Episode 61: Don't Go
The US is on the verge of another pandemic, and it has nothing to do with coronavirus. The current and long-term problem facing this country is a shortage of workers--there is simply not enough skilled labor to manage and grow our companies.
The jobs report dropped today, and it was a strong one. Nonfarm payrolls rose by a seasonally adjusted 943,000 in July, the best gain in 11 months, the Labor Department said Friday. The unemployment rate, derived from a separate survey of households, fell to 5.4% in July from 5.9% in June to touch the lowest level since the pandemic took hold in the US in March 2020. The economy has recovered rapidly this year with the availability of vaccines, business reopenings, pent-up consumer demand, and aid flowing from multiple rounds of government stimulus legislation. However, we are quickly approaching the point where the lack of skilled labor willing to work will limit economic growth and impact asset values.
A recent survey from the Manpower Group exemplifies the issue: Nearly 7 in 10 employers reported talent shortages in 2019, the worst level ever and a jump of 17 percentage points from just a year ago. It's also more than three times higher than a decade ago. The labor force shrank to the smallest proportion of the population since the mid-1970s.
Several macro trends are driving the labor shortage:
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A mass exodus of baby boomers from the workforce
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Record low participation rates among the working-age population
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Essential technical skills for primary employment
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Lowest birth rates in US history
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Changing values when it comes to work
The bottom line is skilled workers have leverage in today's employment market. It reminds me of the "SELL" scene in the movie Trading Places. Mortimer and Randolph Duke are like today's employers, with their stodgy and anachronistic mindset. Dan Aykroyd and Eddie Murphy are today's skilled workers, calling the shots and enjoying multiple job offers for more money and better benefits. It's truly a golden age for skilled labor: Looking good, Billy Ray! Feeling good, Louis!
Baby Boomer Blues
It's a tale of two circumstances with Baby Boomers, people born between 1946 and 1964. Some have fared well. Many Baby Boomers experienced a massive accumulation of wealth over the last ten years. US household wealth climbed to a record $136.9 trillion in Q1, thanks to the rising value of stocks and real estate. For perspective, that's a 3.8% increase from the previous quarter and almost double Americans' wealth from 10 years ago. Faced with the decision to retire early (and comfortably) vs. work through a pandemic, many chose the former.
But some Baby Boomers are not so fortunate. COVID pushed many Baby Boomers out of the job market forever. A Pew Research Center study shows that COVID has forced many Baby Boomers out of the labor market. Since the onset of the outbreak, the number of Boomer-aged retirees has increased by about 1.1 million. A few factors are at play. Falling revenue due to the pandemic forced employers to scrutinize expenses and downsize. One of the methods used to ax expenditures is to eviscerate middle-management positions held mainly by older workers. The jobs were either eliminated or pushed to lower-level workers, and younger employees replaced mid-to-senior-level workers.
The impact of these trends is astonishing. According to the Pew Research Center, in the third quarter of 2020, roughly 28.6 million Baby Boomers left the job market and retired. And the size of the working-age population has been shrinking since 2008.
Who Wants to Work?
Due to social distancing measures resulting from the pandemic, companies were forced to replace conventional rules around "working" with work-from-home policies, flexible schedules, and virtual meetings. Workers tasted the flexibility of remote work and liked it. The thought of going back to a drab office Monday through Friday for eight hours a day and dealing with traffic, mind-numbing meetings, expensive (and unhealthy) lunches, and office politics all of a sudden felt antiquated and wildly unappealing. As pandemic life recedes in the US, people are leaving their jobs searching for more money, more flexibility, and more happiness. Many are rethinking what work means to them, how they are valued, and how they spend their time. In what's being coined as the "Great Resignation," 4 million people , or 2.7% of US workers, quit their jobs in April. That's a record going back to 2000. In all, 41% of workers globally are considering leaving their current employer this year, according to a survey from Microsoft. Employers are scrambling and pleading to workers, Don't Go !
According to the University of Chicago research, the pandemic has wreaked havoc on older people, particularly those 50 years of age and older. The study concludes, early retirement is a major force in accounting for the decline in the labor-force participation. Employers favor younger (often cheaper) employees. It's common to read job descriptions written to dissuade older workers by using thinly veiled jargon, such as "under ten years of experience," "requiring cutting-edge technology knowledge," and lower-level corporate titles. The combination of cost-cutting, relocating positions, junior sizing roles, and downgrading job descriptions, coupled with unspoken ageism, creates a crisis for older workers. A big challenge for older people is that most Americans lack the money needed to sustain them in retirement, especially as life expectancy increases. The Federal Reserve Bank says that around 44% of Americans self-report that their retirement savings are not on track, and 25% don't have pensions or retirement savings.
The US is also tightening the noose on immigration, a significant source of cheap labor. Wherever you fall on immigration, the fact is hard-working immigrants (legal and illegal) have fueled our country's growth and collective prosperity. Given what's happening with immigration, combined with century low population growth, we don't have a new tranche of people coming into the workforce. That will spell trouble for companies down the road and much higher prices.
And for the people who do want to work, let's face it, they are increasingly a pain in the ass. The positive social and cultural movements that have brought awareness and change to gender equality, sexual harassment, and discrimination, have also produced unintended (negative) consequences. Employees are armed with a growing list of protections that make it challenging for employers and managers to navigate. Employers are walking on eggshells. Lawsuit landmines seem to be at every corner, with some employees taking advantage of the system and waiting for an opportunity to exploit employers.
Technical Skill Requirement
For decades, companies were awash in qualified, highly-educated workers looking for jobs. The baby boomer generation entered the workforce at levels unseen since World War II and had college degrees. That meant that companies could pick and choose who they wanted for any particular job and ultimately created precise job descriptions with a laundry list of skills and requirements. Today, those are unrealistic expectations.
The surge in demand for technical skills coupled with a drop-off in manufacturing activity has exacerbated the great divide in the US labor market. The skills gap issue is most discussed in the US, but other countries feel the same bite. The latest Manpower global surveys show the problem is acute in Finland, Poland, Hungary, Hong Kong, Croatia, Greece, Taiwan, Romania, and Japan. Each of these reports at least 66% of companies having trouble filling jobs.
Lastly, with soaring education costs and questionable ROI for some degrees, there is a drop in new college enrollments, from 18.2 million in 2019 to 17.8 million in 2020, meaning future talent will also be reduced.
Is anyone making babies?
The general fertility rate in the US was already at a record low before the COVID-19 pandemic began. In 2019, there were 58.3 births for every 1,000 women ages 15 to 44 in the US, down from 59.1 in 2018, making it the fifth consecutive year the fertility rate declined. The total fertility rate declined to 1,706 births per 1,000 women in 2019. Various factors have driven down the pace, including a decline in birth rates among women 34 and younger. The decrease also likely reflects the lingering effects of the Great Recession and longer-term demographic changes such as increased educational attainment among women and delays in marriage.
Changing Values about Work
Another factor impacting company productivity is the change of mindset of Millenials and Gen Z when it comes to working. The younger generation is more interested in balancing the hours they spend at work and spend with friends and families. The status of being a "hard worker" has faded and been replaced with the notion that working hard somehow means you are a sucker. Consequently, books like the 4-hour workweek are bestsellers, and lotto participation is at a record high. Hard work and delayed gratification have been replaced with list of conditions for working and entitlement. Pop the Cristal, and make it rain! Sigh.
Employer Options
The labor shortage will eventually limit economic growth. Companies who get ahead of this issue can survive and prosper, and those that don't will flounder. Here are suggestions to consider:
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Change (euphemism, for lower) expectations for hiring . Likely, you can't get everything you want as an employer. Companies should be open to part-time workers, employees who live and work remotely, and workers who need training to perform.
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Shift attitude about workers . The relationship between employer and prospective employee is being inverted. Skilled workers are calling the shots. The new angle is you have to start thinking about what workers want. It's more than pay; it's benefits. It reminds me of the scene in the movie Goodwill Hunting when three executives from a prospective employer are interviewing Ben Affleck, and he demands a RETAINER as part of his job offer!
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Businesses will need to start focusing more on retention and development . Most corporate training is abysmal. Companies investing in tools to make the workplace safe have an arms race of new IT systems, well-being offerings, and culture programs to make companies more enjoyable and rewarding, increasing tenure and retention. If you aren’t offering these perks and development programs, it will be difficult to attract top talent.
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A mental reset in how to recruit. Gone are the days where you can list a superhuman list of traits, skills, and experiences, post online, and wait for the perfect candidate to arrive at your doorstep. Today, employers need to be hunters. Companies should look internally to fill job openings by training those already working for them. Or they can work with local colleges and universities to train the workers they need in exchange for paying for the training. Companies should invest in getting more women in the workforce and convincing older workers to stick around or return to the workforce. The Manpower surveys show that workers are looking for more than pay — they want flexibility for a better work-life balance and solid benefits packages.
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Pay workers more money. Employers are going to need to offer more cash and financial incentives to employees to keep them, especially the good ones. Goldman Sachs last month gave entry-level bankers a 30% pay raise. Walmart, the largest private employer in the country, said it would pay for college tuition and books for its part-time and full-time associates. A week later, Target announced that it would follow suit and offer its 340,000 US-based part-time and full-time employees a free college education. Make no mistake, this is an arms race for people and it’s just getting started.
I. Below are the articles I found interesting the past week:
II. Stats that made me go WOW!
- With more than 3 billion monthly searches, YouTube is the second largest search engine on the Internet (following Google.com). YouTube has 2 billion active monthly users who watch over 1 billion hours of content on the platform every single day. Five hundred hours of video footage was uploaded to YouTube every single minute in 2019 — and that figure has likely grown. The key to getting more views on YouTube videos isn’t to be unique enough or loud enough to get noticed in the crowd. Instead, the key is to tag your content with lots of detail-rich identifying information, making it searchable in the catalog for viewers who are already looking for videos like yours. Here is a guide for “SEO your YouTube content” and getting more visibility on the platform.
- Elizabeth Currid-Halkett reported in her 2017 book, The Sum of SmallThings , affluent parents have increased their share of educational spending by nearly 300 percent since 1996. Partly as a result, the test-score gap between high- and low-income students has grown by 40 to 50 percent. The children of well-off, well-educated meritocrats are thus perfectly situated to predominate at the elite colleges that produced their parents’ social standing in the first place. Roughly 72 percent of students at these colleges come from the richest quarter of families, whereas only 3 percent come from the poorest quarter. A 2017 study found that 38 schools—including Princeton, Yale, Penn, Dartmouth, Colgate, and Middlebury—draw more students from the top 1 percent than from the bottom 60 percent.
- Tobacco giant Philip Morris will stop selling cigarettes in Britain within the next ten years, marking the end of the Marlboro brand on UK shelves after a century.
- The Tokyo Olympics’ opening ceremony drew just 16.7 million viewers in the US, down 37% from Rio 2016 and the smallest audience for the event in 33 years.
- According to a McKinsey report , about 50 percent of the companies researched increased performance during the pandemic, while the rest saw no meaningful change or decreases. These numbers remained true for various measurements--decision speed and quality, individual productivity, team productivity, or other performance metrics. The top performers also had lower variability, meaning they were more likely to see performance gains across the board and not just for some teams. The most productive even witnessed a 48 percent increase in employees' job satisfaction versus a decrease of 9 percent at the worst-performing organizations.
III. Name that Tune!
I am listening to “Don’t Go” by Yaz as I write this newsletter.
Yazoo (known as Yaz in North America) is an English synth-pop duo consisting of former Depeche Mode member Vince Clarke (keyboards) and Alison Moyet (vocals). The team formed in late 1981 after Clarke responded to an advertisement Moyet placed in a British music magazine, although the pair had known each other since their schooldays. Yazoo enjoyed worldwide success, particularly in their home country, where three of their four singles reached the top three of the UK Singles Chart.
Despite Yaz’s success, the duo split acrimoniously in May 1983 due to a combination of Clarke’s reluctance to make more records under the Yazoo name, a clash of personalities , and a lack of communication between the pair. Clarke went on to form Erasure , another successful and longer-lasting synth-pop duo, while Moyet embarked on a highly successful solo career. In 2008, 25 years after splitting, Clarke and Moyet reconciled and reformed Yazoo to play a successful tour of the UK, Europe, and North America.
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