Today, the United States has about 1.2 job openings for every unemployed person, a ratio nearly six times higher than what it was in 2010. Only at the height of the COVID-19 pandemic was the market tighter. While labor supply ticked up recently, low productivity has kept labor demand high in sectors like healthcare and construction, and demographic changes will dampen growth in the labor supply over the long term.
As businesses across the United States have struggled to fill job openings, labor market tightness has come at a cost. New research by my colleagues Anu Madgavkar, Olivia White, Chris Bradley, and others at the McKinsey Global Institute finds that the U.S. economy could have grown by 1.1 percent to 1.6 percent more in 2023, or by as much as $442 billion, had U.S. companies found enough workers to fill the jobs available.
Nor is the United States an outlier. Across the world’s eight largest developed countries—Australia, Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States—the number of job seekers is roughly equal to the number of job vacancies.
This long-developing trend, in part a reflection of aging and declining population growth, poses a significant challenge to economic growth and could exacerbate inflation. To address this issue, policymakers must prioritize policies that encourage labor force participation and skills development.
Fortunately, there are a variety of ways to expand labor force participation, develop skills, and use new technologies to increase productivity. Investing in skills development and training programs would ensure that workers have the skills needed to fill in-demand jobs, reducing the mismatch between the skills employers need and the skills workers have. Expanding access to childcare and eldercare and offering more flexible work arrangements would make it easier for people, and women in particular, to remain in or enter the workforce.
Automation can help boost productivity to offset the impact of tight labor markets on economic growth. As application of automation and generative AI spreads more broadly, lower wage jobs that pay less than $38,000 annually are 14 times more likely to be affected than higher wage jobs, and those workers will need to acquire new skills to facilitate transitions to better paying jobs.
Tailored immigration programs can attract the types of workers needed to fill job openings. For example, Germany updated the Skilled Immigration Workers Act to make it easier for German companies to hire workers from outside the European Union and easier for foreign workers to apply for jobs. It did so by elevating the importance of work experience over education and by making it easier for workers to bring their families. Such programs can better match workers to available jobs and reduce the impact of labor tightness.
In the United States, the latest employment data found a small increase in the labor force participation rate, which rose to 62.7 percent, with the participation rate among women of prime working age reaching 78.1 percent, matching the record set in May. Some 84 percent of workers aged 25 to 54 years were working, the highest share of the workforce since 2001.
These recent increases in labor force participation bode well for the U.S.’s future growth prospects. However, to continue to build the workforce we need for the future given demographic changes will require further workforce participation growth, developing workers’ skills, deploying of automation, and targeted immigration. Taking these steps can ensure that the U.S. economy remains strong and dynamic for future generations.
This article originally appeared in Forbes.