Arizona’s labor force could be “the biggest opportunity and the biggest risk as far as our economy growing,” economist Jim Rounds said of the tight labor market in the state and around the country.
“We are adding a lot of jobs, but starting to get tapped out as far as workforce supply,” Rounds said.
The Greater Phoenix Chamber of Commerce Foundation released a report about the labor market in the Valley, which analyzed data over economic growth, unemployment, wages and labor participation. Arizona has recovered all jobs lost during the pandemic, and Maricopa County is experiencing unprecedented unemployment, at about 2.4%, said Jennifer Mellor, chief innovation officer at the Greater Phoenix Chamber Foundation.
“Spoiler alert — we are experiencing a contraction in the labor market, as is the entire country,” Mellor said.
There are more people in the labor force then ever before in Arizona, and the state added 440,000 jobs in the last decade. But, during the Covid-19 pandemic, the participation rate dropped dramatically.
A drop in the participation rate coupled with a low unemployment rate means many of the people who left their jobs simply are not seeking a new one. A large number of people chose to retire early during the pandemic, and many parents have cited issues with childcare as a reason for a parent to leave the workforce.
“We were making a lot of progress with the labor force participation rate,” Mellor said. “Since 2018, we saw an uptick in the participation rate, which stabilized around 2019, but the pandemic caused a drastic drop.”
Todd Sanders, president and CEO of the Greater Phoenix Chamber Foundation, said Arizona’s efforts to diversify the economy since the Great Recession means that there are jobs available in a wide variety of industries, requiring all levels of skills and education.
Rounds said many of the industries that were hit the hardest by the pandemic, like hospitality and restaurants, are also having a very difficult time recovering employees they may have lost. Many of those people have moved into different industries and do not plan to return to their old jobs.
Mellor said businesses that can be flexible on remote work or flexible schedules will have to be to compete for quality labor.
“A lot of people have seen the value in working from home, and they don’t want to go back to the traditional setup,” she said.
Anecdotally, Mellor said she knew of one business that was requiring employees to live within a commuting radius of the office, even though they were working from home. The company wanted employees to be able to come into the office if they were asked to. After having too much trouble finding people who would relocate, the company dropped the policy and allowed new hires to live anywhere.
In addition to flexibility, businesses have had to offer higher wages to attract workers, Rounds said.
“With a shortage of labor, we have seen wages go up,” Rounds said. “But we don’t want to see wages go up because of economic inefficiencies, we want to see wages go up because people are being more productive, or they are getting more skilled.”
Rounds said the state will have to look at “high return-on-investment” strategies that will aid in workforce development, especially at the high school, community college and university level.
“We need to think about investing in the economy,” Rounds said. “If we do it right, we will be raising more money (in tax revenue) than we are spending.”
Rounds said population growth will not keep up with the need for more labor force supply, and much of the growth will have to happen in Arizona’s education system.
“We are doing well, but if we want to keep the momentum, we need to keep up with workforce development,” he said.
Sanders said the Chamber has been working with the community college district and employers in various industries to tailor programs to make sure students are learning applicable skills to their chosen careers.
One of those industries that will be requiring a large number of employees soon is advanced manufacturing, as Intel grows its Valley presence and Taiwan Semiconductor Manufacturing Co. and its suppliers begin operations in the region.
“That’s one area where we really need to have a strategic focus,” Mellor said.
The Chamber is working with high school programs to bolster their manufacturing offerings and create feeder programs to help students find a pathway into those high-demand jobs.
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