversation, what is causing them,” Batson said. “I think there is a little shuffling of prices and the labor market in general. I don’t think after a thing such as this pandemic, we can expect a society that does not have shuffling. We should be happy for the shuffle. We saw some of the failures of our current system. This realignment is good, I think. It just takes a moment.”