The Coming Employee Shortage Has Arrived

Small Businesses can compete for workers by being flexible and desirable places to work!

There’s more than the tip of this iceberg showing! Much has been written about “the coming employee shortage;” well, it’s here! Economists predict the U.S. employee shortage could become as high as 10 million jobs unfilled by 2010, as millions of “baby boomers” retire and fewer younger workers enter the workplace to take their places. In fact, finding employees to fill certain job openings—whether it’s a person who is the “right fit for the job,” or someone who is just “acceptable”—has reached a near crisis level in today’s business environment. Small businesses are feeling the employee shortage squeeze; so are larger businesses.

The bad news is that employee shortages are predicted to get worse before they get better! Studies by the Massachusetts Institute of Technology, Robert Half International, and Towers Perrin all point to the tightest labor markets in the past 30 years. In fact, 80% of businesses surveyed by Robert Half indicated that today it is more difficult to find qualified candidates for job openings than a year ago.

The “worker shortage” mystery!

With the thousands of employees who have been laid off by major corporations in recent years, the logical conclusion might be that there are plenty of available unemployed workers to fill job openings. And, as the overall U.S. economy has slowed this year, due mainly to the housing slump and oil prices, one might think that there would be more people out of work looking for jobs. Well, the exact opposite is true! According to the U.S. Bureau of Economic Analysis and Labor Statistics, job markets remain tighter than before the slowdown. Supporting this economic abnormality, unemployment in the U.S. recently (Spring 2007) hit a 5 year record low of 4.4%, which means that basically most of us who are eligible, willing, and able to work, are working. And, overall adult joblessness hit a five year record low as well, coming in at 3.9%. On a more specific basis, the Bureau of Labor Statistics reports that the unemployment rate for workers with a bachelor’s degree or above is less than 3%. For engineering professionals, the rate is about 1%. The supply of educated workers is simply not keeping up with the ever-increasing demand—especially in accounting, computer science, electronic/ computer engineering, finance, global business management, information sciences/ systems, marketing management, medical technicians, retail professionals, healthcare workers, and teachers. Therefore, today’s employee shortage actually turns out to be a shortage of skilled and educated workers.

Workforce demographics.

We’re in the middle of a major aging workforce demographic transition, as well as a transition to a more global economy that requires larger numbers of “knowledge” workers. The supply of skilled and educated people (“knowledge workers”) is extremely tight and is expected to worsen until educational and retraining programs catch up with some of the demand. In addition, the supply of workers at the lower end of the employment scale, where wages are typically in the $8 to $12 per hour range, has been at critical levels as well for years.

 If you are looking for the root cause of these “shortages”, as I was in writing this article, Richard Florida in his latest book titled “The Flight of the Creative Class: The New Global Competition for Talent,” states: “the basic rules of biology indicate that in the next twenty years the U.S. is going to experience a lack of available workers that hasn’t been seen for the past fifty years.” I believe he is telling us that human reproduction in the U.S. is not sufficient to supply the workforce needed—especially at a time when the “boomers” are starting to exit the workplace in record numbers and the generations that follow them (often called “Generations X and Y” or “Millenials”), are entering the workplace in smaller numbers. By the way, this same demographic is at work in other parts of the world as well—namely China and Japan.

   The good news is that during the transition small businesses can attract their share of skilled and talented workers by being flexible and desirable places for both older and younger workers to be employed. In fact, smaller businesses can often change quicker than large organizations and be more flexible with programs to attract and retain good employees.

Good employees -- the key to a successful small business. 

A third generation owner of a small Kansas City restaurant chain remarked to me recently: “when one of my employees who has been with us for a long time quits or retires, I really can’t replace them. No one wants to do this work. I have to find standard ways of doing everything so that training time is minimized. Turnover is very high. I spend a large portion of each day nurturing and training employees. I may be the last generation to operate our family’s business.” A local small business design engineering firm entrepreneur indicated that when he sees someone he feels fits his business, he hires them even if there is not an opening--in anticipation of a later need and knowing that the hiring process for good design engineers can be long. A small retailer remarked that it is almost impossible to keep employees who can maintain a level of customer service required for the success of her business. The bottom line is that nearly all small business owners--especially those in retail, food service, technology, and engineering--cite finding suitable employees and turnover as major challenges in their businesses.

Here’s what to do!

• Focus on employee development programs such as on and off-site educational opportunities, mentoring sessions, counseling, on-line training, and time off for learning experiences and trips. Programs that help employees gain personal and professional skills are the most effective methods for retaining employees; yes, ahead of money. Surveys indicate that most employees leave a company due to a lack of personal and career growth, and a feeling of not “learning” or “getting ahead.” With the cost of hiring employees estimated at 50% - 200% of salaries, retaining employees is absolutely critical to the success and profitability of any business. And, small business owners have long recognized the vital connection between the retention of experienced and loyal employees and the retention of customers! 

• Create an environment of inclusion and recognition, where employees are included in as many aspects of running a business as possible and provide individual recognition for their contribution to the success of the business. As with personal and career development, inclusion and recognition for accomplishments have been proven to be more effective than money when it comes to employee satisfaction and retention. In fact, employees are looking for accomplishment, personal recognition, and a positive team environment—not just money! And, with today’s high cost of doing business, firms must focus more on non-monetary “bennies”—which are proving to be just as important and effective as monetary rewards. This is especially true for small business start-ups that face initial restrictive financial resources.

• Provide flexibility—when possible--with regard to work schedules that allow time for child care, elder care, personal care, community service, working from home, and time off for special family events. Nearly all businesses that introduce “flexible work hours” in their workplace report a significant reduction in employee turnover. Telecommuting (working at home part or full-time) has also proven to be an effective retention tool.

• Recognize and curb employee “burnout.” A recent survey and study by the Mercer Human Resources Consulting Group indicated that 47% of a company’s high performers face burnout. With the pressure on to do more with fewer resources, small and large businesses must keep in constant communication with employees so that burnout can be detected and effectively dealt with before the employee becomes discouraged and leaves. Due to size, small businesses have an advantage in detecting and mitigating employee burnout.

• To the extent possible, provide employees with benefits such as healthcare, educational assistance, stock ownership, and tax deferred 401K savings plans. Surveys continue to reveal that for many employees the availability of healthcare benefits is a main reason for working and staying with an employer. And, with the cost of healthcare benefits (medical, dental, vision) soaring, employees often say they can’t afford not to work and have coverage, or they can’t change jobs and face pre-existing condition waiting periods.

• Offer product discounts to employees and their family members. And, allow employees to extend a limited number of discounts to their friends and acquaintances. This can be a benefit that helps both the employee and the business by providing additional sales and, at the same time, promoting the company.

• Retain and hire older workers. The Bureau of Labor Statistics reports that workers between the ages of 55 – 64 have been with their employer for an average of 9.3 years, while workers between the ages of 25 – 34 average 2.9 years. Older educated and experienced workers can fill many of the critical shortages that exist today by working full-time, part-time, or through job sharing arrangements. 

To end where we began: “The Coming Employee Shortage Has Arrived!” It has brought with it unprecedented challenges to find and retain one of the most critical components required in the operation of a business—skilled and talented people! The shortage comes at a time when globalization has intensified the competition for “knowledge workers” around the world. It comes at a time of unprecedented demographic change as the first of the 76 million “baby boomers” start to retire, and the  “web generation” that follows them continues to redefine “workplace” and the manner in which work gets done. Small business entrepreneurs are especially equipped to handle these changes and lead the way. By establishing flexible, desirable, and rewarding “places” to work, small businesses can continue to successfully compete for talented employees. Welcome to the new global economy and employee shortages! 

• Phil Watlington teaches finance, managerial accounting and strategic planning through the University of Phoenix and is a senior manager at the General Electric Company. He is the author of “The World Is At Your Door.” You can reach him at (913) 485-2577 or pwatlington@earthlink.net.

ArticleEmployeeShortage.doc pw 5/07