TODAY’S SHRINKING LABOR MARKET
Labor shortages are not new and continue to rise quarter over quarter. In February 2020, prior to the start of the pandemic, it was estimated that that nearly 70% of U.S. companies reported difficulty finding needed talent. Today, that number has grown with nearly all surveys of labor conditions reporting difficulties in filling both skilled and unskilled positions, as indicated in these representative results.
- The latest BLS data indicates that 198,000 people who recently lost their jobs applied for unemployment benefits during Christmas week, leaving new jobless claims near a 52-year low. The 4-week moving average was 199,250. This is the lowest level for this average since October 25, 1969, when it was 199,250. The extremely low number of people applying for benefits is thought to reflect the reluctance of businesses to lay off workers during a period of near-record job openings.
- Research conducted by Korn Ferry into talent supply and demand in 20 economies across the world in finance/business services, technology/media/telecommunications, and manufacturing indicates that by 2030, there will be a global human talent shortage of more than 85 million people, resulting in about $8.5 trillion in unrealized annual revenues. The U.S. impact would be a deficit of more than 6 million workers, and a loss of $162 billion worth of revenues annually from the tech sector alone.
- IT executives see the talent shortage as the most significant adoption barrier to 64% of emerging technologies, compared with just 4% in 2020, according to a new survey from Gartner, Inc. Gartner’s VP of Research stated, “The ongoing push toward remote work and the acceleration of hiring plans in 2021 has exacerbated IT talent scarcity, especially for sourcing skills that enable cloud and edge, automation and continuous delivery.”
- A flash survey conducted by law firm Fisher Phillips in November reports that 94% of employers have experienced more difficulty than normal in retaining and recruiting workers in 2021, with more than half indicating that they suffered “severe” difficulty. Virtually every industry reported that they are suffering “moderate to severe” difficulty finding and retaining workers, with respondents in Hospitality (98%), Manufacturing (93%), Healthcare (92%), Retail (91%), and Finance & Insurance (91%) all assessing the shortage as “severe”.
- The National Association for Business Economics (NABE) survey of its members demonstrates uncertainty regarding whether the labor force participation rate (LFPR) will ever return to its pre-pandemic (February 2020) level of 63.3%. Those who believe that the prior LFPR will be achieved are pessimistic regarding the rate of recovery. Only 5% expect such a rebound to occur by the end of 2022, with twenty-five percent (25%) expecting the recovery to occur in 2024 or later.
What is driving the labor shortage? Let’s start with demographic realities.
- The U.S. working-age population has been shrinking since 2008. In 1970, the average family size was reduced from 4 children to 1.8, meaning that baby boomer couples were not replacing themselves.
- In October 2021 the Federal Reserve Bank of St. Louis issued a report stating that, as of August 2021, the U.S. recorded slightly more than 2.4 million excess retirements (above the estimated retirement rate of one million annually) specifically due to COVID-19, a figure that represented more than half of the total number of workers who left the labor force from the beginning of the pandemic to the second quarter of 2021 — 4.2 million.
- While thousands have opted out of looking for work, many more have opted to take the entrepreneurial route. Korn Ferry reports that through September 2021 Americans filed a total of more than 4 million applications to start new businesses.
- The Pew Research Center reports that In a normal year, the U.S. welcomes roughly 1 million immigrants, and roughly three-quarters of them end up participating in the labor force. In 2020, with borders closed due to the pandemic, the number dropped to about 263,000. Industries with labor shortages currently include hospitality and warehousing. Traditionally, 21% of immigrants accept jobs in both of those sectors.
- Recent labor statistics report a loss of upwards of 2.5 million women leaving the U.S. workforce since March 2020.
- Research by EMSI indicates that the prime-age male workforce (ages 25-54) plunged from 94% in 1980 to 89% in 2019. That 5 percentage-point drop represents over 3 million missing workers. Males also increasingly prefer part-time over full-time work. The number of prime-age men willingly opting for a part-time job jumped from 6 million in 2007 to nearly 8 million in 2019.
Given these realities, traditional approaches to finding and retaining talent – as discussed in the next article, “2021 Ended with Record Quit Rates, Now What?” – are insufficient. nextSource has worked with its clients to understand the five critical steps to expanding their talent sources.
- Rethink workforce planning. Today, most companies focus on talent needed to fill roles. By focusing on skills rather than roles, you gain insight into what talent is needed, when and for how long. Armed with this information, expand workforce planning to include the use of contingent workers as well as full-time employees.
- Rethink credentials. When basing evaluations on skills, consider whether a specific degree is truly essential. The results of a LinkedIn poll showed that recruiters are finding that skills-based hiring opens the door to underrepresented groups, helping them achieve diversity, equity and inclusion goals while also increasing retention. Employees without a 4-year degree tend to stay 34% longer than employees with a degree.
- Embrace the remote work trend. For each position, let business need drive the determination of whether work must be conducted onsite. This will significantly expand your potential talent pool.
- Develop strategies for tapping into talent that may be under-utilized today. While this certainly includes women, racial and ethnic minorities, and retirees, also consider inclusion of individuals with visible and invisible handicaps. Determine the level of accommodation that you can provide
- Recognize that we have entered a period being referred to as the era of the employee. This requires greater emphasis on the candidate and worker experience (more on that in the next article).
To learn more about how we help clients address these critical issues, read the other articles in this issue of Working Knowledge, and reach out to us for a “no obligation” assessment of ways in which we can help you.