The Stream of Labor Slows to a Trickle

How’s this for a glimpse of the future? For the next eight years, the labor market will continue to shrink, and your company will increasingly come to resemble a temporary employment agency. Bright, restless recruits who believe they have nothing more to learn from your firm will move on to other employers; your seasoned managers will age and retire faster than you can replace them.

Meanwhile, your company will expand, or change direction. Under pressure, you’ll quickly devise a recruitment plan to attract enough workers to meet production goals. But the strategy will backfire because many of your new employees won’t have the skills your company needs to retain its market share.

Sounds pretty bleak, doesn’t it? It could be, unless you start planning now. Because, while the future is never certain, current trends and labor demographics are there for all sharp HR professionals to use.

The expansion of the nation’s labor supply is slowing to a crawl, according to the U.S. Bureau of Labor Statistics. Since 1996, the number of people on the job or available for hire has increased at the anemic rate of 1.1 percent a year, a pace that should continue until at least 2006-presenting HR professionals with the tightest labor market in 40 years.

The primary reason is the aging of the population. Basically, the baby boom generation is nearing retirement age and there aren’t enough younger workers to fill the gap.

True, the shortage isn’t sudden. The labor pool grew at an average rate of only 1.3 percent a year from 1986 to 1996, so farsighted companies adjusted for the squeeze. During that period, however, a recession and higher unemployment rates created bulges in the labor supply and provided much-needed breathing room.

But things are different now. The economy has been booming in recent years. By most accounts, the expansion should continue at least moderately beyond 2000. Downsizing is back to its record highs of the early 1990s, but this time, other firms are expanding just as quickly, so furloughed workers aren’t available for long.

“When a company announces that it’s cutting 40,000 managers, that doesn’t mean it can operate with 40,000 fewer managers,” says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School. “All they’re doing is churning the skill base. They’re going out and rehiring 40,000 managers who have different skills.”

Meanwhile, the rising tide of mergers and acquisitions, which won’t ebb soon, changes the composition of the labor force almost daily. Most likely, your own company will expand, contract or shift direction more frequently in the future in response to ever-changing customer demands. That means your employees may need different skills in a year or two from those they have today. But the labor force is changing so rapidly that those skills might not be available when you need them-and occasional economic slowdowns might not give you enough time to regroup.

In the midst of all this are rock-bottom unemployment rates, not to mention a growing corps of 20-something employees, some of whom possess unconventional notions about productivity, motivation and career.

As a result, HR experts foresee the need for fundamental changes in recruitment, training and retention efforts. Employers will need strategies to help them spot new skills, hire quickly, retrain staff and keep the firm competitive amid constant turbulence in the labor force.

“We have to get better at finding pools of talent and at helping those people make the right transitions,” says Cappelli. “For instance, you have smaller companies that often don’t want to hire people who have been downsized out of, say, AT&T or General Electric because the perception is that those people come from a different corporate culture. … That sort of thing has to change.”

David Peterson agrees that the time is ripe for change. Peterson is the senior vice president of Personnel Decisions International, a Minneapolis consulting firm that specializes in personnel assessment and coaching. “Right now, we’re just scratching the surface on what this is going to look like in a few years,” he says. “We’ll need a whole new infrastructure.”

Plotting the course

How can you get started preparing for the future? Interviews with a number of experts reveal several techniques HR professionals can exercise.

Monitor the trends. The squeeze in labor will push HR more prominently into the executive suites of corporate America. The front office will rely more heavily on HR for strategic business decisions based on the type of skills available in the market.

However, unemployment projections are hard to come by, so you’ll have to develop a sort of radar for shifts in the labor force. For instance, it helps to know that consecutive monthly declines in durable goods orders often signal a slowdown, which might put a few more assemblers, product managers and bankers on the unemployment line. There’s no easy way of telling where those people are, but related data can give you a rough idea.

For example, Manpower Inc., of Milwaukee, publishes a quarterly employment outlook survey that can show you which industries are cutting back and why. And the Bureau of Labor Statistics (bls) can tell you how many people are unemployed each month by region and by state. The combination can provide important clues to the status of the market in your area.

And while BLS doesn’t project unemployment rates, it does project which industries will cut back and how many jobs they are likely to lose. This can give you a head start on how to fold those skills into your operation. For example, the computer equipment industry is expected to become so efficient that it will lose 49,000 jobs by 2006, according to BLS. Those workers may be able to fill technical support positions in key job-growth fields, such as health care or the retail trades.

Control your costs. Although job-hunters hold most of the cards in a tight labor market, resist the urge to bid up salaries in the future. A sudden spike in labor costs can create a dangerous domino effect: Higher salaries prompt more demand for goods, followed by inflation and a stalled economy, dousing your firm’s expansion plans.

There is some anecdotal evidence of bidding wars, but they aren’t widespread. So far, labor costs have increased only marginally, keeping inflation in check.

Instead of hiking wages, entice applicants with perks, superior working conditions and performance bonuses over time. One way to control costs and aid recruiting is to allot a specific annual “lifestyle” sum to each employee. This perk is especially helpful because employees choose which benefit to apply the allotment to.

Reinforce your own supply. While labor supply data predict a shortage of workers, those figures don’t include a large cadre of professionals who no longer are looking for work: managers and skilled support staff who have returned to college, the disabled or those unable to find adequate day care for children or the elderly.

As a result, employers may want to develop retention methods to attract and hold workers who otherwise would drop out of the market. One strategy is to lock in flextime, job-sharing, elder care and tax-advantaged education programs as standard benefits, not options.

Another strategy is to retain retirement-age workers by designing alternatives to full retirement that fit the employees’ lifestyles without creating nonfunctional busywork. Consulting and part-time support are good choices. (For more information on retaining the services of older workers, see the July HRMagazine cover story.)

Redesign your workloads. Establish a “floating” assignment system that allows employees to bid for projects in different divisions. Naturally, it isn’t wise to let critical employees switch jobs at will. But rapid changes in services and product lines will accommodate-perhaps require-more fluid staffing arrangements. (Try to adapt the system to clerical and assembly-line functions as well.)

The use of floating assignments will prevent your senior supervisors from going stale and will keep younger workers motivated and engaged. These days, workers in their 20s learn so quickly that, once they master a skill, they’re anxious to shelve it and learn another. In fact, corporate and independent HR experts are finding that younger employees tend to jump ship because they’re bored, not because they lack opportunities for advancement.

Speed up your training programs. Start by working closely with upper management to anticipate consolidations or diversifications. Then, when you recruit, dig for extra skills that can meet future needs. This can trim retraining time, which will help the firm keep pace with the market. In addition, pinpoint functions that can be streamlined with one-on-one coaching, rather than extensive classroom time.

While you’re at it, review the backgrounds of your tenured staff, especially those who have changed careers. You’re liable to find skills that can be updated quickly.

Get creative with job postings. Instead of simply posting a ho-hum description for, say, an engineer, list the kinds of projects the employee will work on, the skills needed for each project and describe the training you’ll provide for more challenging tasks. Exploit your technology. When you write your job notices, craft the copy to lead the applicant to your web site. Post the notices at universities, research organizations and government retraining centers, where applicants are likely to have ready access to computers.

Ages and skills

In some ways, the aging of the population isn’t as ominous as it sounds. In fact, a significant portion of future job growth is expected to be in the province of the young.

According to government data, about 70 percent of the occupations expected to have the most job openings through 2006 involve skills that won’t require a college education. Personnel supply services head the list, with 1.4 million slots to fill over the next eight years. Others include health care, air transportation and computer and data processing services.

Some of those jobs call for experience, but most will require no more than a year of on-the-job training. Fortunately, the youngest sector of the labor force-between 16 and 24 years old-is on the rebound. The projected increase in this segment of the workforce is 3.2 million by 2006, compared with a decline of 2.2 million between 1986 and 1996.

Then again, the number of youngsters choosing college over work is rising steadily, and the bulk of the low-end jobs won’t pay enough for seasoned blue-collar workers, who typically are hit the hardest by downsizing.

Recycling the workforce

Through June 1998, 270,443 employees were downsized out of work, about 6 percent more than the same period in the record year of 1993, according to Challenger, Gray & Christmas, a leading outplacement firm located in Chicago. The projection for 1998 exceeds 500,000, well ahead of the 1993 total. But the layoffs haven’t increased the unemployment rate-a strong indication that workers are simply being recycled.

“You can look at it simplistically and say, ‘Wait a minute. You can’t have it both ways,’” says John Challenger, the firm’s executive vice president. ” ‘How can you fire people, then go out and hire people?’ But there’s so much tumult in the market that it’s all happening at once at different times and in different places. It’s really complex out there.”

Unlike past years, downsized workers will fill only a small fraction of the 50 million jobs that will have opened by 2006. About 40 million people will have entered the labor force by then, but 25 million will have dropped out or retired, for a net gain of only 15 million. The BLS projects the total labor force at 149 million, but no one knows whether those employees will remain in their jobs-or for how long. Of course, as long as the population grows, the labor force will increase. But the consensus is that the nation will end up with a pretty narrow spread.

“We’re back to the growth rates of the 1950s,” says Howard Fullerton, senior demographer at BLS. “There won’t be another baby boom, but I don’t see negative growth for another 50 years.”

No one suggests that there won’t be enough workers to go around. However, employees with just the right skills will be scarce when you need them the most, so it’s primarily a matter of timing.

“Even if you do hire the right people, in six months they won’t know what you need because things are changing too quickly,” says David Peterson of Personnel Decisions. “That’s where the training comes in. You have to ask yourself, ‘Where are the best sources of talent and how do we teach them the things they need rapidly?’ That’s the key to the future.”



Marc Adams is a Winchester, Va.-based journalist specializing in business, finance and legal affairs. His 32-year career as a writer and editor has included full-time positions as a national correspondent for United Press International and as a senior business writer for The Washington Times.

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