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States Bank on Incentives, Benefits and Training to Lure Workers Back

December 5, 2022

The paradox of the U.S. labor market is that there are more job openings than workers seeking employment. The working-age population is sufficient to fill current job openings, but labor force participation has yet to return to pre-pandemic levels. The pandemic accelerated many retirements and reassessments, and it emboldened workers to request higher pay, greater benefits and more flexibility and training. Employees who remained on the job have experienced burnout and exhaustion as they cover the work created by unfilled vacancies, further exacerbating retention problems. Because these market conditions are likely to persist for a few more years, states are considering several policy options in response.

Hot Topic — Recruitment and Retention

In August 2022, 18 states saw unemployment rates fall below 3%, meeting or beating previous records. While low unemployment may be good news for employees, it places upward pressure on wages and has led to an unprecedented number of workers quitting to seek new jobs.

States are looking to grow their labor forces by engaging with working-age adults who are not currently employed. They’re focusing recruitment efforts on historically underrepresented populations, including people with disabilities, women of color and formerly incarcerated individuals. States also are recruiting beyond their borders. For example, Vermont and West Virginia are offering financial incentives to people who move to their states to work. Other states have considered relaxing or eliminating residency requirements.  

States including CaliforniaColorado and Washington are embracing wage transparency policies that require job postings to include salary ranges. Other states implemented laws requiring employers to disclose salary ranges by default or upon request during the candidate interview process. These policies typically aim to reduce pay discrepancies among different demographics, but they could also boost applicant interest. 

Trending: Retaining Talent

Driven by stagnant wages and burnout, the public sector has been hit especially hard by increased turnover. Excluding higher education employees, state government payrolls are at one of their lowest points since 1993. Lawmakers across the country are raising state employee compensation and expanding workplace mental health supports to relieve burnout and fatigue. Policymakers are sure to continue exploring recruitment and retention efforts into 2023 to boost state economic growth.

Hot Topic — Employee Benefits and Savings

The tight labor market has emboldened workers of all types, including independent contractors and gig workers, to seek improved benefits or positions that can meet their needs.

Trending: State Retirement Programs

A growing number of states are considering the costs of workers reaching retirement age with insufficient savings. Recent research found these savings deficits will result in increased public assistance costs, reduced tax revenue, decreased household spending and lower employment over time. Almost half of private sector employees ages 18 to 64 (57 million Americans) do not have the option to save for retirement at work. Sixteen states have now enacted legislation creating retirement programs for private sector workers who lack access to on-the-job savings opportunities. Hawaii and Delaware adopted such programs in 2022, and Arkansas launched a study of related issues. Existing state programs boast over $500 million in assets, which are concentrated in three of the earliest adopters: OregonSavesCalSavers and Illinois Secure Choice. Several other programs, including those in Colorado and Virginia, are slated to launch in 2023.

Trending: Paid leave

At the height of the pandemic, millions of people found themselves struggling to work while caring for themselves or a sick family member. As a result, many workers are seeking paid leave benefits from employers. Currently 11 states and the District of Columbia require paid family leave, and 16 states and D.C. require paid sick leave. Maryland and Delaware both adopted paid family and medical leave programs in 2022, and California extended increased wage replacement rates for its disability insurance and paid family leave program. Continuing a trend, South Carolina joined New Hampshire and Georgia in offering paid parental leave for state employees.

Trending: Portable Benefits

States are considering benefits that could help the growing gig and independent workforce. By some estimates, more than a quarter of U.S. workers participate in nontraditional work arrangements, leaving them without easy access to many traditional benefits. State and federal policymakers are contemplating how a suite of portable benefits linked to employees rather than employers might bridge this gap. Since 2018, lawmakers in at least a dozen states have introduced legislation that would create portable benefit programs for gig workers, allocate funds to foster experimentation in this area or study related issues. Worker classification issues are tightly bound up with portable benefits policy debates throughout the states. The coming year is sure to see lawmakers continue to grapple with the promise and disruption of the on-demand economy, and debate the ways labor market dynamics might influence nontraditional worker benefits.

Hot Topic — Modernizing the Workforce

The surge of job losses and unemployment claims during the pandemic brought public attention to the quality of many states’ workforce programs and their infrastructure. Delayed benefits and improper payments have led to renewed interest in modernizing unemployment systems. Antiquated hardware is being replaced and outdated programs revamped. Now that Department of Labor “tiger teams” have begun reporting the outcomes of their assessments and providing recommendations to states, the focus is turning toward installing new, modern systems to verify identities, prevent fraud and build resilience into unemployment systems.

Trending: Job Skills and Training

Workers seeking new career paths or new skills have been turning to state workforce agencies for the training and employer connections they need. The federal government is helping, too. Recently, the Labor Department announced $199 million in grants to help dislocated and underserved workers enter, return to or advance in the workforce.

In addition, the department and state legislatures are focusing on apprenticeships as a form of job training. Most apprenticeship programs teach students the tools of a trade and provide hands-on education with partner employers. Apprenticeships historically trained workers for trades such as plumbing, carpentry and construction, but there is increasing movement to include nontraditional fields. Some states now sponsor programs in areas such as cybersecuritynursing and information technology. The Labor Department is also promoting apprenticeship programs for teachers to address shortages in education.

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