The Pending Labor Shortage Fact or Fiction? Is a labor shortage really pending? There has been an abundance of print on the topic since the year 2000, with attention-grabbing media reports that read: • There is a national shortage of school bus drivers… • The demand for pilots is so acute… • Teachers are also in high demand…i • Critical Labor Shortages Challenge Traditional Education and Workforce Policiesii • 2001 Employment Outlook: Skills Shortage Likely to Continueiii • Shortage of nurses poses threat to health careiv Clearly, a labor shortage would affect many occupations and industries. Many organizations think the events of September 11th tipped the balance of power back to employers and, therefore, brought an end to the labor shortage. However, that may not be the case. As the following chart reflects, there may not be enough new workers coming along to take the place of retiring baby boomers. Labor Demand Will Outstrip Supplyv Expected Labor Force and Labor Force Demand Although this is good news for workers trying to leverage and market their skills to potential employers, it’s bad news for employers trying to attract and retain staff. Organizations that ignore this prediction and continue operating in a reactive staffing mode will lose any talent war that may develop. But what if a talent war never materializes? Organizations that think and plan strategically for their staffing needs will be more likely to secure a talented work force that will serve them well in any economic climate. There is no downside to strategic staffing and workforce planning. Did September 11th affect The Workforce? Do not let the events of September 11th lull you into a sense of complacency about workforce retention. According to a recent article in Workforce: “Even though employees may appear to be more committed to their companies since September 11, the jump represents a false loyalty. Once the economy improves and September 11 gets further behind us, employees will return to the job-hopping habits of the late 20th century. Retention is still the key human resource issue. Finding and keeping quality employees was an issue long before September 11, and even though unemployment has risen and downsizing receives a lot of press, Human Resource professionals cannot be casual about the need to retain good employees. Human Resource Directors should definitely still be thinking about the war for talent. When you look at the demographic trends, there simply aren’t enough younger cohorts to take the place of retiring boomers.”vi Will your organization be prepared? What is your action plan? If the war for talent is real and long-term, workforce planning can help determine where an organization is at risk and set the stage for strategic staffing. There are several risk factors that should be explored. The aging workforce, high turnover (voluntary and involuntary), increasing diversity, and the skills gap in the future workforce may be the most prevalent factors to consider. An organization can’t fix the effects of all these trends at once, but it can measure how these trends could affect the organization and plan for the most severe risk factors. The Aging Workforce The aging of the workforce is probably THE most important trend in the labor market today. During the next 30 years, the number of people aged 65 and older will double from 35.1 million to 70.3 million.vii The following chart shows how the Texas state workforce in particular is aging. The 16 – 29 and 30 – 39 age groups are clearly decreasing as a percentage of the state workforce, while the 50 – 59 and older populations are clearly increasing. That trend is expected to increase dramatically. In addition, as the baby boomers retire and continue to live longer, they will place increased demands on services typically required by an older population, particularly healthcare. This group will continue to leave a demographic and economic wake in its path, much like it's always done since 1946. The Texas Workforce is Aging 70 and Over 60 to 69 2002 50 to 59 2001 Age Group 2000 1999 40 to 49 1998 30 to 39 16 to 29 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 30 - 39 Age Group Shrinks while 50 - 59 and 60 - 69 Age Groups Grow How will organizations overcome the onslaught of aging workers, increasing retirements, higher demands on services, and the changing needs and motivations of older workers? They may need to strengthen incentives for older workers to work longer. For example, they may consider rehiring retirees and offering reduced work schedules or job sharing. Some companies have gone so far as to let retirees continue to work in multiple locations across the country throughout the year -- an arrangement that is perfect for a retiree who wants to spend winters in the south and summers up north. High Turnover Even as the baby boomers retire, the national trend toward high voluntary turnover on the part of younger workers will continue. The chart below illustrates the development of that trend during the past decade. According to U.S. Secretary of Labor Elaine Chao, workers are leaving employers more often. “The average 34-year-old has already worked for nine different companies in his or her brief career.”viii 1 9 .5 0 % 1 7 .5 0 % 1 5 .5 0 % 1 3 .5 0 % 1 1 .5 0 % 9 .5 0 % 7 .5 0 % 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 T e x a s T u rn o v e r R a te B N A T u r n o v e r R a t e ( C o n v e r t e d t o m a t c h T e x a s ' F is c a l A v e r a g e T u r n o v e r f o r B o r d e r in g S t a t e s A v e r a g e T u r n o v e r f o r L o c a l C o u n t y a n d C it y G o v e r n m e High voluntary turnover is probably the most insidious human resource malady an organization can suffer. Here’s what makes it so deceitful: • Turnover never shows up on the balance sheet. • Employees are typically not asked why they are leaving, or are not asked at the right time or in the right way to elicit an honest response. If there is no direct cost of turnover, and if an organization never really knows why people leave, the organization can’t fix the problem -- it’s insidious. The turnover problem belongs to Human Resources until the accountants of the world figure out how to place it on the balance sheet. And, as long as voluntary turnover is a Human Resources problem, organizations expect Human Resources to fill vacant positions. Unfortunately, this only exacerbates the problem because it limits the amount of time and money Human Resources can devote to retention. That is why organizations spend more resources on recruiting staff rather than retaining them. Only the most progressive organizations agree turnover costs money. They make every effort to determine why people leave, and strategically plan to retain top talent. If an organization experiences high involuntary turnover, then it is hiring the wrong people. Most employers hire (and most employees accept jobs) based on a match in skills. However, most employers fire (and most employees quit) based on problems with organizational fit. Consider hiring for organizational fit in addition to matching skills. Increasing Diversity The future workforce will be more diverse. Women’s share of the labor force will There will be more females edge up Women’s share of the labor Percent of labor force 55 53 force keeps edging up, while 52 47 48 the men’s share edges down. 45 Women Men 1990 2000 2010, 1990 2000 2010, projected projected Source: Bureau of Labor Statistics Labor force growth will be fastest for There will be more older workers workers 45 and older Percent change The 45 and older population is 16-24 25 -44 45 a nd older expected to grow dramatically, while the 25 – 44 population 43 37 actually shrinks. 33 15 8 8 -3 -4 -10 1980-1990 1990-2000 2000-2010, projected Source: Bureau of Labor Statistics Labor force growth rates of minorities There will be more minorities will outpace that of whites In the US labor force and Texas Percent change, projected 2000-2010 population, some minority 44 US Labor Force populations are expected to 36 TX Population grow at 6 or 7 times the rate of 36 30 the White, non-Hispanic 21 population. 18 15 12 6 8 Asian and H ispanic, any B lack, non- W hite, non- Total other, non- race H ispanic H ispanic H ispanic Source: Bureau of Labor Statistics These trends alone are not cause for concern, but all people have different reasons and motivations for working. If organizations do not create an atmosphere in which top talent feels valued, regardless of their age, ethnicity or gender, they will leave for an organization that does value top talent. It’s a good idea to have an organization’s workforce match its client base demographically. It’s also good to have policies and benefits that are attractive to a diverse group. Organizations should consider diversity training, family friendly policies, and equal pay awareness. The Skills Gap A recent publication from the Society for Human Resource Managers states: “Numerous studies point out that the US population is not prepared for the skills necessary for success in the digital economy. From lagging scores on standardized testing to a growing chasm in access to and comfort with technology, the issue of skills development may become of primary concern as employers face increased global competition for goods, services, and labor.”ix We have similar issues right here in Texas. According to a recent quote The workforce of from State Comptroller Carole Keeton Rylander: "The U.S. Bureau of the future may Labor Statistics predicts that by the year 2030, 60 percent of Texans will come with some have only a high school diploma or less."x assembly required And U.S. Secretary of Labor Elaine Chao says: “Our economy is making an unprecedented transition into high-skilled, information-based industries. This has created a disconnect between the jobs that are being created and the current skills of many workers.”xi Clearly, the workforce of the future may come with some assembly required. Future jobs will require higher levels of education and skills, which makes the task of finding quality workers even harder. Organizations will need to consider providing adult education, partnerships with local schools, employee training and development, and additional technology solutions to prepare tomorrow’s workforce for the jobs of tomorrow. If the Labor Shortage is Real There is ample evidence to suggest a labor shortage is on the horizon for the United States, the state of Texas, and state agencies. Organizations that fail to implement broad-based programs to attract and retain a quality workforce will find it more difficult to accomplish their mission. There is no single solution to combat the labor shortage. But organizations that have the foresight to plan for the future will be successful whether the labor shortage is real or imagined. There is no downside to proper planning and good policy. Suggested reading: Judy, Richard W. & D’Amico, Carol D. (1999). Workforce 2020. Indianapolis, Indiana: Hudson Institute. “Older Workers,” Demographic Trends Pose Challenges for Employers and Workers, United States General Accounting Office, GAO-02-85, November 2001. Fullerton, Howard N., and Toossi, Mitra, “Labor Force Projections to 2010: steady growth and changing composition,” Monthly Labor Review, November 2001. Hecker, Daniel E., “Occupational employment projections to 2010,” Monthly Labor Review, November 2001. i Society for Human Resource Management, Workplace Visions, No. 4 – 2000. pp. 1-4. ii Employment Policy Foundation, Statement Submitted to House of Representatives, Committee on Education and the Workforce, September 25, 2001. iii Edward Potter, “2001 Employment Outlook: Skills Shortage Likely to Continue,” Business Xpansion Journal, April 2001, p.1. iv Roser, Mary Ann, “Shortage of Nurses Poses Threat to Health Care” Austin American-Statesman, April 21, 2002, p. A1. v Employment Policy Foundation, employment forecast, October 23, 2001, p. 2. vi Shari Caudron, “Why 9/11 Didn't Change the Workplace”, Workforce, March 2002, pp. 34-38. vii Employment Policy Foundation, employment forecast, October 23, 2001, p. 1. viii Elaine L. Chao, Secretary, U.S. Department of Labor, Report on the American Workforce, 2001, p. 2. ix Society for Human Resource Management, Workplace Visions, No. 1 – 2002. p. 1. x Susswein, Gary, “Rylander: Let new grads attend 2-year colleges free” Austin American-Statesman, May 8, 2002, p. B1. xi Elaine L. Chao, Secretary, U.S. Department of Labor, Report on the American Workforce, 2001, p. 1.
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