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Investing in the Future: Innovation in Workforce Planning

James Southard
By James Southard
on June 04, 2018

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The labor force is arguably the most critical component for any organization, but is often lumped in with other budgetary line items as part of the corporate planning environment.  This mindset is typically one of a “just in time” methodology, wherein you buy the commodities and labor as needed.  This is practical, because it makes working within a budget and reacting to fluctuations in the marketplace easier, but it is at odds with the best way to plan your long-term hiring strategy.  To achieve long-term balance, labor should be treated as an investment.

The major issue with treating labor like any other commodity is the length of time it takes to develop.  A new hire can take anywhere from 1-2 years to reach their full productive potential on top of any education or certifications they may have needed to qualify for the role.  Unlike raw materials such as oil and steel which can essentially be acquired as needed, when the labor force runs dry your only option as an employer is to offer more money and lure workers away from other employers.  This solves your immediate need, but still leaves the lingering labor shortage.

Taking a Lesson from History

Employment is the highest it has ever been in the US, and the unemployment rate is at its lowest point in nearly 20 years.  Having a plan for how to hire through these economic conditions, and the accompanying labor shortages, can go a long way toward boosting production and making your company a desirable place of employment. There are a few lessons from history that can be taken as your company sets about its workforce planning.

One of the best examples of short-term hiring vs long-term workforce planning happened as a result of the oil downturn in the 1980s and is happening to some extent currently.  The 1980’s oil downturn drove an entire generation away from the industry due to massive layoffs and an uncertain path forward.  Not only did the energy sector lose former workers, but they failed to attract new workers who went into different career paths in more stable industries.  The North American oil boom exacerbated the issue by creating an inflationary wage environment that subsequently led to the 2015 oil downturn, another round of massive layoffs, and the spurning of yet another generation of workers.  The sector continually feeds a cycle of racing to production which requires work-ready talent, leaving a gap of skills, and as such has created some of the highest wage jobs in the US.

This notion of hiring work-ready talent is not exclusive to the energy sector.  One potential explanation for the unusual recruiting difficulties facing the United States, beyond the tight labor market, has to do with job opening requirements.  During the years of weak labor markets following the Great Recession, employers took advantage of market conditions and “up-skilled” positions (raised the educational and experience qualifications for job openings)1.  Jobs that were once considered entry-level or that could be done with a high school diploma, now, more than ever, require experience driven by how easy it was to attract skilled workers with higher levels of education during the economic recovery. This may be part of what is reinforcing the skills gap that is plaguing the labor force.  Hiring managers have gotten used to paying experienced talent at entry-level wages and are no longer willing to spend that amount for the workers who filled these roles pre-recession.  This trend has been prevalent in the Financial Services industry, hard hit by the Great Recession.  The laundry list of skills required for many jobs are now so specific, with labor costs at a premium, many Financial Services institutions are finding it harder and harder to fill roles in a timely and cost-conscious manner.

On the opposite side of the spectrum lands the technology industry, which is the predominant user of foreign and offshored talent in the United States.  Each year, H1B applications for computer related workers are nearly double the number of applications seen for all other occupations combined.  The H1B process is intended to supplement the national labor force when there are short-term hiring needs that can’t be met with the talent in the United States, but in practice is often done for the cost advantage.  Currently there are 138,000 unemployed tech workers in the U.S. and two-third of college grads with IT degrees do not work in technology, yet there were 231,000 requests to import tech labor from other nations.3 If persistent, the US labor force could begin to lag in the necessary skills required by the growing and shifting IT industry, and the reliance on foreign labor could become permanent, eventually losing the cost advantages.

Investing in the Future

All of this leads to questioning what the path forward might be.  How do we strike a balance between meeting the short-term demands of production while holding up to the long-term needs of the economy?  The easiest way is to understand the demographic of workers you’re looking for and understanding what attracts them to work.  A 2017 study, from recruitment firm Airswift and Energy Jobline, indicates that hiring managers feel potential workers are drawn in by brand recognition and corporate culture, whereas the number one factor to workers is salary banding,4  illustrating a clear disconnect between buyers and sellers of labor. 

Offering a clear career path, including training and development, is another key factor.  Employers who are willing to invest in a younger workforce will be able to take advantage of lower wages while creating corporate loyalty and a workforce tuned to their business model.  To balance the short/long term needs, corporations should look at their hiring patterns vs. job requirements and determine if their overall hiring and career plans can be restructured to allow for more “home grown” talent that could adapt more quickly than an outsourced resource. 

Lastly, from an economic standpoint, companies can be smarter about where to locate.  Location should depend on access to materials and ease of outbound goods, but must factor in the relative proximity to your labor force.  Companies must consider what they hire for now, and what the long-term expectation is for that type of labor in the area.  Locating remotely might be a good idea from a land and production standpoint, but, over time, being the only employer in the area will make it hard to attract and retain applicants, particularly if the area is struggling economically. Companies should also ensure that when expanding or relocating, they are not overly swayed by real estate and tax incentives, but also have a good understanding on the labor market landscape in any given location.

In summary, it is important for employers to be constantly thinking of ways to innovate not just their products but also their position in the labor market and the way they attract, hire, and retain their talent pools.  Do not be shortsighted to your immediate needs and forget about the long-term, as a lack of planning could cost more over time than the extra investment to restructure now.

 

Sources

1 https://www.conference-board.org/blog/postdetail.cfm?post=6706

2http://www.industryweek.com/workforce/lost-generation-oil-workers-leaves-few-options-next-boom

3https://www.uscis.gov/sites/default/files/USCIS/Resources/Reports%20and%20Studies/Immigration%20Forms%20Data/BAHA/h-1b-2007-2017-trend-tables.pdf 

4 https://www.cnbc.com/2017/03/23/oil-trouble-spot-workers-and-hiring-managers-not-on-the-same-page.html

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James Southard
Written by James Southard
James joined Allegis Global Solutions in 2014 as a research analyst on the Market Analytics team. In his role, James supports pricing and research initiatives for 30 clients with a specialization in the Energy sector. Through his tenure, James has supported 30 implementations including global expansions and new business. Prior to AGS, James worked in recruiting and was a Sergeant in the Army National Guard, where he served a tour of duty in Afghanistan. James has a degree in Economics from the University of Michigan in Dearborn, MI as well as an associate’s degree in the field of Criminal Justice from Henry Ford College in Dearborn, MI.

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