Talent shortages will persist despite slowing economies

Talent shortages will persist despite slowing economies

 

Unmet labour demand and its impact 

The global labour market has seen some wild swings since 2020, and things may get more interesting yet. As the Covid-19 pandemic hit in 2020, US unemployment levels exploded to over 14%, compared to the previous peak of 10% in 2009 during the global financial crisis (or The Great Recession). Unemployment has since fallen rapidly as the pandemic has receded, reaching 3.5% in July 2022, even though another global economic slowdown is imminent. So, what’s really going on?      

Broadly speaking, companies have been increasingly struggling with hiring back workers as they try to fill gaps left by the pandemic. In 2021, Manpower Group released a Talent Shortage and Employment Outlook Survey which revealed that 69% of respondent companies around the world had reported a talent shortage, compared to 35% in 2013. What’s more, the labour market is expect to remain tight throughout this decade. 

With developed markets like the US and Australia suffering from their respective versions of the so-called Great Resignation, the future economic impact could be staggering. A report by Korn Ferry published in 2021 estimates that by 2030, the global demand for jobs will outstrip supply by about 85 million workers, potentially resulting in US$ 8.5 trillion worth of unrealized revenue. 

What is driving this phenomenon?

From a business perspective, it is important to first understand the underlying factors at play. Various socio-economic variables affect the availability of workers in an economy, ranging from government policies to wage levels and demographics. In our assessment, there are three major forces driving talent shortages specifically in developed economies, that have been accelerated by the pandemic.  

  • Earlier retirements. Covid-19 brought forward the retirement of the so-called Baby Boomers generation, categorised as individuals born between 1946 and 1964. Many workers in this category have either been forced to retire, or are planning an earlier retirement over the coming decade. For example, Forbes reported in 2020 that 28.6 million Boomers retired in just the third quarter of that year.
  • Millennials are not all ready. As older workers in mostly mid-level jobs are exiting the workforce, millennials and younger individuals in general either aren’t skilled enough or are likely to be too inexperienced  to take over these roles. This could be resulting in a mismatch between job requirements and workers’ skills, contributing to the talent shortage.     
  • Industry 4.0. Also known as the Fourth Industrial Revolution, this concept defines the deep and long-term trend of rapid technological change and how it is changing existing modes of economic activity. It demands that workers be proficient in a variety of skills, and the supply of such newly trained workers is probably lagging demand, and will do so for a while.  

How should employers adjust?

Forward-looking businesses need to start preparing now to avoid losing out in what is likely to be an ongoing war for the best talent in the coming years. Here are some key steps to take. 

  • Upskill existing employees. After identifying technical skills necessary for a company’s future growth, employers should re-skill and up-skill workers through ongoing training programs. Employees should be encouraged to take on new responsibilities, and peer learning should be encouraged and rewarded.
  • Understand employees’ needs. Employee retention must be a key focus and in order to do that, their genuine needs need to be met in a holistic fashion. Only offering competitive salaries is unlikely to be enough going forward – remote work options, flexibility, and non-monetary benefits all need to be careful designed. 
  • Update recruitment strategies. Employers need to design proactive recruitment strategies by hiring for transferable skills, creating employee referral programs, and working with outside partners. Being more flexible in general is also a good idea. For instance, hiring candidates who may not meet all job-related criteria, but may boost diversity or bring fresh perspectives should be explored. 
  • Hire offshore talent. This is our last, but most important, recommendation. Going for global talent means significantly enlarging your pool, while potentially benefiting from lower costs. Emerging markets are characterised by a growing, and increasingly educated, workforce that should be a potential high quality source of recruitment for global firms. Our review of Pakistan is a case in point.

Hiring the right people, and enough of them, has to be included amongst the core long-term strategic priorities of global organisations. Not focusing enough attention or resources on this would prove to be a costly mistake.