'We are all competing': Los Angeles finds new ways to tackle labor shortage

The national unemployment rate is sitting at 50-year lows, but millions of Americans are still on the sidelines of the labor market. And a low headline number on unemployment may be masking an ugly truth: that the workforce of today is ill-prepared for the work of tomorrow.

A recent survey from the NFIB even showed that 26% of small business owners identified “finding qualified labor” as their No. 1 business problem. In Los Angeles, public and private industry are floating higher wages and skills retraining programs as remedies for the shortage of qualified workers.

In the eastern LA city of Whittier, Tesla (TSLA) has been teaming up with Rio Hondo college on a 12-week crash course on electric vehicles that transitions students into full-time jobs as Tesla technicians. All 18 students in Frala’s first Tesla START class were placed in jobs.

“I’m just a piece of the puzzle but I think it’s a piece a lot of other programs could model after,” said John Frala, a Rio Hondo professor who manages the “Tesla START” program.

The program is just one example of addressing the labor market puzzle of technological changes displacing some types of skilled work.

But other structural changes, such as the ballooning cost of living and a rapidly aging population, mean that preparing the workforce for the jobs of tomorrow requires more than simple job retraining.

And that problem is being observed nationwide.

The Federal Reserve’s beige book, which measures economic activity across the country, noted in January that “widespread labor shortages” were to blame for weaker job growth and business expansion.

Getting older

In addition to moving over a million people daily through the public transit system, the Los Angeles Metropolitan Transportation Authority also employs almost 10,000 workers as one of the area’s largest employers.

But 69% of Metro’s employees are 40 or over and 47% of Metro’s workforce will be eligible for retirement over the next five years.

As a result, Metro is now collaborating with local colleges and community groups on a “Workforce Initiative Now” program to provide job retraining for those interested in working in the transportation industry or at Metro.

But WIN-LA is not trying to retrain those already at work. The program specifically places priority on those either marginally attached to the workforce or removed from it entirely, such as veterans or the homeless.

Metro deputy executive officer Shalonda Baldwin told Yahoo Finance that in a city continuing to build out its infrastructure, pulling in workers from the sidelines is critical to filling jobs in a tight labor market.

“We are all competing to some degree,” Baldwin said. “We are an industry across the nation that is facing the same issues, we have a workforce that we need to build.”

In one of its early cohort of 80 participants, 27 have found jobs, a majority of whom have no education beyond high school. The others are in WIN-LA’s “qualified candidate pool” and are in the process of looking for jobs.

Wages, wages, wages

Job retraining isn’t necessarily the answer to all hiring gaps.

The aging population is also creating a conundrum in one of Los Angeles’ fastest-growing industries: personal care workers. As a lower skill job, the answer may be higher wages.

Personal care workers represent over 200,000 workers in Los Angeles County and a wave of elderly people looking for care in the future will only increase that figure. The California Employment Development Department is projecting that the number of personal care aides in Los Angeles County is likely to grow almost 40% between 2016 and 2026.

But at a median of $12.13 per hour as of 2019, a career in personal care in a city as expensive as Los Angeles is far below the income needed to afford the median rent. Estimates from Zillow for median rent in the metro area are $2,950, almost double the national median of $1,590.

Sarah Thomason, a research and policy coordinator at the University of California Berkeley Labor Center, told Yahoo Finance that the in-home care industry is quickly becoming less attractive in the tightening labor market. Low pay, in addition to the physical and emotional toll of taking care of older or disabled people, makes for a hard sell.

“A lot of times they have to watch their client die and then they have to deal with that loss themselves,” Thomason said. “Because of that, a lot of times people prefer to take a job in retail or fast food that pays the same or, in a lot of cases, pays more.”

The worry: that a shortage of personal care workers will only exacerbate labor force participation. In the absence of higher pay, family members or friends and neighbors may end up becoming primary caretakers, further displacing workers who may have otherwise taken on full-time jobs as an active participant in the labor force.

Slack

Despite the low pay for personal care workers, Los Angeles has among the fastest growing wage growth in the country.

In December, Los Angeles reported year-over-year wage growth of 4.0%, tied with New York for the highest wage growth among the largest U.S. cities and well above the national average of 2.9%. New York has already raised its minimum wage to $15 an hour and LA will finish transitioning to a $15 floor this summer.

Data from the Bureau of Labor Statistics shows that the unemployment rate in Los Angeles touched a post-crisis low of 3.5% in 2019. The unemployment rate is currently at 3.7%, one of the higher unemployment rates among the other large U.S. cities.

The relatively high unemployment rate combined with high pay suggests that employers in Los Angeles may not be able to find workers for all of the posts they need to fill.

Questions still loom nationwide over whether the labor market is at “full employment,” or the natural unemployment rate at which the supply and demand of labor in the market is in balance.

“How do you take a guy who’s got 40 years of experience and bring somebody with 2 years off the street and expect the same job performance?” Frala said.

For the Federal Reserve, which holds full employment as one of its two policy goals, the stories in Los Angeles illustrate the range of reasons for labor market slack. Fed Chairman Jerome Powell told Congress Tuesday that the Fed is “never going to say we’ve accomplished that goal.” Fed officials have insisted that while they can lever interest rates, nuances with respect to local labor markets are out of the central bank’s purview.

The challenge rests with fiscal and monetary policymakers in doing what they can to get as close as they can to that goal.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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