We are now in a broad labor shift. And it is not just because of the Great Resignation (or Great Reshuffle) where millions of people resigned from their jobs after the COVID-19 pandemic. The current talent shortage is acute in STEM skills such as engineering, data management, and analytics; but it also includes shortages of blue-collar and white-collar workers such as truck drivers, call center agents, and manufacturing skills. And it will get much worse. Companies must take a more systematic approach and build mechanisms for hiring now so they can succeed despite this challenge.
This fact partly explains the labor shift: More people are moving out of the workforce than are moving into the workforce. Our workforce population has been aging and retiring or shifting to part-time jobs, and the next generation does not have enough young people coming into the workforce to offset this trend.
Furthermore, this shift in labor demographics is not a one-time event. Every year from now on, more people will leave the workforce than come into the workforce; so, every year, we will have fewer workers available than we currently have. The college population will not replenish at a sufficient rate. Furthermore, universities now focus less on STEM skills and more on liberal arts. So, the labor population coming out of universities lacks training for the engineering and IT world.
Trends arising from the labor shift
The demographic labor shift will result in several realities.
First, companies will need to invest more money and time in improving productivity. Since they will not have enough white-collar workers, they will need to invest in automation and other technologies to do the work that people were doing. We can already see this happening with self-service check-out counters at grocery stores and self-service functionalities in restaurants. Companies are now making enormous investments in automation for white-collar jobs. And it will intensify.
This investment activity pairs well with companies building operational platforms through which they compete. Platforms generate new operating models that result in a lower cost. Investing in platforms creates a dramatic surge in demand for more IT, engineering, and data scientist skills. Unfortunately, the demand for technical expertise will increase, and the supply will continue to diminish.
A second outcome of the labor shift is pressure to encourage immigration. The Biden Administration encourages blue-collar immigration and welcomes immigrants. We also will soon see businesses in locations such as Kuwait, for instance, which cannot find labor and will be increasingly vocal in encouraging immigration. However, there are social pressures against immigration in the US.
Third, we will continue to see work that was historically done in the United States move offshore to service providers that have available talent in destinations such as India, the Philippines, and Eastern Europe.
However, as we look at the demographics worldwide, it is clear that many of the countries to which companies shift their work will start to go through the process of shrinking labor pools there, too. We can already see this happening in China in a significant way. The trend of shrinking labor pools is also far along in Eastern Europe already, and it will happen in India within this decade.
The one region in the world where it is clear that the population will continue to expand is Africa. Within ten years, we will see significant work migrating into Africa because that is where the population is growing and will continue to grow.
Automation, immigration, and offshoring. Those are three natural consequences of this demographic labor shift. All three factors are now in play in the labor market, and it is a difficult situation to navigate. Greater pressure for access to the necessary skilled talent will further increase the need to access labor pools outside the US and Europe. Furthermore, social pressures will limit immigration, therefore putting greater pressure on automation and offshoring.
What is the remedy for these consequences? My advice to companies, as I said in the first paragraph, is to build mechanisms for hiring now. Companies need to realize this labor shift is not temporary, and they need to put mechanisms in place now (not later) to attract talent.
Mechanisms to manage consequences of the labor shift
In a systematic approach to manage the consequences of the broad labor shift, companies should first attempt to hire and keep as many engineers and IT people as they can, recognizing that it is unlikely they will be able to hire enough people.
Next, companies should assess their populations that are approaching retirement and take steps to delay their exiting and see if they can get more years of work out of them.
Historically, companies looked to move these populations out with early retirement packages because they are more expensive. But that is a fool’s errand now. In the new normal, companies should try to persuade a 62-year-old engineer (for instance) to give them five more years instead of retiring early. In this new world, replacing IT and engineering talent is likely to be more expensive than the cost of keeping them.
Third, companies need to expand labor pools. Look for new, unaddressed labor pools or pools in undiscovered locations. There are people that are “invisible” in a community that companies can hire right now.
For example, during the COVID-19 pandemic, more women chose to opt out of the labor pool to raise their children. This is an attractive labor group. They have training and experience, and often they are great workers. A part-time or highly flexible work-from-home schedule can potentially attract them back into the labor pool.
Most companies will not take this strategy. But the ones that do will benefit and can get a leg up in the labor war. Because companies are not competing in a large market for labor, they need an edge over others. They need to be more aggressive in identifying populations in their own backyards and aggressive in upskilling people. For example, engineering boot camps can upskill people who are highly capable, enabling moving them into new functions.
A company should consider targeting marginalized groups, for example – people coming into the country, such as refugees. Technical executives in South America or Africa immigrating to the US come into this country with robust technical skill sets. But because of language issues and dislocation, they settle for blue-collar jobs. Companies can harness their technology skills.
Because of the labor market shift, companies now need to hire all the people they can, using all the tools they can. Even so, it is likely they still will need to develop relationships with third-party service providers that can supplement the needed talent.
The time is now to address this issue. Companies must take a much more systematic approach to accessing and preserving talent.