The Cost of Unfilled Jobs to the U.S. Economy

John Krautzel
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Unfilled jobs are generally a good thing as companies look to hire more workers during a robust economy. Job openings, postings and hiring demonstrate that businesses need workers, and employees jump from lower-paying jobs to higher-paying ones as firms compete for the best talent. Unfortunately, large numbers of unfilled positions have a downside.

Unfilled jobs cost the American economy as much as $13 billion per month, or $160 billion per year, due to two main factors. A study published in 2014 by job search website Indeed.com notes that businesses have less output due to fewer workers. A smaller workforce leads to less production, smaller revenues and shrunken profits.

Second, people who remain unemployed or in low-wage, unskilled positions spend less money in the consumer-based economy. Less spending means companies have lower potential sales, revenues and profits. Unearned wages account for 55 percent of the $160 billion per year, while 45 percent comes from fewer profits.

Less Economic Activity

More statistics bear out the economic costs of unfilled jobs in America. As many as one-third of all job openings remain that way for three months or more. Openings more than one month old represent $13 billion in lost economic activity, which amounts to 0.9 percent of America's gross domestic product. The GDP measures the cumulative value and income of the goods and services produced by an economy over a certain time.

Larger companies with huge profit margins take gigantic hits in economic activity. Indeed.com's survey found that the top 10 corporations on the Dow Jones Industrial Index lose $75 million in economic activity due to openings more than one month old.

Industries Affected Most

Long-term unfilled jobs affect the financial, insurance and professional industries the most because these industries contribute more to the overall economy than others. These types of companies, thanks to their unfilled positions, cost the American economy $4 billion in economic activity per month out of the $13 billion figure.

Health care and social assistance, government, retail trade, and manufacturing all lower economic output by more than $1 billion per month. Wholesale trade, information and hospitality companies also figure prominently into the mix of unfilled job openings.

What Causes These Unfilled Openings

The study claims a skills gap represents the major cause of unfilled openings in the United States. Companies have openings for qualified candidates, but many workers simply don't have the skills, experience or education needed to fill the positions.

Competition in the labor market also brings about more job openings. Workers tend to leave lower-paying jobs for higher-paying positions as companies compete for better workers. Firms then raise wages to attract higher-tier employees. All of this shuffling between lower-wage and higher-wage positions causes higher numbers of job openings and hiring. While all of these statistics indicate a dynamic labor market, unfilled positions present a problem that could cost companies in the future due to lost revenues, profits and competitive advantage.

Solutions

Businesses could create a few strategies to alleviate all of these unfilled positions. Companies must learn how to match prospective employees to positions in a more efficient manner. Traditional hiring practices started with skills and qualifications before assessing a worker's attitude and behavior to find the right fit for a job.

Due to huge amounts of job openings, large corporations have begun to migrate to the opposite strategy. Companies may now try to match the right type of psychological profile and then train people for their positions. Firms attempt to find a cultural fit, and then they get skills for employees. This takes a long-term commitment from both the company and workers, but this kind of hiring practice could reduce the need to find talent later in an even more competitive job market. Businesses that move to a "fit first, skills later" model have the advantage over those that remain stuck in the old way of hiring.

Once companies realize the potential benefits of a new hiring paradigm, the economy could improve even more as firms find the best workers for the job. Efficiently matching workers to positions remains the overriding factor that reduces economic stress in terms of more output for businesses and more income for working families. The sooner firms recognize that the old way of doing things may not work, the faster they realize more revenues and higher profits.

Photo courtesy of digitalarts at FreeDigitalPhotos.net
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  • Jay Bowyer
    Jay Bowyer •

    Once upon a time, I was a hiring manager, and I took the "psychological profile first" approach to many of the open positions I had to fill. It worked really well, for two reasons: firstly, I managed to fill positions more quickly, and secondly, the people I hired instantly found themselves with prospects. It's honestly wonderful to be able to empower people like that. I'd do it again in a heartbeat.

  • Nancy Anderson
    Nancy Anderson •

    Thanks for the great comments. @William if only that would happen. That is exactly the way that it should work - working hand in hand between companies, colleges and workers. It truly is what needs to happen. We were watching a segment on the news recently where the company was stating that they can't find qualified workers so they are going to have to bring workers in from outside of the US. Well, if you can't find workers in the US figure out the reason and find a solution. Is the technology not being taught in schools? Then do as you said @William and form a partnership between the company and a university so that the college does offer skills needed to perform the work. Or the company could create OJT (on the job training) type positions and teach the new employees the system. There are so many ways to make things better for both the company and the job seeker. @Jacob some companies will do a huge online job fair trying to attract the right candidates. Some companies do a huge job fair in larger cities to attract the job seekers that they so desperately need. As you can see, there is more than one way to resolve this issue without the state department having to authorize more visas to bring in the workers needed.

  • Jacob T.
    Jacob T. •

    Are there programs, either run by government agencies or private enterprise, that work to focus on stale job openings? For example, do large companies like Microsoft or P&G offer events were their hiring teams are focused on finding employees that would be a good fit with proper training for some of these open positions?

  • William Browning
    William Browning •

    Everyone, across all industries and sectors, needs to come together to solve this dilemma. Otherwise, as @Nancy said, these jobs will come from overseas. Instead of the State Department authorizing more visas, the federal government should aim for partnerships among American companies, American colleges and American workers. I think part of the problem isn't just a lack of training, it's a lack of interest from young people. They would rather have a job commenting on viral videos as opposed to working hands-on in health care or manufacturing.

  • Nancy Anderson
    Nancy Anderson •

    Thanks for the great comments. @Andrew the answer to your question is that it depends; depends upon the industry and the position. Companies are complaining that they can't find qualified candidates to fill the positions so they are outsourcing or looking outside of the country to find qualified candidates. Is this really necessary? I would think that, if the technology is new, the company would try to work hand in hand with the local college/university to add programs that would teach the skills needed. At the end of the program, these individuals could have positions waiting for them. Cooperation between companies and higher education will drive the need and solve the issues. Sounds easy doesn't it? Sure do wish that there was an easy way to make this work as it would be a win-win for all concerned.

  • Andrew S.
    Andrew S. •

    A very insightful article. I've never really thought of unfilled positions as a bad thing but rather as an indication the economy is growing. But as Emma pointed out below, it could also mean that companies are not able to find the kind of talent and skills that they need. As an aside, could this also mean that, to some extent, jobs (due to advances in technology) are evolving too rapidly for the current workforce to keep up with their skills development and education?

  • Abbey Boyd
    Abbey Boyd •

    In response to Kellen's comment about the "fit first, skills later" practice, I find myself in disagreement. I understand what you are saying, that just because an employee has a great attitude, that doesn't mean they are a high quality worker. However, there is nothing that says the employee must be retained if they cannot pick up the skills needed for the position in a reasonable amount of time. I think it's a great way for companies to fill vacancies, and for people to find jobs they may otherwise be unqualified for.

  • Emma Rochekins
    Emma Rochekins •

    @Catherine: The high number of unfilled jobs is not uniquely American. In the report referenced in the article, high vacancy rates are global. Besides the U.S., Canada and Germany are experiencing a large number of unfilled jobs. Though this can indicate a growing economy, it also points to a mismatch between job applicants and employers.

  • Lydia K.
    Lydia K. •

    We hear a lot about unfilled job positions, but I've never seen it spelled out terms dollars and cents before. I think I'm probably not the only worker who is trying to understand the skills gap issue. We all probably know at least one skilled person who is having a hard time finding sustainable employment. I agree with @Hema in that I'm also glad to read that companies are realizing the benefits of on the job training. There's a lot that people can learn on the job and ramp up to speed quickly if given the chance.

  • CATHERINE S.
    CATHERINE S. •

    How does the number of unfilled jobs and the high cost its takes on the American economy compare to other countries in the world, such as in Europe or Asia? Is this a uniquely American problem or a global problem? I think one solution for this problem is making it easier and more reasonable for young adults to get loans for college. This would allow them to get the skills they need to fill these unfilled positions without putting them into a lifetime of debt.

  • Nancy Anderson
    Nancy Anderson •

    Thanks for your comments. @Katharine 3 full days of training for a retail sales position does seem to be in excess but my understanding is that Walmart does exactly that even though turnover is quite high. I think it's just a way of the company covering itself against possible lawsuits. @Shannon if only companies would offer incentives. Sadly we are lucky to get a living wage let alone real benefits of any kind. A sign on bonus would be awesome and would help the economy greatly but companies are saying that they can't afford to do the things that they did 10 years ago. I guess we should just be happy that we can get a job and let it go at that. Hopefully this tide will turn in the next decade and incentives will once again be offered.

  • Shannon Philpott
    Shannon Philpott •

    I never realized the impact of unfilled positions. The examples here really show just how much this can affect the economy as a whole. I think, though, that if companies were more willing to offer incentives, sign-on packages and bonuses, they would attract more qualified candidates, ultimately boosting the economy and their productivity.

  • Katharine M.
    Katharine M. •

    I agree with Kellen: an employee who isn't pulling his/her weight, whether due to inexperience or some other reason, can drag down the morale and productivity of an entire office. Also, in cases when the employee doesn't stay long, the investment in them is wasted. I worked at a department store in college that required three entire (paid) days of training- this place left no stone unturned- benefits, longevity awards, company philosophy, everything was covered in those three days. Almost everyone in my class was working for the summer, then going back to school, and I remember thinking: what a waste of money.

  • Nancy Anderson
    Nancy Anderson •

    Thanks @Kellen. It is very true. There has to be a good balance between fit and skills.

  • Kellen P.
    Kellen P. •

    The "fit first, skills later" model of hiring isn't necessarily a good solution. In my experience, the lack of skills and lack of resources (and time!) for training can be a huge issue. Someone can be an excellent fit, personality-wise, but let's see what happens when it is revealed that they are not capable of learning the necessary skills! The whole team will sour on the "super nice guy" that just can't get the job done. Hiring someone with the necessary skills just has to be the priority.

  • Nancy Anderson
    Nancy Anderson •

    @Hema thanks for your comment. I don't think that there's much that you can do prior to the first contact with the company to show them the you have the personality and the fit that they are looking for other than to state just that in your cover letter or summary. But, for the company to get a better idea about you, they would have to actually meet with you to determine if your personality is a good fit for them.

  • Hema Zahid
    Hema Zahid •

    It is reassuring to read that companies are slowly changing the way they hire workers, especially since they are losing revenue for every position that remains open for too long. Is there any way workers can make themselves more appealing to companies that hire based on personality and fit rather than skills?

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