Workers are scarce in several critical areas.  States and the federal government have cut aid to post-secondary education.  Now what? 

The pandemic has changed much, but it typically takes time for major paradigm changes to propagate our grey matter.  It took ten years to recover from the Great Financial Crisis, GFC (aka Great Recession).  By 2019, salaries and wages had risen, blacks and African Americans were doing better, women were doing better.  (We direct you to a commentary written about six months before the pandemic.)  Along came COVID and that killed more than 1 million in the USA, nearly 7 million globally, and more than 140,000 children in the US lost a parent or caregiver. The pandemic has dramatically changed our relationship to work and workplaces.

The labor market is strong, according to recent employment gains, leading some to expect further interest rate increases.  However, pockets of significant workforce shortages continue to exist in critical areas.  Workforce shortages are shedding light on the cost of training and post-secondary education. Families and students question the “value proposition” of higher education.  For many, there’s a general lack of knowledge about available training and career pathways.  It’s all connected.  Federal, state, and local governments as well as private sector NGOs are now focusing more intently on workforce development and some states are increasing their education budgets.  We discuss selected areas of shortage here.  In Part Three we discuss the trendlines in higher education funding since the 1980’s.  Prior to that time, higher education was considered a “public good”, but since, funding has been effectively privatized.  In Part Four we offer some solutions.   

Not enough CPA’s

For those readers in the municipal finance industry, we note that rating agency, Standard and Poor’s (S&P), put 149 long-term municipal ratings on “Credit Watch with negative implications because the agency has not yet received 2021 financial statements from these issuers”, as of March 13, 2023. 

Complacency about late filings has long been a characteristic of the municipal industry, given the historically low level of defaults and bankruptcies.  However, S&P is taking a stricter stance and we agree that investors should not have to rely on dated financial information when making investment decisions. If you’re thinking, “well, that’s not too bad, we’ve only recently completed Q1 2023”, consider that a majority of state and local governments’ fiscal years begin July 1st   so June 30, 2021 statements were the latest available for many of the municipalities put on watch.  S&P wrote:

“It is our understanding, based on our outreach on this topic to issuers and their agents, that this year has seen a marked increase in staffing shortages at auditing firms, resulting in significant setbacks to complete issuers’ financial disclosures in a timely manner. In addition, we understand that issuers have faced staffing turnover in key reporting departments, which has further contributed to delayed reporting. With an acute shortage of certified public accountants (CPAs), according to the American Institute of CPAs 2021 Trends report, we believe the number of delayed disclosures could further increase in the near term”

Standard and Poors, March 13, 2023

Acute CPA shortages are noted in the private sector as well as in government practice.  The AICPA-CIMA (American Institute of Certified Public Accountants and Chartered Institute of Management Accountants) “2021 Trends Report” mentions this issue and can be found here. The Association of Government Accountants resource and tools page can be found here. Caseware, a Canadian accounting and audit software company produced a 2023 Trends Report on the “State of Accounting Firms” .  In their survey “finding the right talent” was among the greatest challenges, growing from 14% to 35% from last year.  Practices are having to “turn business away due to a shortage of staff.” Also see LinkedIn commentary and a Washington Post opinion piece from November 2022, stating this shortage “threatens capitalism’s future”.  LinkedIn references the AICPA’s apprenticeship program and the Department of Labor’s “Registered Apprenticeship” program. Several state 2024 budgets are adding money to education, both K-12 and higher education, including community colleges and workforce development.

There is much to do to remedy the shortage of critical workers.  Concerning the lack of enough CPA’s, perhaps there’s an interim solution until the number of CPAs catch up.  Similar to the Sarbanes-Oxley legislation that required a company CFO to attest to the accuracy of financial statements, we suggest that a municipal CFO and the highest elected official could attest that there’s been no material adverse change that would affect financial condition.  It’s not perfect, but could offer some comfort until more scalable permanent solutions are available.  

More Electricians are Needed

A shortage of electricians is slowing implementation of the Inflation Reduction Act’s transition to clean energy, or even meet the current general demand for electrical work.  See articles here, here, here, here and here  (there may be some paywalls).  Repeated takeaways from these links include significant retirement of experienced professionals combined with a lack of new professionals entering the field. Plus, those retirements include experienced teachers necessary to build the next generation of critical skilled labor.  “Border States” (third hyperlink above) cited lack of interest in entering construction trades (only “16.7% of high school and college students …. compared with 76.5% who want to work in technology”.) 

On the other hand, while prospective students and their parents question the value proposition of a four-year college degree, the pandemic has boosted renewed interest in faster, skill-based education such as in the trades, nursing, etc.  According to the website Contractor, Gen Z are more open to careers in the skilled trades.  The ECMC Group and VICE Media (now in bankruptcy) conducted six national surveys from 2020-2022 to explore how high school students are thinking about and planning for their “future education and careers”.  The surveys showed that the “top three things Gen Z teens are most concerned about” include worries about graduating with a high amount of debt (50% of those surveyed) (our italics); second, not getting a job after they graduate (44%); and not being prepared (40%).

The ECMC/VICE survey was part of the “Question the Quo” campaign, which also found that 42% of high school students did not know enough about educational pathways to careers. Jeremy Wheaton, CEO of ECMC Group told Contractor Magazine “…it is up to us leaders and mentors to educate learners about their future opportunities, which includes raising awareness about the variety of postsecondary learning options that are available.”

A Shortage of Childcare

While federal, state and local governments are trying to lower the cost of childcare, there are not enough childcare workers and therefore not enough seats for children that need them.

The senior economist for the Montana Department of Labor and Industry stated that the licensed capacity for childcare in the state only meets 44 percent of demand. 

Childcare workers are among the lowest paid professions.  It is logical that would-be childcare workers in tight labor markets or high wage areas are more likely to find jobs with better pay in other professions.  The issue is complicated, given the privatized cost of childcare and the lack of government involvement compared with other developed countries.  The U.S. comes in last in terms of how much governments pitch-in for childcare.  The Scandinavian nations are at the top, followed by Germany.  Norway spends nearly $29,726 per child while the nations making up the Organization for Economic Cooperation and Development, OECD, average $14,436.  The U.S. in contrast, chips in $500.  These figures are according to the New York Times (sourcing OECD statistics). The Federal Reserve Bank of Minneapolis has published numerous articles about the importance of early childhood development for the future, titled “Economic Development with a High Public Return”. 

The childcare shortage is keeping many women and some men out of the labor force or working part-time although they would prefer more hours.  The Wall Street Journal, in February covered this issue, citing a report from the US Department of Labor using the relatively new “National Database of Childcare Prices”.  The DOL report states “…childcare workers are paid very low wages…and are among the lowest wages of any occupation in the United States.”  Many childcare workers are highly educated, many with advanced degrees and love their jobs, but simply cannot make ends meet on their salary. 

According to the Bureau of Labor Statistics (BLS) Survey of Occupational Employment at May 2021, median annual wages for childcare workers were $27,490.  Annual wages at the 90% percentile were $37,430.  The federal poverty level in 2023 is $30,000 for a family of four – not that far afield from the top childcare salary – and above the median.   (The poverty level cuts at $14,580 for a single person and $19,720 for a family of two.)  Those being paid to work in licensed childcare facilities and paid at these low levels may fall into the BLS category of “working poor.”  The BLS has studied the “working poor” and reported in September 2022 that “Families maintained by women (13.1 percent) were more than twice as likely as families maintained by men (5.9 percent) to be living below the poverty level.”

Yet government childcare support in the U.S. is perceived as a welfare service, for the very poor.  The federal Head Start program, has funded childcare for families modestly above or below the poverty level.  Head Start serves children of three years old up through the state-based minimum age required for compulsory education.  In addition, there is an “Early Head Start” (EHS) program serving children from 0-2 years old.  Up to 35% of children may come from families with income up to 130% of the poverty line, but priority is given to those living at or below the poverty line.  From federal FY2012-2018, Head Start enrollment fell from roughly 843,000 to 718,000.  EHS, on the other hand has grown from 114,000 to 169,000.  (Figures are from a Congressional Research Service report.)

For context, there were 19,981,000 children aged 0-4 in the U.S. in 2012 and 19,779,000 in 2018, according to the Annie E. Casey Foundation (AECF) Data Center, “Kids Count” – comprising a steady 27% of the population under 18.  AECF derives its numbers from the U.S. Census Bureau. 

The way such programs are structured, a woman working too many hours, or making money at the edge of falling into a higher wage bracket, has the offsetting risk of losing benefits.  This is what is known as the “benefits cliff” – when one’s salary is too high to qualify for federal/state benefits but not high enough to provide for food, clothing, shelter, and developmental nourishment for one’s own children.  The Atlanta Fed, in collaboration with the Oklahoma Office of Workforce Development and the Kansas City Fed have focused on this issue and created an interactive tool on the “benefits cliff” for employers to facilitate decision-making and enhance their ability to recruit and retain talent. 

The podcast “Marketplace” on March 30, 2023 interviewed four childcare workers.  One was earning at the top salary offered, which for her was $38,000 and she’s been doing the job for 10 years.  One asked for fewer hours so her income would come below the level to qualify for a government childcare subsidy to pay for her own child to get care so she could work. 

Stated differently, federal, state, and local government benefit programs for the working poor enable employers to pay lower wages and benefits than they might have otherwise.  Without such support, some businesses may not be viable, or at a minimum, profit margins would be lower.  The GAO published a report on federal social safety net programs, subtitled: “Millions of Full-Time Workers Rely on Federal Health Care and Food Assistance Programs”.  The short takeaway of the 11 states studied, GAO found that about 70% worked full time.  The report may be found here. The report also lists top employers whose employees receive Supplemental Nutrition Assistance Program (SNAP) benefits.  Walmart and McDonalds rise to the top of the list in nearly every state (although we note that Massachusetts has the most SNAP recipients employed by the state.)

The lack of available and affordable childcare is finally being understood as a significant condition for many women’s participation in the labor force.   Just as we view good roads, transportation and transit as essential for workers to get to work and for goods to get to their markets, we should re-cast childcare as essential infrastructure for a healthy, functioning labor force. 

U.S. Military Shortages

The Washington Post recently reported a Government Accountability Office (GAO) assessment that the Pentagon “is facing its most challenging recruitment environment in 50 years.”  Sadly, the GAO found that the Department of Defense (DOD) “has not collected or tracked sufficient data to help support decisions related to its recruitment and retention efforts.”  According to the GAO, DOD does not have sufficient plans or goals to guide its efforts at recruitment and retention, nor is it positioned to evaluate effectiveness of its efforts.

In the context of reducing labor shortages, we discuss the headwind of student debt in Part Three.