The labor shortage issues catalyzed by the onset of the COVID-19 pandemic now persist in spite of any economic recovery, in some cases even increasing from pre-pandemic levels.
For over 50 years, the average unemployment rate in the United States hovered between 5% and 6%, and before the pandemic in February 2020, hit a low of 3.5%. The unemployment rate lowered as of May 2022 from its peak pandemic rate of 14.7%, as organizations across the restaurant, hospitality, and retail industries still struggle to hire.
Though labor shortages persist, businesses have options to help counter the impact.
Why Is There a Labor Shortage in the Restaurant, Hospitality, and Retail Industries?
The ongoing labor shortage in these industries is adversely affecting services provided, hours of operation, customer satisfaction, and, ultimately, financial results.
As the pandemic took hold and accelerated, owners and operators worked tirelessly to maintain operations and support employees and their families.
According to a poll by Joblist, 38% of former hospitality workers say they aren’t considering a hospitality job for their next position.
Root Causes of the Labor Shortage
Many employees laid off due to the pandemic never returned, and the availability of new and experienced staffing to serve these industries declined significantly. Some core reasons are explored below.
COVID-19
Restaurants, hotels, theme parks, tourist attractions, and retailers were forced to shut down when the pandemic hit—their employees let go or furloughed in the process.
Leveraging federal support programs such as the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL), Restaurant Revitalization Fund (RRF), and Employee Retention Tax Credits (ERTC, sometimes also referred to as the ERC credit), some companies have been able to sustain their employee staffing and financial viability, eventually restoring employment to pre-COVID-19 levels. Others shuttered permanently.
Forecasts indicate a transition of workers from hospitality and restaurants to other industries and professions will continue through 2022.
Absence of Alternative Labor Sources
These industries historically leveraged cross-border labor to support their staffing needs, especially during times of low unemployment. This supply of workers was significantly diminished in recent years as US border enforcement strengthened its efforts.
Work Conditions
Some workers used the shutdown to build their resumes and pursue other employment for higher pay, better conditions, opportunities for advancement, and a work environment safer from COVID-19.
Potential Action Steps to Consider
Reevaluate Compensation
Many operators have been forced to offer significantly higher wages and reduce operating hours. The Joblist report mentioned above identifies low pay, benefits, and lack of schedule flexibility as key reasons job seekers aren’t interested in restaurant and hospitality positions.
Balancing full-time hires with mutually beneficial partial shifts can help to attract employees, offset some use of overtime, reduce benefit costs, and provide part-time hours for employees who are in school or need to provide childcare at home.
Retain Employees
Review your employees’ preferred work schedules and proactively schedule positively positioned one-on-one discussions with each employee.
Reinvest in Employee Benefits
Implement career plans and opportunities. Employers can show employees they have genuine interest in their employees’ futures through training, defined career paths, and challenge resolution.
They can also provide incentives such as discounts, paybacks for tuition or books, or time off to take classes.
Gauge Technology Investments
Analyses of return on investment (ROI) related to labor savings generated through technology investments are becoming increasingly commonplace for kiosks and online ordering systems, other e-commerce solutions, automated back-of-the-house activities, and customer self-service. This ROI could play itself out over a longer period, typically between one to three years.
What Are Labor Shortage Strategies for Your Organization?
To fill immediate needs, organizations have options that span short-, medium-, and longer-term strategies, from reducing hiring requirements to developing local work programs.
Short-Term Strategies
- Consider using contractors. Consider contracting leadership and management roles to fill gaps. Staffing might seem more economical, but the qualifications, education, and training required for those positions should be assessed as well.
- Reduce hiring requirements. Increase the candidate pool by reducing hiring criteria such as minimum education requirements or aptitude tests and narrowing the scope of disqualifying convicts.
- Diversify the pool. Target cohorts such as veterans or students at trade schools or community colleges.
- Network. Use social networks such as Facebook, LinkedIn, and Glassdoor to post jobs. Existing employees can be advocates for an organization by promoting a position to their own network, tied with bonuses paid for attracting new employees.
- Revamp recruiting. Streamline the hiring process to save time and reduce inefficiencies.
- Optimize onboarding. Develop a formal onboarding program to quickly train and integrate new employees.
Medium-Term Strategies
- Invest in training. Invest in robust technical training programs to add skills to the workforce and increase retention.
- Increase flexibility. Assess ways to provide more options around time off and remote or hybrid schedules.
- Offer incentives. Referred to above, an employee referral program can encourage existing employees to share open positions with their networks.
- Prioritize employee retention. Conduct surveys and interviews to gauge employee satisfaction and use the feedback to determine ways to retain employees.
- Improve work conditions. Look for ways to optimize processes with technology and automation, implement safety procedures, and develop mental health programs.
Long-Term Strategies
- Highlight the positives. Change the perception of the industry by highlighting benefits and job satisfaction.
- Focus on technology. Educate a younger demographic about the digital transformation and the changing nature of the skills required, including a blend of technical, physical, and soft skills.
- Develop local work programs. Invest in high school or community programs to help build a pipeline of future talent.
- Listen to candidates’ needs. Listen to what candidates seek, including flexible work arrangements, attractive pay, and improvements to the workplace experience.
- Develop leaders early. Design a training and promotion track for new employees to find a more meaningful and permanent position in the company.
Strategies to Mitigate Business Challenges of the Labor Shortage
The labor shortage has impacted business operations in a variety of ways. Consider these four strategies to help maintain the financial health of your business.
Consider Menu Price Increases
As a near-term tactic, many operators implemented price increases to offset the rise in labor and payroll costs, as well as the surge in other supply chain expenses. Coupon usage has curtailed, which has a mixed impact on customer demand.
Improve Cost of Goods Sold (COGS)
Organizations could optimize their menu offerings, assess their supply chain, and consider negotiating reduced delivery cycles with distributors and suppliers.
When properly implemented, automated ordering solutions and ideal food cost systems could reduce waste, theft, and menu item inconsistencies.
Evaluate Qualification for ERC Credits
While this federal program was terminated in September 2021, payroll tax submissions can, in some cases, be refiled for up to three years.
For those that qualify, some companies are receiving significant refunds of payroll taxes paid, boosting financial viability and ability to hire more employees with higher wage rates in the near term.
Note that there have been some inconsistencies in the approaches taken to obtaining ERC credits, both in terms of program qualification and refund amounts requested—either too high or too low.
Keep Tabs on Other Federal Support Programs
Despite the recent rejection by Congress of replenishing the RRF program, efforts in Congress continue in 2022 toward the creation and renewal of other support programs with heavy emphasis on maintaining and bolstering employment— EIDL and others—potentially providing operators with more funding to retain existing team members and compete for new employees in the marketplace.
Recent feedback, however, indicates a reduced appetite for this in Congress in the face of inflation and burgeoning job availability.
We’re Here to Help
If you have questions about addressing the labor shortage’s effects on the Hospitality and Restaurant industries, please contact your Moss Adams professional.