A COMING LABOR SHORTAGE: REALITY, OR MYTH?

A COMING LABOR SHORTAGE: REALITY, OR MYTH?

Recent research findings by the US Census Bureau, the General Accounting Office, the National Bureau of Economic Research and the Conference Board all come to the same conclusion: starting soon and over the next couple of decades, a labor shortage will develop in the American economy. Skilled workers will be in especially short supply.

Several factors are slowing labor force growth: fewer older men want to work; most women of working age are already working; and net legal immigration is already running at record highs. When the economy grows but the labor force does not, you get a labor shortage (unless productivity also grows robustly). As soon as 2006, predicts the Bureau of Labor Statistics, there will be 151 million jobs in the US economy, but only 141 million people in the workforce to fill them.

And although the college enrollment rate is rising, the college graduation rate remains constant. Thus the share of the workforce with a college degree is growing only marginally. Hence the coming shortage of skilled prime-age employees.

But according to Alison Overholt, writing in Fast Company magazine (August 2004), the coming labor shortage is a myth, an overblown theory dependent upon questionable assumptions. The first of these assumptions is that baby boomers will retire at the same ages and rates of previous generations. That’s unlikely to be the case.

The typical retirement age in the United States today is 62, not 55. After declining for decades, the labor force participation rate for Americans aged 65 to 69 jumped to 26.1% in 2002 from 21.9% in 1994, with a comparable increase for folks 70 to 74. The AARP reports that half of its 35 million members (50 and over) are still working today. More telling, it says that more than 80% of baby boomers it surveyed plan to work well into their seventies.

Overholt notes that Boomers, who have always identified themselves more with work and career than did previous generations, are likely to explore alternatives to traditional retirement, such as second careers or cutting hack on hours rather than giving up work completely. In a very practical sense, they have to: their life expectancies have climbed past 77 at the same time that health-care costs have skyrocketed and savings rates have plummeted.

Besides that, the labor-shortage alarmists underestimate the capability of younger generations, suggests the author. Both Baby Busters and Echo Boomers are well educated, highly skilled and flooding the workforce. No evidence of a shrinking skilled labor pool there.

It is true that by 2014 the economy will expertence slower labor force growth than previously, but that’s a phenomenon the economy has adjusted to before. The United States’ gross domestic product is six times larger than it was at the end of World War II, yet the labor force is only twice as large. That’s the power of productivity. In fact, if productivity growth has indeed reached a permanent plateau of over 3% a year, job growth will moderate to a point that renders the labor shortage theory invalid.

Growth Strategies Implications

Gloria Dunn, president of North Bay Management Academy, argues that the coming labor shortage is not only real, but comprises a crisis for corporate managers. Her opinion is based not just on fewer new workforce entrants, but also on the increasing reluctance to work for corporate America. In either case, though, companies should recognize the need to “grow their own talent,” that is, to continually invest in their own employees to keep them ever more productive.

Copyright FutureScan Oct 2004

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