Manufacturing

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Labor - Succeeding in an Era of Labor Shortages

28 Feb, 2006

By: James H. Renzas

With all of the news about layoffs in the automotive industry and its suppliers, you wouldn’t think that the United States and European Union are entering an era of labor shortages, but they are. There are several factors causing this shortage:

1. The Baby Bust – the invention of the birth control pill resulted in much lower birth rates in the United States and Europe than previously recorded. This lower birth rate hit at a time when the Baby Boom generation was entering its child bearing years. Consequently, Baby Boomers, as a whole, have produced far fewer offspring than previous generations on a per-capita basis.  As the birth rate declines jobs growth continues to increase, resulting in a narrowing of the gap between labor force and employment opportunities.

2. Off-shoring – the recent trend to off-shore lesser skilled and commodity type jobs from the United States and Europe has lead to a surplus of unemployed unskilled and semi-skilled workers, but a shortage of more highly trained technical workers as capital is substituted for labor in more advanced countries. Software jobs are being exported far faster than jobs are being created in the United States for persons with these skills.

3. Geographic Mismatch – shifting trends in the location of economic activity and the movement of population from the Northeast to the Southwest has resulted in a mismatch of labor force skills to job opportunities. As the accompanying map illustrates, population has been continually shifting away from large employment centers in the Northeast and Midwest, resulting in a temporary mismatch between where job-seekers are located and where new jobs are being created. Human scale factors such as proximity to extended family, fear of relocation and other barriers to the movement of labor further exacerbate this situation. In addition, high housing prices in many areas makes it more difficult to recruit workers with technical and professional skills from outside of the area.

4. Skills Mismatch – For many years most young labor market entrants have been told to pursue white collar jobs instead of blue collar jobs, resulting in a surplus of people trained to take while collar jobs (e.g. college graduates) and a deficit of vocationally trained (e.g. blue collar) job applicants.

5. Homeland Security – increased homeland security efforts and border controls has made it more difficult for workers to move from one country to another for employment. Companies that rely upon ready access to foreign labor have found it more difficult to recruit workers due to homeland security concerns of federal government officials.

Given these factors which contribute to labor shortages and mismatches, what can corporate real estate executives, site selectors and commercial real estate executives do to ensure that their clients and their companies will have ready access to labor in the future as labor markets continue to tighten?

Of course, the simplest approach is through compensation. Companies will increasingly need to conduct regular compensation studies to determine if they are competitive in the marketplace for the type and quality of labor force desired. Typically, industry associations, business employer groups, state employment offices, and private companies conduct regular salary and benefits surveys which can be compared against a company’s existing salary structure to determine if pay is in-line with other potential employers.

Benefits can also be used as a competitive weapon in the battle for quality employees. Some companies have enhanced their benefits programs to compensate for local geographic cost of living differences. Some companies provide low cost or no-interest loans to employees that they wish to recruit in order to get them to move to more costly areas. If the employee leaves the company the loan is payable immediately, but the employee gets to keep the appreciation in housing value, if any.

On-site day care has been used as a means for attracting more and better quality clerical employees in companies that require a large, young workforce of childbearing age. These companies enter into a relationship with an independent vendor who provides these services in a location either near or on company property in exchange for subsidized facilities or financial assistance. Employees love the ability to be close to their children and to be able to run over to see their kids during lunch or even if there is a special event at school. One company we interviewed at LMS has 10 applications for every available job because of this benefit. While other companies in the same geographic area are starving for good quality labor, this company has been able to attract more applicants than they need at similar wage and benefits levels.

Some areas are using Workforce Development Board funds from the federal government to give high school and college graduates the skills necessary to compete for highly technical blue collar jobs that they are often unable to compete for. Contra Costa County, California for example is using WDB funds to marry the needs of expanding employers in manufacturing industries with the skills of the local labor force. Because vocational training has been de-emphasized in California for the last 20 years, manufacturers are finding that many applicants do not have the math and reading skills necessary to qualify for well-paying jobs in the manufacturing sector. Areas that want to compete for job creating activities will have a well-coordinated program matching the needs of local employers with the skills training programs offered through community and vocational colleges.

Corporate culture often plays into the ability of a company to attract and recruit employees in a tight labor market. People want to be in an environment where it is fun and challenging to do work. Companies that make work fun and challenging can often compete well for a labor force that is becoming increasingly sensitive to work-life balance issues by providing flexible work schedules built around child-rearing responsibilities and, in some cases, telecommuting options.

A recent development in labor force recruitment has been the rise of home-based jobs which rely on broadband internet and distributed telephone systems to enable employers to recruit technical and communications personnel who work directly from their homes. This allows companies to access labor markets that are geographically diverse and increases the ability of employers to find hard-to-recruit personnel in their local labor markets. One such recruiting company – telecommute-jobs.com – currently has work-at-home jobs in a variety of areas including data entry, customer service, reservations, and computer programming. Stay-at-home parents and those who are not located near one of the employer’s corporate facilities can now be added to the company’s labor force without the expense of added parking lots or office space. This saves the company money for occupancy cost and the employee the cost of commuting. In exchange for the additional flexibility and freedom from having to commute, employees will often work for less than if they were required to report to a corporate facility. This technique has worked well in many applications, including the low-cost airline, Jet Blue, which has all of its reservations agents working in home-based jobs.

Suggestions for Employers

The labor shortage in the United States and the European Union is likely to get far worse before it gets better. Demographic changes and continued economic expansion following the mini-recession of the post dot-com world are likely to combine for tighter labor market conditions in many areas.

In order to successfully compete for an ever tightening supply of workers, employers need to re-think not only where they employ people, but also how they use these human resources in the most effective way. It starts with the recognition that labor resources are frequently the most important assets a company has, but also the most volatile. Machinery and equipment may break down, but it doesn’t have child rearing, health issues and family emergencies to deal with and thus this component is far more predictable.

Recognizing this, companies that adapt to highly complex human needs for wages, benefits, work satisfaction, time flexibility, and geographic diversification are likely to be in a more competitive position for the best of these resources. Starting at the top, companies need to re-think their operations in terms of competing for increasingly scare human resources by recognizing how different and unique this resource can be and how important it is in the success of any company.

 

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