Surplus Problems of the Labor Shortage

Will the tightening labor noose choke your company’s profits? As demographics shift, recruiting, training and compensation costs need continuous reevaluation. Finance executives are under building pressure to apply numbers and analysis to workforce trends.

Labor costs have become unwieldy and unpredictable in this expanding economy, where workers are in hot demand and the talent pool is drying up. Finding and competing for employees without allowing the budget to implode requires companies to weld human resources (HR) strategy to overall financial strategy. As the war for talent escalates, companies are using innovative and often untested methods to fill job vacancies. Finance executives need to be at the forefront of these efforts to ensure that they pay off.

In Des Moines, Iowa, the unemployment rate hovers around 2 percent. The crushing labor shortage has motivated companies to get creative — fast — with recruitment strategies. Companies have pumped up their efforts on college campuses and lobbied to bring in immigrants on skilled-worker visas. The Iowa state government has launched a Web site to recruit workers from across the country. And employers are focusing on labor pools previously ignored or underutilized: retired people, refugees, prisoners and unemployed people who have aptitude but a low skill base.

Mike Blouin, president and CEO of the Greater Des Moines Partnership, an economic and community development organization, says, "I think you will find more pilot projects going on around here than probably anywhere in the country in terms of creativity. We know there is no model; workforce development and attraction today are probably where economic development was 20 years ago. We are trying to make things work without a book to read. We are throwing money and ideas against the wall, hoping that some of them stick. And we have had a lot of luck in making lots of things stick."

Continuing Crisis?

Is the Des Moines scenario headed to other cities? No one is predicting a national unemployment rate of 2 percent, but demographic studies don’t paint a pretty picture for employers. The baby boomer age wave has crested, and that huge population segment is headed toward the retirement shore. In just three years, more U.S. workers will be over 40 than under 40. This is a demographic shift without historical precedent.

Richard W. Judy, director of the Center for Workforce Development at the Hudson Institute in Indianapolis, says, "Nationally in the age groups from roughly 25 to 40 we are experiencing a contraction of total population, and that translates into the workforce. If it weren’t for immigration, we would really be in trouble. Annually we receive an immigration population of around 850,000 legally and maybe another quarter of a million or 300,000 illegally. So the immigrant flow accounts for a huge portion of the growth of our labor force."

Won’t the move to automate processes significantly ease the labor crunch? According to Judy, co-author of "Workforce 2020: Work and Workers in the 21st Century" (Hudson Institute, 1997), automation will continue to replace low-skilled or unskilled employees, but increasingly sophisticated products will generate more jobs than technology will destroy. He explains, "There will be a demand for people who know how to mobilize and leverage the technology. Technology isn’t created all by itself, and it isn’t implemented all by itself. It often takes more highly skilled personnel to operate it. So a move in the direction of greater degrees of sophisticated equipment — and software and information systems — generates a demand for the kinds of talents and skills that are complementary to technology."