Coping with the impending labor shortage.

Inman, Deborah F. ; Inman, R. Anthony

ABSTRACT

Organizations are faced with the real possibility of a coming labor shortage. Today's HR manager will be an integral part of coping with the effects of this shortage and finding solutions through various avenues. Presented are discussions of the impending problems and possible HR solutions generated through productivity improvement and recruitment and retention efforts specifically targeted at women, minorities, retirees and immigrants.

INTRODUCTION

Add this to an HR manager's "to do list": Must attract, screen, and hire an adequate number of employees to compensate for the mass exodus of baby boomers--those born between 1946 and 1964--from America's workforce. This HR manager has read that "by the year 2008, one in six workers will be 55 or older" ("U.S. Unprepared ...", 2001). In addition, this HR manager has heard that 76 million employees will be retiring over the next thirty years with only 46 million Generation Xers--those born between 1964 and 1980--entering the workforce during this time (Eisenburg, 2002). Apparently, there is a coming massive shortage of employees.

According to U.S. Census Bureau projections, "The U.S. will face dramatic demographic changes over the next 100 years" (Little & Triest, 2002). Changes that will create major adjustments in the U.S. labor markets are: the slowdown in population growth, population aging, and the growing role of immigrants. The slowdown in population growth is reflected in the projected yearly U.S. labor force rate of 0.7% between 2000 and 2025 compared to the 1.1% rate of the 1990s ("U.S. Unprepared..., 2001). Population aging is a result of the lower fertility rate of baby boomers, an increase in life expectancy, and the large numbers of baby boomers who are nearing retirement age. Finally, ten percent of the U.S. population growth in the late 1990s was due to foreign-born babies, causing the Census Bureau's population growth projections to swell (Little & Triest, 2002).

For the last three decades, U.S. corporations have been able to shape the abundant labor force to their needs. Labor markets have channeled employees to the most promising industries and companies. As the baby boomers age and the labor crunch hits, employees will wield more power, pressuring organizations to make adjustments in order to appeal to the shrinking labor supply. These adjustments may well change the attitudes of the American workplace and society. Some experts feel that the aging of the baby boomers will become the "transcendent economic and political issue of the century" (Brown, 2002).

If the U.S. does not successfully cope with the downward change in the labor supply, economic growth may slow, taxing support systems to their limits as millions of baby boomers retire and take advantage of those support systems. For example, almost half of the Federal Government's workers (1.8 million) will be eligible for retirement within the next five years (Eisenberg, 2002). Will all of these federal workers retire, adding to the burden on the support system or will some opt to continue to work until Peter Drucker's predicted retirement age of 75 (Garnitz, 2002)?

As older workers retire, they take with them knowledge, expertise, and a myriad of favorable traits such as reliability, loyalty, and conscientiousness. A U.S. General Accounting Office report warned that if American employers are not prepared for the impending shortage of skilled labor, productivity and growth will be threatened ("U.S. Unprepared..., 2001). Losing trained, knowledgeable workers affects organizational performance. Experienced managers and professionals will retire, leading to a decrease in innovation and efficiency, a rise in costly errors due to an inexperienced workforce, and a loss of knowledge and experience which may affect decision-making and undermine growth strategies. The labor market will be "hungriest" at the high end of the scale. The number of employees with college degrees has more than doubled since 1980 (Bernstein, 2002), but this has barely kept up with demand for employees with college diplomas. America is already lacking in trained workers with skills in computer literacy, leadership, critical thinking, and communication.

If this scenario materializes, how will America's labor force maintain the needs of an escalating number of dependents without some downward adjustment in living standards? Little and Triest (2002) project that the increased dependency ratio (the ratio of those under 15 and over 65 to the working age population) will require a 40% gain in labor productivity just to maintain current living standards. Obviously, labor quality and productivity must grow. I suggest that the solutions to this mandate lie in boosting productivity and increasing retention and recruitment efforts, specifically targeting baby boomers, retirees, women, minorities, and immigrants. Offered are discussions of the issues involved in productivity and recruitment and retention along with recommendations for alleviating the potential problems in each area. Then discussion and recommendations are directed specifically at problem areas regarding baby boomers, retirees, women, minorities and immigrants.

PRODUCTIVITY

Using the average productivity growth rate for the past 30 years, economists conclude that the U.S. could experience a shortage of 10 million workers by 2010 (Bernstein, 2002). Should the current productivity growth rate of 2% hold over the next decade, the labor shortage could drop but would still be at least 3 million (Bernstein, 2002). Therefore, organizations must be creative and find ways to do more with less. Technological developments targeted at methods and machinery that will reduce labor requirements will be helpful but the HR manager must also contribute. By refining recruiting and retention efforts and considering the capabilities of the workforce, particularly older workers, HR management-generated productivity can rise. For example, Lockheed's Fort Worth location hired an ergonomic engineer to improve workplace design. After making the recommended changes, the company's lost workday rate dropped 25% and they saved $3 million on injury claims within six months time (Van Yoder & Goldberg, 2002).

Today's workforce is composed of a wide range of ages. Understanding the differences that exist among the generations will create a better work atmosphere; one that will allow for smoother operations. The generation into which a person is born defines him/her. Frost (2002) categorizes the current workforce as traditionalists (born before 1945), baby boomers (born 1946 to 1964), Generation X (1965-1980), and Millenial Generation or Generation Y (born post 1980). Traditionalists are true to their namesake. They attach great importance to loyalty and are comfortable with the topdown management approach (Frost, 2002). They are practical and dedicated (Zuber, 2002). Baby boomers are optimistic and idealistic. They challenge authority and want open lines of communication (Frost, 2002). Baby boomers' self-images are often tied to performing their job well (Zuber, 2002). Generation Xers are more skeptical; a result of being latchkey kids or living in broken homes. They prize individualism and distrust institutions (Frost, 2002). Generation X wants fun on the job with direct and straightforward leadership (Zuber, 2002). The Millennial generation or Generation Y is ambitious and collaborative (Zuber, 200). They expect to change employers and careers throughout their lives (Frost, 2002). As generational differences are acknowledged, one realizes why people's needs and preferences in work styles are different. Appropriately, generational differences should be incorporated into organizations' workplace diversity approaches. Companies that recognize these differences and adjust their recruitment and retention plans accordingly will see results in increased productivity. The payoff is a happier, higher performing workforce which is committed to the company, thus providing long term value to all.

RECRUITMENT

The impact of baby boomers, retirees, women, minorities and immigrants will vary by function and geographic location within the different business units. This shifting talent pool causes uncertainty and hinders recruiting. Employers must understand what type workers they want to recruit and the method required for each type. For example, Deloitte and Touche, after realizing the cost of their high rate of staff turnover, began focusing on work-life balance issues to appeal to talented applicants (Letter to the Editor, 2002).

Companies must look for unique and innovative benefits targeted toward the demographics of the work force in order to create an inviting work climate which will retain employees and attract new ones. According to an Aon Consulting survey, employees are most concerned with four benefit areas (Burzawa, 2002):

1. medical insurance--will it cover day to day as well as catastrophic amounts?

2. paid vacation and holidays,

3. employer-paid pensions, and

4. retirement savings plans.

Attention to these concerns can go a long way in recruitment improvement.

In order to attract and retain promising employees, U.S. companies have begun the practice of "employer branding." This involves a focus on making sure that recruits and existing employees understand the company's goals and commitment to them and how this applies to the individual employee. In order for branding to be successful, it must be consistently applied company-wide and throughout internal and external markets. Employer brands are linked to what it is like to actually work for the company. Through branding, applicants can get a better feel for the company's goals and whether or not they can relate to and support these goals. After implementing employer branding, Johnson & Johnson's volume of incoming resumes doubled in one year (Buss, 2002). Their recruiting campaign directs applicants to the Johnson & Johnson website where their profiles are entered into a database allowing the company to communicate with them. Other firms successfully utilizing the employer branding concept include UPS, Pfizer, USAA Insurance and J.D. Edwards (Buss, 2002).

RETENTION

A recent study (Mitchell, Holtom, Wee, Sablyskyi & Erez, 2001) introduced a new construct, job embeddedness, to predict outcomes of intent to leave and voluntary turnover of employees. Embeddedness is defined as (Mitchell, et al., 2001):

 the extent to which people have links to other people or activities,
 the extent to which their jobs and communities are similar to or fit
 with the other aspects in their life spaces, and the ease with which
 links can be broken-what they would give up if they left, especially
 if they had to physically move to other cities or homes.

This study found that in order to increase retention, organizations should be concerned with the total lives (degree of embeddedness) of employees-not just their work life.

An organization's culture is also an important retention tool. A portion of this organizational culture relates to the way the company treats, values, and trusts employees (Messmer, 2001). Culture should appeal not only to baby boomers, but also to women, minorities and immigrants. In order to retain current employees, companies may consider job enrichment, lateral or vertical moves, or job realignment (Hagevik, 2001).

Another valuable tool is open communication. Creating an environment that solicits input from employees demonstrates to them that their opinions are valued, ergo, they are valued.

BABY BOOMERS

Older employees (baby boomers) set good examples for the younger workforce, make excellent mentors, have fewer accidents, and have lower absenteeism and turnover rates. They are better educated, in better health, and their life expectancies are greater than those of previous generations. Recruitment and training costs, lost productivity costs, plus loss of knowledge and commitment costs can drive replacement costs as high as 150% of a retiring employee's salary (Izzo & Withers, 2002). Also, when companies hire experienced employees who have been socialized within other organizations they can bring undesirable practices with them. They can also be more likely to question procedure and to "abandon ship" if they are not comfortable with the new organization's culture. Recruiting and retaining key mature employees obviously cuts costs and ensures a better knowledge base for organizations. Therefore, as baby boomers contemplate retirement, organizations should be prepared to offer them alternative opportunities to extend their tenure with the company.

A recent survey (Hagevik, 2001) asked over 2200 professionals throughout the U.S., "what kept you?" (in your current position). Over 50% responded that it was exciting work and challenges, and career growth, learning, and development. An AARP/Roper report (Garnitz, 2002) found that the reason baby boomers chose to continue work through retirement age was due to "part ego fulfillment, part economic, part the social support that work provides and part continuing to make a contribution." It seems that for some boomers the incentive to continue to work is financial. For others, the key is a rewarding and fulfilling life.

Money analysts agree that baby boomers will not have sufficient savings to retire at age 55 (Nikiforuk, 1999). A 2001 Met-Life Mature Market Institute survey of 1200 baby boomers found that 46% indicated that their retirement savings levels fell during the last year, but 89% have not changed retirement dates as a result (Timmermann, 2002). Only 18% were concerned with outliving their income. It seems clear that most baby boomers are not as realistic about retirement as they should be. If one retires at 65 and lives until 85 or 90, 20 or more years of steady income will be needed to pay expenses. The survey percentages reinforce the fact that baby boomers will need to work during some of their senior years. For these individuals, company's may offer financial incentives to stay on with the firm or can offer part-time options prior to officially retiring.

Organizations should realize that a portion of baby boomers are not quite "ready for the nursing home" and wish to remain an active part of the workforce. For those not motivated to work past retirement age by financial concerns, employers can offer a phased retirement option, more flexible work hours, reasonable amounts of business travel, contract positions, tangible incentives, and recognition opportunities. Incentive programs should be geared to baby boomers' likes and dislikes. Many boomers have indicated that they want to experience new and different places and activities (Gardner, 2002). Incentives such as white-water rafting, dance lessons, wardrobe makeovers, or gardening classes stimulate the mind and heart. Meaningful activities such as charity work and wellness afternoons from yoga or exercise recharge energy levels. Employers that can provide these will benefit from employees with an extended worklife.

Any plans that organizations put into place are affected by culture, demographics, and workforce planning policy. When you alter retirement, you alter the culture of the organization (Garnitz, 2002). HR managers should remember that demographics assessment and open communications go hand-in-hand in developing a mature workforce.

RETIREES

An AARP survey reports that 8 in 10 baby boomers plan to work part-time during retirement; 35% due to interest and enjoyment and 23% because they need the money (Temple, 2000). A Del Web Company survey among retirees found that 43% missed friends and colleagues the most. They also found that only one-fourth of retirees planned to retire when they did and only 6% retired due to burnout (Opiela, 2002). Therefore, one ready source is retirees. Utilizing retirees is probably the simplest knowledge retention method to use.

Temporary agencies, adult education centers, retiree fairs, and libraries are excellent places to reach the mature applicant. The Workplace Investment Act of 1998 implemented a program which involves a career center that consolidates all state employment and training agencies (Doverspike, Taylor, Schultz & McKay, 2000). This will be mutually beneficial to both workers and employers.

Training programs teaching such skills as entrepreneurship, computer and software skills, business philosophy, and critical thinking help older workers adjust from primary to secondary careers. For example, the Aerospace Corporation employs retirees to maintain its long-term experience necessary to the space program (Van Yoder & Goldberg, 2002). Also, the Bonnie Bell Company created a packing facility for older workers (the average age is 72) which is very productive and stable. Senior employees work half shifts and enjoy a collegial environment.

In many cases, the older workforce is also responsible for the care of elderly parents. Companies may face work interruptions, absenteeism and tardiness as a result of employees' caregiving responsibilities. In an effort to address these problems, Ford Motor Company offers free services of geriatric case managers who provide assessments of the elderly and care management plans (Van Yoder & Goldberg, 2002). The 1997 Families & Work Institute's Study of the Changing Workforce reported that "the quality of employee jobs and the supportiveness of the workplace are the most powerful predictors of job satisfaction, employee commitment, and retention" (O'Toole & Ferry, 2002). Therefore, companies that provide elder care benefits to their employees stand to gain a competitive advantage by creating an employee-centered environment.

WOMEN, MINORITIES AND IMMIGRANTS

Even though 77% of U.S. women work, as the labor force shrinks employers will find it necessary to recruit and retain more women as well as more minorities. Many non-working women are well-educated and could be easily incorporated into the workplace. However, it seems that women are graduating from college and entering the workforce at a lower rate. In order to entice today's woman into the labor force, employers may have to offer flexible hours, part-time work, pre-tax savings accounts, day care and sick child backup care (Bernstein, 2002).

Less educated women at the low end of the labor market are a relatively untapped source. Companies are beginning to offer health benefits even to part-time workers in order to entice applicants to fill low skill level jobs such as housekeeping and laundry positions.

The labor shortage could shift workplace and society attitudes. Diversity efforts may become increasingly important as employers find they cannot rely on the shrinking white labor pool (Bernstein, 2002). Little and Triest (2002) state that "over the coming century, new immigrants and the children of those immigrants will contribute well over half the increase in the U.S. population." Minority and immigrant families will produce approximately 85% of the 18-to-24 year olds over the next decade (Bernstein, 2002). The addition of more immigrants to the labor force will help fill job openings. However, while inflows of immigrant workers will help with the labor shortage, their arrival may reduce levels of education and possibly slow U.S. productivity growth. More than 40% of these individuals will be from low income families and will not be able to attend college even if they want to. These potential future employees will be caught between rising tuition and shrinking financial aid. Even with Federal Pell Grants, 43% of the cost of a college education is left uncovered (Bernstein, 2002). Corporations can entice and retain women and minorities through creation of scholarship funds for the children of employees.

To further increase minority recruitment, companies should make sure that minorities know the selection process is fair and non-discriminatory. Ads should be designed and placed in ways that appeal to the minority applicant.

CONCLUSION

Today's HR manager is faced with a long "to do" list. Somewhere near the top of the list appears projected staffing needs. What the company does through its recruiting and retention practices will alter the effects of these projections and the productivity of the firm. As we move into the future, organizations will be shaping their labor forces in response to dramatic demographic changes. The firms that strive to manage their workforce by responding to employee needs will enhance their position in the marketplace.

REFERENCES

Bernstein, A. (2002). Too many workers? Not for long. Business Week, May 20, 126-130.

Burzawa, S. (2002). Interview: Wisely tuned benefits packages can drive employee commitment. Employee Benefit Plan Review, 56(11), 10.

Buss, D. (2002). In good company. Brandweek, 43(20), 28+.

Brown, D. (2002). Workforce is aging but no need to panic. Canadian HR Reporter, 15(10), 1,11.

Doverspike, D., M.A. Taylor, K.S Schultz & P.F. McKay. (2000). Responding to the challenge of a changing workforce: Recruiting nontraditional demographic groups. Public Personnel Management, 29(4), 445.

Eisenberg, D. (2002). The coming job boom: The help-wanted ads may look thin-but thanks to aging baby boomers, that's about to change. Time, 159(18), 40.

Frost, M. (2002). When generations collide. HR Magazine, 47(6), 137.

Gardner, L. (2002). Gifts for life. Potentials, 35(6), 6.

Garnitz, R.N. (2002). Semiretirement: A practical alternative for boomers. Employee Benefits Journal, 27(2), 51-53.

Hagevik, S. (2001). What keeps 'em. Journal of Environmental Health, 63(6), 50.

Izzo, J.B. & P. Withers. (2002). Winning employee-retention strategies for today's healthcare organizations. Healthcare Financial Management, 56(6), 52-57.

Letter to the editor (2002) Healthcare Financial Management, 56(6), 6.

Little, J.S. & R.K. Triest. (2002). The impact of demographic change on US labor markets. New England Economic Review, Winter, 47-68.

Messmer, M. (2001). Capitalizing on corporate culture. The Internal Auditor, 58(5), 38-45.

Mitchell, T.R., B.C. Holtom, T.W. Wee, C.J. Sablyskyi & M. Erez. (2001). Why people stay: Using job embeddedness to predict voluntary turnover. Academy of Management Journal, 44(6), 1102-1121.

Nikiforuk, A. (1999). A question of style: The boomers have redefined every stage of their passage through life. Now they may turn the notion of being a senior citizen on its head. Time International, 153(21), 58.

Opiela, N. (2002). What's working in retirement. Journal of Financial Planning, 15(5), 52-58.

O'Toole, R.E. & J.L. Ferry. (2002). The growing importance of elder care benefits for an aging workforce. Compensation & Benefits Management, 18(1), 40-44.

Temple, P. (2000). No retirement for boomers. Workforce, 79(7), 6.

Timmermann, S.(2002). Baby boomers: Assessing their retirement risk in trying times, Journal of Financial Service Professionals, 565(3), 31-33.

US unprepared for staffing shortage (2001). Canadian HR Reporter, 14(22), 2.

Van Yoder, S. & B. Goldberg. (2002). Coping with the graying workforce. Financial Executive, 18(1), 26-29.

Zuber, A. (2002). Across the great divide: Managing difference between generations. Nation's Restaurant News, 36(23), 68.

Deborah F. Inman, Louisiana Tech University

R. Anthony Inman, Louisiana Tech University