A brewery in downtown Wilmington advertises for open kitchen positions. Mark Darrough / Carolina Public Press.

As the state’s economy recovers from the COVID-19 pandemic, economists have noticed an apparent paradox: Many Americans who lost their jobs after economic shutdowns last year, particularly those in the food and hospitality industry, aren’t returning to work. 

The shortage continues as some employers struggle to meet high labor demand. While the federal government’s latest jobs report showed an increase of 850,000 hires in June, at this stage of the recovery, jobs are being filled at a slower pace than many forecasters hoped. 

Meanwhile, the state’s June unemployment rate of 4.6% — although lower than the national rate of 5.9% — is still above its pre-pandemic rate of 3.6%. 

Additionally, fears of another COVID surge have been stoked by a recent spread of the highly contagious delta variant and slowing vaccination rates across the U.S. If COVID numbers continue to rise, more and more Americans may hesitate to join the workforce to avoid catching the virus. 

According to the U.S. Labor Department, 1.6 million people didn’t look for jobs in June because of COVID. Although it pales in comparison to the 9.4 million unemployed Americans who cited the same concern a year ago, it could spike again as a more contagious variant spreads in a country where only less than half of the population is fully vaccinated. 

For Greenville-based economist Jim Kleckley, the trend is concerning.

“I know the reasons people won’t get vaccinated, but we could run the risk of throwing the economy into turmoil again,” Kleckley said.

North Carolina’s case count peaked in early February, before declining as vaccination numbers increased. But the numbers are steadily climbing, reaching 1,401 cases on Monday — a fivefold increase in less than a month. Surrounding states are seeing similar spikes.

Signs posted to retail businesses in Wilmington advertise open job positions and limitations due to staff shortages. Mark Darrough / Carolina Public Press

Michael Walden, an economist who has served alongside Kleckley as an adviser to the N.C. Pandemic Recovery Office, said a recent rise in gross domestic product and job growth across the state mirror national trends. But one trend, illustrated on restaurant signs across the state advertising higher wages or hiring bonuses, took Walden by surprise. 

“I think what stands out about this economic recovery from all the others — at least the seven or eight I have observed as a professional economist — is that we are seeing a large number of people who lost their jobs, or were furloughed from their jobs, not rushing back once those jobs have become available,” Walden said.

Aside from concerns about the new wave, Sarah House, a senior economist at Wells Fargo, believes reemployment has been slowed by an adjustment period for unemployed workers who were told the past 15 months, to varying degrees, to avoid people.

“And if you think about an industry like leisure and hospitality, where you are in close proximity to a lot of people you don’t know, that’s a mental adjustment a lot of us have to make,” she said.

“It’s not like flipping a light switch and going immediately back to the prior environment. There are a lot of frictions that need to be worked out.”

In North Carolina, more than 520,000 residents worked in leisure and hospitality in February 2020 before plummeting to 287,000 in April. Although that number spiked up over the summer before hitting a gradual incline, according to Bureau of Labor Statistics data, there remains a shortage of 59,600 workers in the industry. 

While most sectors have surpassed the 90% benchmark in terms of recovery since February 2020, the accommodation and food services sectors lag behind other industries.

Overall, the state lost 867,000 employed workers at the height of the COVID-19 recession, between February and April 2020, according to a report by Andrew Berger-Gross, a senior economist at the N.C. Department of Commerce. By May 2021, more than 700,000 workers had rejoined the workforce, leaving a shortfall of 164,000.

A chart illustrates the gap between the number of job seekers since before the pandemic and those still unemployed, as of May 2021. Courtesy N.C. Department of Commerce.

“Meanwhile, the number of job seekers is only 32,000 higher than prior to the pandemic, indicating that only a fraction of those who remain without work are actively looking for another job,” Berger-Gross said. 

But demand for labor is high, with an increase of 109,000 job openings — 42% above the state’s pre-pandemic level. 

In tourism-dependent Asheville, Jane Anderson, who heads the Asheville Independent Restaurants Association, said roughly 1,000 positions remain unfilled among 130 of the trade group’s restaurant members. 

“Many restaurants are not open for lunch; closed two days in a row each week and ultimately doing the best they can,” Anderson said.

House said recovery in leisure and hospitality jobs trails other industries in Charlotte, similar to the national trend.

“Pretty much every restaurant is looking for workers right now, and a lot of times you are seeing longer wait times, or even closures at odd hours, because they’re just having trouble staffing up,” House said. 

Workers upskill while employers may look to automation

Walden, who retired as a full-time professor at N.C. State University in March, pointed to several factors behind the current market conundrum. 

Economists found a correlation between historically high, long-tenured unemployment benefits and a reluctance to apply for jobs, he said. But this was also evident during past economic recoveries. 

Unlike other economic downturns, reluctance to return to work has a unique cause for some in the pandemic: Many parents have been hesitant to return to the workforce until they are certain their children will return to school, to avoid paying for costly child care services. 

“But I think the big, big reason (to explain the worker shortage) is that there are a lot of folks in lower-paying jobs who have taken the time of the last year, when they’ve had financial support and program support, to remake themselves, then hit the market and go elsewhere,” Walden said.

This long-term approach to job seeking — one that values a higher-paying career over a $700 hiring bonus — helps both the individuals and the economy as a whole, according to Walden. 

While a reshuffling of the labor market could increase inflation, which in turn could cause the Federal Reserve to increase interest rates, the shifts also allow workers to find jobs they prefer and make the economy more efficient. 

Companies will be forced to adjust by pushing harder toward automation, like McDonald’s rollout of new ordering kiosks in 2015, Walden said. But substituting workers with technology comes at the cost of “wiping out a whole category of jobs, albeit low-paying jobs,” he said. 

Customers order from a kiosk at a McDonald’s in Wilmington. Substituting workers with technology comes at the cost of “wiping out a whole category of jobs, albeit low-paying jobs,” economist Michael Walden said. Mark Darrough / Carolina Public Press.

When the pandemic hit in early 2020, Walden said, economists like himself predicted more and more companies would embrace automation to reduce the spread of COVID or of a future illness.  

“And it’s happening, but for an entirely different reason, which is very interesting,” Walden said. “It looks like that sector will be going more to technology, but not because the owners or managers are worried about another virus; they’re worried about what they cannot find, and that is workers.”

His peer Kleckley remembers the recession in the early 1990s, when Americans “watched the war” in Iraq on television as it was happening. This was the beginning of a new high-tech era, and companies like North Carolina textile mills determined that fewer, higher-skilled workers could produce the same output.

“Now, if you’re working in a textile mill, you might be an engineer, not a line worker,” Kleckley said.

Like the post-pandemic recovery, the early ’90s recession was characterized by a sluggish employment recovery. The ensuing tech explosion over the next decade saw the rise of the internet, cellphones, and more mechanized farming and manufacturing as industries were forced to adapt. 

Kleckley believes businesses like restaurants need to consider what McDonald’s did six years ago to adapt to a changing workforce today.

“Higher-skilled workers, more technology — that was going on in spite of the pandemic,” Kleckley said.

“Then we had this disruption like we’ve never seen before, and from an economist’s standpoint, a year ago I was at more of a loss than I’d ever been about what the economy was going to look like three months, six months out. We just had never seen anything like that.”

Walden said many low-income retail workers are likely finding success entering higher-value industries like technology and health, which are growing in North Carolina — particularly in the Triangle — and offer jobs that don’t require four-year degrees. 

In the information technology sector, for example, the total number of hires increased by roughly 2,400 since February 2020.

But gains in some sectors mean challenges for others.

“We’re growing in technology and health care, where people can upskill and go into those industries,” Walden said. “Then at the same time, we do have a very large leisure and hospitality sector, so the problems of the owners dealing with these [shortage] issues are also paramount.”

Although Kleckley is confident the economy will keep moving forward if it can stave off a potential delta variant-driven wave — more specifically, that employers and individuals will find the necessary solutions and adjust to a post-pandemic economy — he believes it will take longer than many hope.

“This is going to work itself out; it’s just not going to happen today or tomorrow,” Kleckley said.