U.S. business owners claim they have millions of job openings but few workers willing to fill them.

And with the U.S. slowly emerging from the coronavirus pandemic, economists say this brewing labor crisis threatens the economic recovery as lost sales start to pile up.

"Some have had to turn away business and scale back operations due to being short-staffed," said Holly Wade, executive director of the National Federation of Independent Business' research center, in an interview. "Others are trying to meet demand by working longer hours, paying overtime and bonuses for employees willing to work extra hours, but those adjustments are not sustainable over the long run."

Potential employees, hesitant to return to the U.S. workforce due to concerns of the virus, loss of expanded unemployment benefits and limited childcare options, have pushed the labor shortage to historic proportions.

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The Bureau of Labor Statistics on May 11 reported 8.1 million open jobs in the U.S. at the end of March, the highest amount since the bureau began tracking the data in December 2000. And in its May 6 jobs report, the National Federation of Independent Business reported that a record 44% of small-business owners reported job openings they could not fill in April, up from 24% in April 2020 and up from the average of 22% over the past 48 years.

"They simply need more employees," Wade said.

Hiring challenges

The labor shortage has hit the construction, manufacturing, transportation and restaurant sectors particularly hard, Wade said. But the scarcity of workers has impacted all corners of the economy.

"I think everybody right now … is challenged from a labor perspective and a hiring perspective," said Stuart Levy, executive vice president and CFO with Domino's Pizza Inc., during an April 29 earnings call.

Chipotle Mexican Grill Inc., on May 10 announced that it would boost its minimum worker pay to an average of $15 per hour by the end of June as it looks to hire 20,000 new workers. The company also said it would pay hiring referral bonuses for current workers and a range of other benefits, including a path to six-figure annual pay for employees who move into management.

Timothy Spence, president of Fifth Third Bancorp, said labor shortages in skilled trades had impacted multiple sectors.

"And the byproduct of that is we're not seeing the inventory building that you might otherwise expect to see yet," Spence said during an April 20 call.

Stephen Steinour, CEO of Huntington Bancshares Inc., said that in roughly 50 conversations with other heads of companies since early March, all mentioned a shortage of workers for open positions.

"Universally, they talk about inability to get adequate labor," Steinour said during an April 22 earnings call.

Many factors at play

The shortage of willing labor is due to multiple constraints facing the American job market, economists said, including continued fears of the virus, limited childcare options, an aging population now out of the workforce and expanded unemployment benefits that may be keeping workers from returning to low-paying positions.

"All those factors play together," said Gregory Daco, chief U.S. economist at Oxford Economics, in an interview. "If you still have virus fears, then that plays a role in the decision to take a job or unemployment benefits. If your school is reopened or partially reopened or your childcare facility has closed permanently, that will affect your decision to go back to work and take the unemployment benefits if you have access to them."

On May 7, the Bureau of Labor Statistics reported that the U.S. economy added 266,000 jobs in April, roughly a quarter of what most economists expected.

While reports of the labor shortage have been largely anecdotal, the jobs report showed "signs that the pool of available labor is extremely tight," Thomas Simons, a money market economist with Jefferies, said in a May 7 note.

For example, average hourly earnings jumped 0.7% from March to April, while the average number of hours worked jumped to 35 in April, up about 2.3% from April 2020.

This suggests that "employers are turning to higher wages to entice workers off of their couches and also asking current employees to work longer to cover scheduling gaps," Simons wrote.

U.S. employment remains 8.2 million jobs short of pre-pandemic levels. The limited employment growth in April has fueled the argument that expanded unemployment insurance benefits may be keeping would-be employees out of the workforce.

"Companies are having to out-bid the government's unemployment generosity in order to get their employees to come back to their jobs," said Phil Orlando, chief equity market strategist at Federated Hermes, in an interview.

President Joe Biden addressed this theory May 10, claiming that Americans will return to work if "paid a decent wage" and that his administration may punish those who decline work.

"We're going to make it clear that anyone collecting unemployment who is offered a suitable job must take the job or lose their unemployment benefits," Biden said during a White House address.

In a May 9 report, a team of Goldman Sachs economists led by Jan Hatzius, the investment bank's chief economist, wrote that labor supply constraints likely contributed to job growth well below expectations in April.

"However, it is difficult to know exactly how much worker shortages slowed employment growth in April and even harder to quantify the effect of any single factor," they wrote.

The slowdown in growth may be unique to April as well, Daco with Oxford Economics said. Job growth will likely average about 1 million per month or more from May through August, he said.

"That is going to be a near certainty," Daco said. "The question is how much momentum will there be into the fall and the winter."