8.5.24 – I95 Business
Currently, 6.1% of jobs in Maryland are unfilled. That equates to two open jobs for every unemployed Marylander. Which is to say, if the state unemployment rate fell to zero, the state would still have about 90,000 open, unfilled positions. Notably, labor shortages are worse in some parts of the state than others.
By Zachary Fritz
Put politely, Maryland’s recent economic performance has been underwhelming. Put frankly, it has been atrocious.
Maryland currently has about 26,000 fewer jobs than it did in February 2020, the month before the pandemic devastated the U.S. economy. The state’s 0.9% decline in employment over that span ranks No. 48 out of all 50 states, trailing only Hawaii and Louisiana.
For context, employment across the U.S. has expanded 4.2% since the start of the pandemic, and our Mid-Atlantic neighbors like Delaware (+4.5%), New Jersey (+4.2%), Virginia (+3.9%), Pennsylvania (+1.3%), and even West Virginia (+1.1%) have all fully recovered the jobs lost during the early parts of the pandemic.
Put another way, Maryland has lost jobs over a period when the remainder of the Mid-Atlantic has added more than 400,000 jobs.
Only two of Maryland’s 10 major industries have more jobs than they did before the pandemic: professional and business services and government, two segments in which a majority of jobs typically require at least a college degree.
Job losses, on the other hand, have been concentrated in segments that don’t require a college degree. Leisure and hospitality has experienced the sharpest decline in employment and still has 18,600 fewer jobs than in February 2020. Trade, transportation and utilities and construction, mining and logging aren’t far behind, both standing about 11,000 jobs short of full recovery.
The Reason for Maryland’s Abysmal Recovery
While job losses are frequently due to falling demand, that doesn’t appear to be the case in Maryland. Instead, a severe and ongoing shortage of available workers has prevented businesses from reaching adequate staffing levels.
Maryland was already dealing with labor shortages at the start of the pandemic. The statewide unemployment rate had fallen to 3.2% as of late 2019, the lowest level ever recorded. While it spiked during 2020, it proceeded to free fall, plummeting to a new record low of 1.9% during the middle of 2023.
An unemployment rate below 3% is far too low and indicates significant worker shortages. An unemployment rate below 2% is unthinkably low, the kind of thing that seems virtually impossibly due to frictional unemployment — joblessness that occurs as workers transition from one job to another.
While the statewide unemployment rate has since rebounded to a still-absurdly-low 2.7%, the sixth-lowest among all states, that has hardly mitigated the harmful effects of worker shortages. Currently, 6.1% of jobs in Maryland are unfilled.
That equates to two open jobs for every unemployed Marylander. Which is to say, if the state unemployment rate fell to zero, the state would still have about 90,000 open, unfilled positions.
Notably, labor shortages are worse in some parts of the state than others. Somerset and Worcester County, for instance, both had unemployment rates of 4% in April 2024. That’s still a low rate of joblessness by historical standards, yet it signifies slightly better labor availability than in other regions.
Worker scarcity is the biggest issue in central Maryland. Carroll, Howard, Queen Anne’s, Anne Arundel, Calvert, St. Mary’s and Montgomery Counties all posted unemployment rates below 2.5% in April.
Economic and Fiscal Implications
This state of labor scarcity is economically harmful on several levels. Prices increase due to higher labor costs and an inability to produce enough to meet demand. The quality of service deteriorates as businesses operate shorthanded, and increased turnover means many establishments are operating with less experienced staff. Labor shortages will also prevent new firms from coming to Maryland, as labor availability is a primary considerations for site selection.
The utter lack of available workers also has fiscal implications. Fewer workers means smaller aggregate earnings, and income taxes are Maryland’s largest revenue source, accounting for more than 25% of total revenues as of Fiscal Year 2023. As the income tax base sputters, the state will continue to struggle to implement ambitious programs like the Blueprint for Maryland’s Future, the state’s new education funding formula.
One Reason for Maryland’s Labor Shortages
Maryland’s population has grown just .05% since 2020, less than half the rate of overall U.S. population growth, and the state lost residents in 2022. There are several reasons for this anemic growth. Some, like less favorable weather than in southern states, are unavoidable. The pandemic initiated a massive wave of early retirements, and many of those retirees migrated to other states. Even those retirees who stayed in Maryland are no longer part of the workforce.
Most of the factors behind Maryland’s labor shortages are self-inflicted. The state has the No. 13 highest overall tax burden, according to Wallet Hub’s 2024 rankings. Even worse, Maryland’s income taxes as a share of personal income are the fifth highest of any state. While this was always a headwind to population growth, it’s particularly harmful given the increased prevalence of remote work.
And then there’s housing. Maryland ranks among the worst 10 states for new residential building permits per capita, and that has put significant upward pressure on home prices. The median sales price of a home in Maryland rose to $430,000 in May 2024, about 50% higher than at the start of 2020. That compares poorly to the 11% increase in average hourly earnings for Marylanders over that span.
Looking Ahead
Rhetorically, it’s easy to dismiss this lackluster growth. Maryland remains remarkably affluent, boasting the highest median household income and second-highest educational attainment of any state. Maryland also has one of the lowest poverty rates of any state.
Unfortunately, this unprecedented affluence is a byproduct of having the fifth-highest cost of living. Many lower-earning households have migrated to more affordable states, leaving behind the well-educated and well-compensated households who can afford to stay and the small pockets of impoverished households who can’t afford to leave. I95
Zachary Fritz is the chief operating officer of Sage Policy Group, an economic and policy consulting firm in Baltimore, MD.
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www.sageecon.com