Major global demographic changes are the reason shortages will stay. Not many have recognized the impact of this long term change.
Last weekend, when I was out to brunch with my family, the owner complained about his inability to find servers. Walking through the airport recently, many of the restaurants are still closed due to the same issue. In addition, because of staffing shortages, Heathrow airport has asked airlines to cut flights to London.
Even Amazon isn’t immune. In a secret memo recently leaked, Amazon “could run out of employees who help deliver, sort and ship its packages by 2024.”
I recently read, “The Great Demographic Reversal: Aging Societies, Waning Inequality, and Inflation Revival,” by Charles Goodhart and Manoj Pradhan. This book offers a picture that may explain where everyone has gone.
The book documents the increase of over 500 million people entering the workforce between the ages 15 and 64 in the U.S., China and Eastern Europe between 1990 and 2010–an increase that peaked in 2012 and has been reversing itself rapidly ever since.
Cheap and abundant labor ushered in the era of “Everyday Low Prices” and flush inventories. The reversal and aging of this demographic means labor will be the key business shortage for the next several decades. A dramatically reduced labor pool means labor costs are going up over time. It also means labor will have greater impact and leverage on business results.
By paying people to stay home during the Pandemic, lockdowns and opening the world to the concept of remote work accelerated the trend, as did retirements, the “Great Resignation,” (people quitting their jobs in droves) and an aging population.
This labor shortage requires new thinking for businesses, especially small businesses and/or start-ups.
Just this week, I met with a small business owner who recently lost 10% of their workforce. The business is having trouble filling orders. The wages this business paid are competitive and at new recent highs for local compensation.
What can be done?
My team and I shared with this owner that, now more than ever, investing in methods to retain employees is a much better investment upfront than having to deal with turnover.
We discussed some new ideas.
- Colleague Engagement and Recognition. This is so simple but often overlooked and ignored. Gallup measures employee engagement with the following questions:
-Do you have friends at work?
– Would you recommend a family member work here?
How do you feel your work force would respond to these questions?
Do you have a formal plan for engagement and recognition?
2. Communicate your WHY. Be certain that there is a relevant and effectively communicated Vision and Mission that colleagues understand and can see examples. Examples need to be visible by the Founder/Owner/Leader of living out the Vision.
3. Make sure your compensation is competitive and structured to offer a road to salary increases. Your employees should understand exactly how salary increases are earned (i.e. through skill or knowledge acquisition). A small business doesn’t have elaborate career paths but can offer enhanced skill development that accrues to salary.
4. Key person career development, to include line supervisors. In a smaller business where the org chart is flat, this is more productive if it is led by an outside resource. Help your employees develop the soft skills (conflict resolution, style recognition, style adaptation, goal setting, etc) that enhance productivity and have been traditionally developed over time. Speed it up. It is cheaper than turnover. According to a recent Mckinsey release these programs are associated with significantly higher returns.
5. Automate as much as possible.
None of this thinking is new. Assuming the labor shortage continues as predicted, implementing these ideas are more important now than ever. As the cost of labor becomes a greater portion of total costs these actions will help drive and control future costs.
Are you ready?
