Bom And Bust' Cycles.

'Tis the season to pose as a pundit and make solemn sounding predictions for whatís to come. Scanning back through expert predictions in 1998 through early 2001, one would have thought the good times would last forever Economists and futurists were declaring an end to economic boom and bust cycles that characterized western economies for over 150 years. Needless to say, they were wrong. Although unemployment rates are low relative to other bust cycles, workers in the United States are increasingly concerned for their jobs, as evidenced by a steady decline in consumer confidence and consumer spending, despite historically low interest rates.

The good news is that the old cyclical economy must eventually pull us out of the current recession and into a new boom cycle. 2003 looks to be on the bleak side of uncertain, however, with stock markets in the doldrums and 40,000 more jobs lost in November. Still, the U.S. economy managed to grow at an annual rate of 4% in the third quarter of 2002, and initial expectations of less than 1% annual growth at the beginning of the year, have given way to actual annual growth likely to be in the 2.5% range for 2002. On the other hand, we are in an era much more focused on international conflict and geopolitics than the domestic economy. Predictions of 3-3.5% for growth in the U.S. for 2003 seem high, therefore, especially if consumer confidence, finally showing life in November, is shattered by war and a resulting hike in energy costs.

If that sounds contradictory, welcome to reality. Unfathomable complexity caused by literally billions of interdependencies makes the business of prediction folly. The manner in which events impact on the status quo and cause chain reactions of other events is beyond complex, and, to date at least, unpredictable. That means the best we can do is prepare for a variety of plausible scenarios rather than betting everything on one future.

As recruiters and other staffing professionals, the future we worry about the most, is the future availability of human capital. That explains why, even though many of us have to poke our heads out from piles of resumes to listen to it, we still have a great appetite for predictions about looming talent shortages. The problem though, is weíre only hearing one thing.

A Storm on the Horizon?:

The problem, employers are told, is that when the next prosperous period comes, it will overlap with a demographic-driven shortage of workers. Commentators are warning employers and policy makers that a convergence of independent economic and demographic factors might contribute to the labor marketís storm of the century within a few years. Fears of an impending shortage of workers, despite the current economic malaise, have some of their roots in the late 90s.

Over 20 million jobs were added to the U.S. economy between 1990-2000, but growth in the labor force almost held pace and the shortfall was partially made up through the recruitment of foreign workers. Recruiters will recall, however, just how tight the labor market became. Many companies and some industries in general were held back due to their inability to field enough talent in the right places at the right times. Wages, bonuses, benefits and other incentives skyrocketed, particularly in industries and locations where workers were most in demand.

This period of heightened demand has since given way to an era of mass layoffs among many of the same skilled workers who were so in demand a few years ago. No one knows for sure what scenario can we expect this decade. The U.S. Bureau of Labor Statistics, in its projections for net new job growth between 2000-2010, estimates a 15% increase over this period (slightly less than the 17% growth between 1990-2000). This will account for over 22 million net new jobs, almost all coming from the service sector.

Overall labor force growth, the other side of the coin, is expected to account for an additional 17 million workers (slightly more than in 1990-2000). Using simple math, and ignoring numerous factors that are impossible to predict, this suggests the difference between number of jobs and number of workers will increase by 5 million between 2000 and 2010 (in 2000, BLS statistics showed 145.5 million jobs and a labor force of 140.9 million workers) to about 10 million.

It is important to remember that the number of available workers does not equate to the number of employed individuals. An unemployment rate of 4% in 2000 meant that there were about 5.7 million more jobs unfilled than the numbers in parentheses above show. However, this number was offset to a large degree by millions of workers who held two or more jobs.

A Shortage is Likely, But Not All At Once:

The prospects for this decade were damaged somewhat by the events of September 11, 2001 and may be further effected by geopolitical events likely to unfold in 2003. The BLS projections for the decade were done before September 11 and are probably optimistic (in terms of net new jobs added) as a result. However, if the BLS projections are close, and even if unemployment rates gradually drop back to 4% as the BLS predicts for 2010. It appears much more likely than not that there will be a worse labor shortage by 2010 than there was in 2000.

Leading up to 2010, it is likely that the problem will begin with skills shortage problems across specific occupations and industries. Very healthy numbers of youth will be entering the labor force this decade as will workers aged 45-64. Age-wise, there will be a dearth of talent in the mid-career ranges, thus finding experienced professionals and middle managers may become much more difficult while filling entry-level positions should be somewhat easier than during the last decade.

As in the late 90ís, workers with the right skills in some industries will be difficult to find whether the hot industry is IT, healthcare, education, biotech or something else. In the previous decade, record numbers of skilled workers were recruited from outside the U.S. to fill the gaps. However, recruiters may not be able to tap into the foreign markets as easily this decade as last.

The United States, despite its possible worker shortages, is in the best shape of all OECD countries ñ here labor force growth has only slowed, in other OECD countries, it has or will stop altogether. In a few countries, the labor force will decline. Canada and Great Britain are only slightly worse off than the U.S. but parts of Western Europe and Japan may face grave problems. This means more competition from rich countries for skilled workers from supply countries like China and India.

The U.S. is and remains a magnet for would be immigrants from all over the world, largely for economic and lifestyle reasons. The BLS predicts that net migration will continue to account for a significant portion of labor force growth in the U.S., but predicts immigration will fall from about 980,000 in 2002 to 720,000 in 2010. When governments from Germany to Italy and Canada to Australia start providing more and better incentives, attracting the best and brightest to the U.S., especially in the quantities needed for particular skills, wonít be a cakewalk.

Assuming that a technological breakthrough does not occur that will vastly increase worker productivity, employers may have to work harder to entice more of the population into the workforce. Older workers, age 45-64 for example will constitute the largest growth in the labor market between 2000-2010. The U.S government is slowly raising the age at which social security can be accessed, to 67 from 65, this will help keep some workers in the labor force. Already, men aged 65-74 are remaining in the labor market longer. The participation of older workers in the labor force will likely grow even faster this decade given the erosion of private pension plans due to the stock market collapse and the lower percentage of employers offering generous pension schemes. Should a talent shortage crisis occur, better incentives and compensation will keep older workers engaged longer and entice many others out of retirement.

At the other end of the spectrum, recruiters should have no problem attracting entry-level workers this decade. Youth workers aged 16-24 are expected to increase by 2.4 million between 2000-2010, much higher than in the previous two decades. However, finding educated and experienced mid-career workers may be tougher. The BLS predicts workers aged 35-44 will decline by 3.8 million and those aged 45-54 will grow only very slightly in numbers.

On a Balance of Probabilities:

In summary, given the BLS numbers, the range of scenarios they support, and the current international political scene, it appears that the dire predictions of many journalists, commentators and others are slightly overblown and one-sided. Nevertheless, organizations should heed those warnings for the most part in order to be prepared for the worst ñ on a balance of probabilities, there will be a labor shortage by 2010 that is worse than the one experienced in and leading up to 2000.

In preparing for a range of scenarios, the best insurance is expending more effort in monitoring your workforce carefully. Should todayís economy become the norm, with 6% or higher unemployment and talent surpluses in many areas, you will still benefit from knowing your workforce thoroughly. The more you know what skills and other attributes you require and which in having, contribute the most to employee success at your organization, the easier it will be to apply intelligent screening filters so that you can hire and retain only the best in times of applicant overload.

If, as is more likely, the economy improves and talent is much harder to come by, first rate workforce planning and analysis begun today will position you well. Organizations that continuously monitor and develop the talent they possess, and develop relationships with that available externally, have the knowledge and means to recruit and retain strategically, in alignment with corporate objectives.

Future technology purchases to aid in workforce planning should be based on documented recruitment/retention strategies and plans that are revisited as often as necessary. In 2003 and beyond, no large employer should select a talent management solution vendor that does not demonstrate a commitment to workforce optimization ñ having the right people in the right jobs at the right time. A recruitment and retention strategy that is informed by a deep understanding of what the organization possesses (skills, competencies, potential) and those it needs to execute on its strategy is a must in order to face whatever challenges arise in the remaining years of this decade and beyond.


Allan Schweyer
aschweyer@hr.com
www.hr.com

Allan Schweyer has been involved in Internet recruiting since 1994 when he pioneered e-recruitment solutions for Human Resources Development Canada. From 1995 to 1999, Allan directed the award-winning National Graduate Register, Campus WorkLink and SkillNet.ca programs with Industry Canada, which introduced the concepts of applicant tracking and advanced screening to job boards and ìcareer networksî to job seekers. In 1999, Allan formed the On-line Recruitersí Association of Canada. In 2000 and 2001, he worked with Cahners Business Information in Boston to build information portals for technical professionals and attended graduate school at Harvard University. Allan currently consults with large organizations on HR strategies and specializes in e-recruitment projects. He is a senior researcher and analyst with HR.com and the guest editor of the HR.com staffing vertical.