The economics of the talent shortage and what employers need to do NOW

Prior to the GFC we saw articles almost daily on the so-called talent shortage. Such clichéd headlines as “Winning the War for Talent” were commonplace. My own company, Mindset used them as did everyone else. These headlines and articles have subsided of late but the talent shortage is still there. It's like a wild beast hibernating; waiting for the thaw - which will be here sooner than most Australians think. In fact, many would argue that it’s waking now as the extra cold metaphorical winter we've just experienced comes to an end.

Apart from the shortage of growth capital that the GFC has induced, the biggest threat to corporate growth in Australia (indeed the Western world) is the shortage of talent. The only reason the headlines have subsided is that the demand side of the economic equation has dropped. The supply side has not moved.

So what has caused this talent shortage?

The populations of Western economies, such as Australia, are aging. As more of the population retire and leave the workforce, we have relatively fewer productive members remaining in it.
The dwindling labour supply is increasingly less qualified. In Australia this is the result of decades of financial neglect of the country's schools, TAFEs and universities. Both Labor and Liberal parties have been guilty of this, although under John Howard, the issue became noticeably worse with a corresponding increase in expensive private school enrollments as desperate aspirational parents attempted to provide their kids with an education supposedly better than the States' systems (although often not).
The increasing affluence of Australian society has meant that most people are wealthier. Many formerly working-class families are now economically classed as “middle-class” although most would not realise or acknowledge it. What this has meant is that their children now have different career expectations and are now no longer interested in the sorts of labour-intensive jobs their parents may well have been happy to accept at their age.

What is the effect of the talent shortage?

Like any economic equation the shortage of talent has put pressure on its cost; i.e. wages have increased relative to their productive merit. This has in turn put pressure on the prices of services and manufactured goods. In numerous cases it has become more cost effective to manufacture goods in talent rich, low-cost countries such as China and India. Even services are now often outsourced to call-centres in India, the Philippines and others.
If a business cannot pay more for its staff, find more productive ways of utilising their people or relocate then it is likely to be in serious financial trouble in the medium-term. As we move out of the effects of the GFC, there will be a significant period of employment turmoil within Australia. Many unhappy employees who were biding their time will start actively looking for alternative employment. Adding to this, as employer confidence returns they will start seeking more employees to help them grow their businesses...i.e. the demand side of the equation will rise again increasing the gap between the static supply side and the rising demand side still further.

As an employer, what can you do?

Proactivebusinesses are focusing on their existing staff NOW. They are putting in place whatever measures they can to retain their staff and minimise the losses they expect from the coming turmoil. My company Mindset, has been active with numerous clients determining staff engagement levels, coaching managers to be better motivational leaders and putting in place effective performance management, feed-back and feed-forward systems.
Other businesses are utilising Mindset's talent-mapping processes to effectively understand and develop relationships with the key people in their sector so that when they need those people they can simply tap them on the shoulder and draw them into their businesses with minimal fuss and expense.
Many organisations are reviewing their relationships with their recruitment suppliers. They are re-establishing relationships so that when the need comes they can speed up the briefing process. Most companies are now looking for relationships with highly consultative recruitment suppliers recognising that traditional transactional contingent recruiters offer little value, especially when the going gets tough and they have to find candidates from outside the industry or from alternative more innovative sources.

For maximum strategic impact these actions need to start NOW. For a confidential discussion on how Mindset's transformation, talent and technology divisions can work together to deliver an integrated approach to delivering solutions to your business's forthcoming recruitment and retention challenges, please contact us;

Comment by Hassan Rizwan on October 10, 2009 at 1:39am: The shortage of talent is a serious problem. I suggest that talent does not require too much of experience or learning. We just need to groom it . As a research based company we have found that there is talent in every country which needs to be identified by the recruiters. Talent assessment firms offer their services to make recruiter's life easier. The recruiters can invest in a good ATS but do not evaluate the talent assessments used which results in a confusion when it comes to decision making. Talent assessment firms, an answer to recruiter's problem.

Comment by Richard Bottner on October 12, 2009 at 9:19pm: Great post. The U.S. Census Bureau, General Accounting Office, National Bureau of Economic Research, Conference Board, and other reputable agencies and research organizations peg the gap of skilled workers at 35 million by 2015. As we move closer to this milestone, it becomes even more crucial that recruiters do their "homework" and keep abreast of current research and trends.