Why recruiting alone won't help the ongoing labor shortage

As aging populations, skill gaps and rapid artificial intelligence advancements change industries, there’s an ongoing labor shortage that leaves many organizations struggling to fill their workforce and keep up with demand. Staying competitive requires more than short-term hiring tactics. It also requires innovative approaches. Learn more about which long-term solutions work and how to implement them.

To understand the labor shortage, simply look at today’s advanced economies, which have some of the tightest labor markets seen in decades. The shortage is a long-term trend caused by an aging population, a decline in workforce participation and a boom in flexible careers, among other factors.

To put it simply, the labor supply has declined in recent years. For example, there was an excess of about 24 million workers in 2010 when comparing the number of job vacancies across eight countries, according to McKinsey & Company’s April 2024 report “Help wanted: Charting the challenge of tight labor markets in advanced economies.” Today, however, the number of job seekers is close to the number of available jobs.

Labor shortages impact industries differently. As McKinsey & Company’s “Empowering the US Workforce” report from April 2025 reveals, labor shortages disproportionately affect healthcare services, accommodation and food services, as well as industries affected by high regulation and inadequate investment in capital or technology. According to the research, select economies could have had a GDP of about 0.5% to 1.5% higher in 2023 if excess job vacancies had been filled.

Amid the labor shortage, the United States has seen reduced productivity in construction, healthcare and small business. It’s estimated that an increase in life expectancies, declining fertility rates and a reduced working-age population could further impact shortages in labor.

In 2007, the number of working-age people (ages 15 to 64) reached a peak, according to McKinsey’s “Empowering the US Workforce.” Since then, it has been on the decline.

As of 2025, many employers continue to experience other workforce challenges such as skills gaps, changing employee expectations and changes driven by AI. To gain an advantage, executives may look to structural changes by adopting fusion teams (which integrate IT and business expertise) and skills-focused talent management approaches.

Currently, McKinsey & Company reports an increasing number of employees are using generative AI for at least one third of their duties — and their leaders don’t necessarily know it. In the coming years, nearly all companies are planning to increase their usage of generative AI. However, only a small number of companies who have invested in AI have reached maturity. (The McKinsey report, “Superagency in the workplace: Empowering people to unlock AI’s full potential,” puts that number at 1% of companies.)

AI and automation can potentially help organizations make up for the labor shortage by boosting productivity. AI may automate as much as 30% of work time by 2030. This could then free up workforces to address more valuable tasks. It may have more trickle down effects among industries, too: An estimated 12 million workers will likely need to shift from declining jobs to sectors like STEM-based industries, business, healthcare, legal work and construction by 2030, according to McKinsey’s “Empowering the US workforce” report.

Additionally, for those who work in lower-wage occupations, there’s an even greater likelihood that they’ll need to switch careers. This will require such workers to acquire new skills that are in greater demand.

As AI becomes more prevalent, demand for tech-related jobs is projected to increase, especially in fintech, machine learning and big data, according to the World Economic Forum. This calls for developing skills in cybersecurity, technological literacy and networks.

The McKinsey report “Superagency in the workplace,” says that more than one-fifth of employees claim to receive little or no AI training or support. Nearly all the employees surveyed wanted to be trained in AI and believe it’s the best way to fully adopt the technology.

Additionally, nearly half of C-suite leaders claim that companies are taking too long to develop and release generative AI, primarily due to talent skill gaps.

Addressing shortages in the labor market requires companies to rethink how they attract, retain and empower talent to meet business needs. The following solutions focus on strengthening workplace skills, promoting career mobility, establishing a culture of inclusion and responsibly adopting AI and automation.

Upskilling and reskilling are key to an organization’s talent and skills development. Both can help address the labor shortage by equipping employees with the skills companies need immediately.

Organizations can use upskilling programs to improve employees’ skills in ways that are beneficial to the individual and the organization alike. Those programs can also help prepare existing talent for future roles.

Reskilling, on the other hand, involves developing a whole new set of skills, so employees can move into a different role.

Before committing to an approach, companies should establish organizational goals, determine which skills their employees need and invest in the right learning and development programs. This can include on-the-job training, mentorship and online training programs.

Career mobility involves changing jobs within or between companies and professions throughout one’s career. It offers advantages to older employees by reducing the high expenses linked to job loss. It also aligns their jobs more closely with their changing caregiving and health requirements, and assists in their move from low-quality, less productive positions.

Effective career mobility support requires a long view and policies that assist people in developing their skills and abilities. It also gives employers a practical lever to fill critical roles without relying solely on external hiring.

There’s a lot of enthusiasm among business leaders to implement AI in the face of the ongoing labor shortage. However, poor alignment across teams can slow down the process. To optimize implementation, organizations can:

• Create shared guidelines for AI usage
• Coordinate workshops and demos
• Demonstrate the value of AI tools, as well as how and where they can be used within an organization
• Establish a simple review process for new AI use cases to help ensure they align with security, privacy and compliance standards

When implemented effectively, automation can help productivity while freeing employees to focus on more strategic and complex work.

Employees typically want to be trusted, included in decision-making and inspired to learn new skills. Many employees want to realize greater career potential.

To potentially boost employee retention, companies can create structures that support this growth, such as regular check-ins, mentorship opportunities and visibility into internal mobility options. Giving employees a space to voice their goals and access support to pursue them can potentially create more positive engagement.

Today, development should no longer be considered a perk but a core driver of retention, performance and long-term workforce stability.

Some companies may have in one workplace five generations that hold different work ethics: traditionalists, baby boomers, millennials, Gen X and Gen Z. To bridge the generational gap, employers can embrace the challenges and opportunities of an intergenerational workplace. Specifically, they can tap experienced employees to mentor new ones in ways of career mobility. Meanwhile, they can leverage younger generations’ energy and digital fluency to lead the organization’s charge into the digital future.

Middle generations, meanwhile, can learn from both bookending generations and grow their own managerial and leadership skills with colleagues who can help them through feedback and guidance.

Is your organization facing a labor shortage? University of Phoenix offers targeted workforce solutions programs that can help you enhance your organization’s productivity through professional development training, AI-powered tools and AI-driven skills training.