THE NEXT WAR FOR TALENT
hiring policy today on the prospect of a return to the tight labor market of
1999 seems not just counterintuitive -- it defies the evidence of one's own
enclosed BUSINESS 2.0 piece is worth your thought and reflection.
THE COMING JOB BOOM
Business 2.0 - Magazine Article
those grim unemployment numbers. Demographic forces are about to put a
squeeze on the labor supply that will make it feel like 1999 all over again.
By Paul Kaihla, September 2003
Reed is a buyer in a buyer's market, and frankly, that has its advantages.
The vice president for human resources at Stratus Technologies, a Maynard,
Mass., maker of high-reliability servers, Reed never lacks for attention at
parties and dinners in this employment-starved economy. When she does post a
job, she gets four times the volume of responses she got three years ago, and
some job seekers even follow up with Christmas cards. If she wanted to, she
could fill every opening at a salary 15 percent below the going rate -- as,
in fact, many of her competitors do.
that's one advantage Reed won't take. She recently hired an engineer with
more than 10 years' experience for nearly six figures -- the same wage she
paid at the height of the bubble. Reed isn't just being kind. She asserts
that any other course of action is asking for trouble down the road.
"The buyer's market we're in now is temporary," she warns.
"Maybe it'll last another year or two." And then? "Companies
that haven't taken care to build worker loyalty," she says, "will
find themselves in the same predicament as in 1999 and 2000."
particular moment in economic history, that is quite a statement. Two million
workers have been downsized or displaced since the recession of 2001. At 6.2
percent, the national unemployment rate is the highest it's been in nine
years, and the number of new jobless claims has sat above 400,000 for 20
hiring policy today on the prospect of a return to the tight labor market of
1999 seems not just counterintuitive it defies the evidence of one's own
isn't alone. Executives at Cigna (CI), Intel (INTC), SAS, Sprint PCS),
Whirlpool (WHR), WPP (WPPGY), and Adecco (the world's largest placement firm)
have told Business 2.0 that they, too, worry that the supply of labor is
about to fall seriously short of demand. Former treasury secretary and
current Harvard University president Larry Summers regards a skilled labor
shortage as all but inevitable. Economists like former Deputy Secretary of
Labor Edward Montgomery and Sigurd Nilsen, the director of education,
workforce, and income security in the General Accounting Office, have issued
warnings to the same effect. And in April the country's largest and most
influential industrial trade group, the National Association of Manufacturers
(NAM), added its voice to the chorus. The association released a white paper
based on research by labor economist Anthony Carnevale, former chairman of
President Clinton's National Commission for Employment Policy, that forecast
a "skilled worker gap" that will start to appear the year after
next and grow to 5.3 million workers by 2010 and 14 million 10 years later.
(Including unskilled workers, the gaps will be 7 million in 2010 and 21
million in 2020.) "By comparison, what employers experienced in 1999 and
2000 was a minor irritation," Carnevale says. "The shortage won't
just be about having to cut an extra shift. It will be about not being able
to fill the first and second shift too." This will occur, he adds,
without any heroic growth rates or bubble like economic anomalies; all it
will take is a return to the economy's long-term growth rate of 3 to 3.5
percent a year.
cause of the labor squeeze is as simple as it is inexorable: During this
decade and the next, the baby boom generation will retire. The largest
generation in American history now constitutes about 60 percent of what both
employers and economists call the prime-age workforce -- that is, workers
between the ages of 25 and 54. The cohorts that follow are just too small to
take the boomers' place. The shortage will be most acute among two key
groups: managers, who tend to be older and closer to retirement, and skilled workers in
high-demand, high-tech jobs. To see the demographic time bomb in microcosm,
just count the gray heads around your own office. At Sprint, for example,
half of the 6,000 field and network technicians are over 50. At Cigna
Systems, about a quarter of the 3,400 IT workers will pass 55 this decade.
And at Cary, N.C., software maker SAS, more than a quarter of the staff will
be eligible to retire by this decade's end. The company's VP for human resources, Jeff
Chambers, says this group is filled with veteran designers and engineers,
many of them architects of the company's most successful products. "It
doesn't take a rocket scientist to see what's going on," he says.
"Existing staff are going to start getting out soon, and the feeder pool
just isn't coming up. If you're responsible for the workforce, you'd better
ask yourself what you are going to do."
employers will have to do, of course, is not difficult to predict: bid up
wages, raid competitors for employees, seduce older workers to stay on the
job, outsource whatever work they can, and lobby the government to jack up
the quota for skilled immigrants. What they will not be able to do -- at
least not for much longer -- is ignore the problem. "People think we're
going to have plentiful workers forever, but that's not so," explains
David Ellwood, a Harvard University professor who recently led an Aspen
Institute study of the problem. "If you want to hire somebody who has
traditionally been the bread and butter of the labor force, you're soon going
to have to hire them away from somebody else."
boomers retire, the workforce will stop growing ...The U.S. has always been
able to count on an expanding labor force. But as the boomers are replaced by
a smaller generation, the number of workers between the prime working ages of
25 and 54 will stagnate. Prime-age workers (ages 25-54), in millionsand the
average worker's education will flatline ...
the past 20 years, the share of the workforce that had attended college grew
from just over 40 percent to almost 60 percent. That figure will barely budge
during the next two decades. Prime-age workers (ages 25-54) with more than a
high school degreecausing a serious shortage in skilled workers. The static
educational level of the workforce, coupled with the retirement of the baby
boomers, means that there won't be enough skilled workers to meet
continuously rising demand over the next 20 years.
sentient adult could have made it through the past decade without developing
a healthy distrust of forecasts like these. But the case for the worker gap
differs from the usual economic entrail reading in one crucial regard: It's
based on demographics, a far more certain discipline. When Carnevale's model,
for instance, shows that within seven years 30 million people now in the
workforce will be older than 55, that's not a guess. It is virtually a
certainty. "Any kind of demographic projection with respect to people
who have already been born is notoriously accurate," agrees former
Treasury Secretary Summers.
projections reveal is a passing of the workplace torch unlike any other in
U.S. history. Up to this point, each generation to enter the workforce has
been larger and better-educated than its predecessor. This time, however,
neither will be true. The number of workers in the prime-age category -- the
years when skilled, educated workers are at their peak productivity -- will
hardly budge during the next two decades, even assuming that there will be
about 1 million legal and illegal immigrants a year. At the same time, the
percentage of the prime-age labor force that has been to college will
flatline at about 60 percent. In fact, enrollments in the crucial fields of
engineering and computer science have actually been declining.
result is an unprecedented mismatch between the workforce and the demands of
a growing high-tech economy. Projections by the Labor Department's Bureau of
Labor Statistics indicate that the seven fastest-growing occupations this
decade will all be in technology. Demand for applications software engineers
and tech support specialists, for example, will double by 2010, according to
the BLS. (See "The 10 Fastest-Growing Occupations.") Even the
seventh-ranked category, database administrators, is projected to grow by a
stunning 66 percent. These high-demand tech fields will be the first to feel
the labor crunch. By 2005, Carnevale says, "we'll start to see spot
shortages all over the place." In some fields, he predicts, employers
will be reduced to filling desperate job shortages with unqualified workers.
By the following decade, when the bulk of the baby boomers bid their cubicles
goodbye, a broad swath of corporate America will be scraping the bottom of
the barrel for white-collar workers.
economic forecast has its critics, of course -- particularly one so at odds
with the prevailing mood about employment. The projections assume, for
instance, that the baby boomers will leave the workforce at roughly the same
age as their predecessors, but how do we know that they won't delay
retirement to make up for recent stock market losses and depressed 401(k)s?
The answer is that the trend toward early retirement is a deeply entrenched
pattern established during the past four decades, and neither bull nor bear
markets have made a dent in it. Even the Social Security Administration,
which would love nothing more than to make the case that the retirement age
will soon rise dramatically -- the better to prove its own solvency -- has
been unable to find any data to support that view. Another loud objection is
that the model expects far too much growth in the battered tech sector. John
Sargent, a senior policy analyst in the Commerce Department's Office of
Technology Policy, says he hears that all the time. "A lot of people
say, 'Are you freaking crazy? Haven't you seen what's happened in the last
year and a half?'" But Sargent, an authority on economic measurement, defends
the BLS numbers, calling them the "closest you get to absolute
objectivity." To assume that the sector's current weakness is permanent
makes no more sense than believing in 1999 that the gravy train would never
end. Several studies show that where the bureau has erred, it has
traditionally underestimated demand for tech. The tech sector usually leads
the economy during periods of employment growth, and it's not clear what
force would prevent it from doing so during the next bounce. Some skeptics
argue that the culprit might be technological progress itself. They point out
that a considerable amount of brainpower at software companies is now aimed
at automating business data centers and, in effect, putting hordes of
gainfully employed IT workers out on the street. IBM (IBM) calls the effort
"on-demand" or "utility" computing. Oracle (ORCL),
typically, calls it nothing but boasts that it has developed software that
could soon make database administrators as obsolete as typesetters.
likely. Even if such breakthroughs ever made the leap from PowerPoint
presentation to reality -- and they haven't yet -- they probably wouldn't
shrink demand for tech overall. That's not how progress works. Whenever new
technology eliminates less sophisticated jobs, it tends to create
higher-level positions elsewhere. Cathleen Barton, U.S. education manager at
Intel, points out that in 21 years of steady improvements in equipment and
processes, Intel's workforce has only grown. "There's always the
argument that the more technology you put in, the fewer and less-skilled
workers you will need," she says. "But that's just not the
case." In 1982, for example, Intel had about 20,000 U.S. employees, and
an entry-level plant operator needed only a high-school education. That worker's
skills would be obsolete today, it's true. But in its current 49,000-person
U.S. workforce, Intel employs far more plant technicians than it did two
decades ago. The difference is that entry-level applicants now need at least
a two-year degree in applied science to handle the job.
smarter software and increased automation won't derail a coming surge in
demand for skilled American workers, how about competition from cheaper
workers abroad? The double-digit growth in outsourcing of service jobs to
low-wage countries, particularly India, has spawned more than its share of
hand-wringing in the press and protectionist brimstone in state legislatures.
Much of the worry seems to have crystallized around an estimate by technology
research and consulting firm Forrester Research (FORR) that India and other nations will import some 3.3
million U.S. service jobs during the next 15 years.
most part, economists say, this is mere hysteria. India, China, the
Philippines, and other newly industrialized countries simply haven't enough
capacity to prevent the U.S. labor squeeze, especially in IT. India's IT industry, after all,
produces about $14 billion a year, a gnat on the hide of the U.S. sector's
$813 billion. Likewise, the subcontinent's 150,000 tech workers represent
less than 2 percent of America's domestic IT labor force, barely enough to
make a ripple in the looming job shortage.
of the 3.3 million jobs that Forrester predicts will move offshore by the end
of the next decade? Most experts in the field put little faith in that
number; they say there's not yet enough data to make any credible projection.
(Some, in fact, dismiss Forrester's study as little more than a marketing
brochure for Forrester's own offshore outsourcing consultancy.) Martin Kenney,
a professor at the University of California at Davis who has just released a
study on outsourcing in India, guesses that the true figure will be only half
that many and that most of those will fall into lower-skilled categories like
call centers. But even if Forrester's prediction came true -- and even if
each of the 3.3 million exported jobs would otherwise have been filled by a
U.S. manager or skilled worker -- that still represents only a fraction of
the shortage that Carnevale and other economists foresee. In other words, the
long-term tragedy of offshoring isn't that it's snatching away skilled
American jobs. It's that it can't possibly snatch enough of them.
economics teaches that there can never be more jobs than jobholders. A gap of
5.3 million workers in 2010 doesn't mean that there will be millions of empty
cubicles waiting for workers who will never show up. Instead the labor market
will "clear." Wages in the hottest professions will rise high
enough to induce workers to change careers, emigrate to Silicon Valley, or
retrain themselves in the desired skills (remember "Internet or Bust"?). Companies will
coddle workers to build loyalty (remember free massages?), lure skilled retirees
back from the golf course, or redeploy other workers. Eventually the demand
will be met.
information on the impending labor shortage check out these links:
study predicts a shortage of millions of workers starting in 2005.
One of the
first employers to feel the pinch of the skilled-labor shortage will be the
Department of Defense is struggling to cope with its own retirement time
largest industrial trade association in the United States, whose companies
employ about a seventh of the nation's workforce, sounds the alarm over a
Harvard economist and the Aspen Institute show how the stagnating supply of
skilled workers threatens U.S. economic growth.
the shortage, some companies have already put the process in motion. For
example, Gail Doughtie, a vice president at Cigna Systems, has begun
preparing for a shortage of database administrators by training other Cigna
IT workers for the job; on big projects she looks for chances to pair veteran
database administrators with junior IT workers in their 20s and 30s.
part, Judy Reed has refused to cut not only starting salaries but also
budgets for athletic teams, picnics, and parties. "If your social life
is at work, then it's harder to leave that work behind," she reasons.
The company also offers over 70 courses a year in technology, management
training, and skills like negotiating and writing. "Loyal workers refer
other loyal workers," she says.
meanwhile, has used the current downturn to staff up, hiring more than 800
new employees. "We've been using this downturn to buy loyalty with these
people, in the hope that we can ride them through the decade," Chambers
says. "If you lost your job at Dotcom Inc. but got hired at SAS and
prospered, you're probably not going to move when a competitor comes
Reed, Chambers predicts that tech companies will try to offset the shortage
of IT help by enticing boomers to work far beyond the standard retirement age.
He's been urging senior SAS management to adopt programs to keep the more
than 1,000 managers nearing retirement age from leaving. Among his
suggestions is one that's almost certain to become more widespread this
decade: flexible hours. "I know I'm not going to want to work every
single day when I'm 55," Chambers says, "but I'll still probably
want to work. We'll say, 'We'll pay you for an average of 100 hours a month,
but if you want to take off June to spend time with your new grandchild, that's
labor shortage grows more acute during the next decade, the returns on such
tactics are likely to diminish. At the margin, there may simply be no
cost-effective way to coax one more warhorse out of retirement or equip one
more high school dropout for the rigors of a high-tech economy. In that case,
the labor market will still clear -- but it will do so not by increasing
supply, but by lowering demand. Projects will be abandoned, growth
opportunities will lie fallow, and economic output will settle at a new,
slower rate of growth.
now and then, though, there promises to be one ferociously tight labor
market. Hard as it may be to picture in the midst of today's employment
gloom, the coming squeeze could be as big a bonanza for skilled workers as
1999 was -- and as big a headache for employers. The only difference is, you
can see this one coming. Whether you prepare for it or let it catch you by
surprise is up to you.
Kaihla is a senior writer for Business 2.0.
This Happened Before?
time there was a labor shortage as deep as the one that looms today, the
scarcity driven by demographics -- the fate predicted for the U.S economy
during the next two decades -- is rare in history, but not unknown. When it
occurs, the value of labor invariably rises, just as the law of supply and
demand would suggest.
recent worker gap arose in the 1950s. A mild shortage of younger workers
cropped up in that decade partly because restrictive laws choked off
immigration during the 1930s, even as the Great Depression cut the U.S.
fertility rate by more than a quarter. The relatively small generation born
during the Depression would enter the workforce just as the post-World War II
boom lifted demand for new workers. "The scarcity of labor led to wage
premiums for the Depression babies," says Nicholas Eberstadt, an
economist at the American Enterprise Institute. "That contributed to the
postwar prosperity experienced by the boomers' parents."
a mismatch between successive generations as deep as what lies in store in
the United States, Eberstadt says, you have to go back another 600 years.
Beginning in 1348, the Black Death wiped out 30 to 50 percent of Europe. In
England, the plague produced such a severe labor shortage that grain rotted
in fields during the 1349 harvest. Peasant farmhands, who made up the vast
majority of the surviving labor force, demanded pay hikes to compensate for
the extra work demanded of them. Landowners responded by ramming wage
controls through Parliament. Eventually, the overworked laborers launched the
Peasants' Revolt of 1381, one of the greatest working-class rebellions of the
the revolt was quickly repressed, the persistent labor shortage wound up
driving many landlords out of direct cultivation. Instead, they outsourced
production by breaking their estates into parcels that they rented out,
sometimes to ambitious peasants. Those yeomen entrepreneurs gave rise to a
new gentry during the Renaissance. In the same vein, skilled American workers
who currently fear downward mobility may emerge as a privileged elite in the
21st century. For those workers, such an outcome would be a welcome reversal
of fortune -- no revolt necessary.
the Jobs Are Going
will find the hottest job growth this decade in Southern and Western metro
areas fed by expanding service industries and by a resurgence in the tech and
area Job growth, 2003-2013
Palm Beach, FL 28.7%
Lauderdale, FL 25.7%