As Published in Business 2 Business , January 2005

The Perfect Labor Storm Revisited

by Ira S. Wolfe

In my first column, I introduced the concept of impending worker shortages to B2B readers. "The Perfect Storm: Navigating the Bermuda Triangle of Job Futures," warned about an impending worker shortage. Soon after the column was published, the economy tanked and the unemployment rate approached six percent. “What happened to this ‘Perfect Labor Storm' you predicted?” asked managers. Although these business owners and managers may have grimaced from the impact of a soft economy, many of them took comfort in the sly knowledge this “storm” passed them by.  

Four years and 49 columns later, stormy weather is still on every manager's horizon.

I stand by my 2001 prediction. This “storm” is unlike any other in our history. Like the devastating weather convergence of 1991, when three weather systems collided and combined in the North Atlantic Ocean to create one of the fiercest storms ever recorded, this labor storm results from the collision of several history-changing events: growing skilled worker shortages, changing workplace demographics, and global competition. This storm will touch every industry, region, age group, family, and ethnic group. It's happening now. Employers field generational clashes in the workplace while employees cope with competing demands of job and family responsibilities. There is a dearth of applicants for healthcare and trade jobs. Either you or someone you know has felt the impact of outsourcing, downsizing, and layoffs.

I, and other prognosticators, warned of this impending catastrophe. Did you take action? Probably not. After all, you have more pressing fires to put out today. You think planning for a future crisis is a luxury you can't afford. Think again.

A 1995 survey conducted by Eckerd College Human Resource Institute predicted that in 2005 the top five concerns for human resources staff will be the skill level of the available work force, managing change, information technology, an aging work force, and management issues. With the exception of rising health care costs, this forecast is nothing short of remarkable. In 1995, the issues facing human resources managers included managing change, skill level of the work force, rising health-care costs, management issues, and work ethics, values and attitudes. Remarkably similar. How is it that a problem predicted 10 years ago still leaves business employers with their collective back against the wall? Why were such obvious signs ignored or poorly managed?

The answer is buried in this demographic reality: aging baby boomers represent a greater segment of the general population than has ever been recorded and it is only growing. This means healthcare will remain an employer's biggest challenge with the 21st century workforce. 

The statistics are stunning. Twenty percent of the population, 71 million people, will be 65 or older in 2030. Traditionally, lifelong healthcare and retirement for older Americans has been funded through taxes and increasing worker productivity. Again, statistics illuminate the problem. Since 1900, the number of older adults has increased eleven-fold, from 3.1 million in 1900 to 35 million in 2000. Four of every 10 people in the work force will be older than 45 in two years. By 2010, one of every five employees will be aged 55 or older. By the middle 21st century, there will be more seniors than children. That statistical milestone is less than 50 years away. Who will pick up the tab for a growing population of dependent seniors? Can we expect that of a shrinking workforce?

Let's look at social security. When social security legislation was enacted in 1945, the ratio of contributing workers to each beneficiary was 41.9:1. That ratio dropped to 16.5:1 in 1950. The current ratio is 3.4:1. Social security trustees predict the ratio will drop to 2:1 in 2040. These numbers reduce the issue to this: how will we afford to keep an aging population healthy?

Then, there is the issue of “replacement workers.”  The ratio of entry-level wage earners to retirees has dropped from 9:1 in 1955 to 4:1 in 1995, with projections that the ratio will further decline to 2:1 by 2020. The labor market, which grew at approximately 1.2 percent a year in the 1990s, is expected to decrease to 0.8 percent from 2000 to 2010, and 0.4 percent and 0.2 percent in subsequent decades. Are you beginning to get the picture? 

The buzz from “Perfect Labor Storm” detractors, who call the impending crisis more hype than fact, is baby boomers won't retire. That's true. Many boomers strive to stay active and, frankly, many of them aren't financially able to retire. But, boomers will continue to work only if they receive ample compensation and benefits including flexible schedules to allow for leisure activities such as traveling and visiting grandchildren. For employers, it means dishing out mucho bucks for compensation and insurance coverage for the graying workforce. Employers who think health care costs are high now ain't seen nothin' yet. 

Effective and efficient business management has never been so important. All inefficiencies will be magnified on the bottom line. That means zero tolerance for poor performing employees. By 2005, more and more companies will screen out job applicants who are a poor fit in favor of those who do. High performance expectations coupled with clear, specific goals will become the norm. Management skills will be based on employee retention and performance, in addition to sales and production figures. Salary increases will be linked to job performance that exceeds expectations. Competition among employers to attract skilled applicants will heat up, and job hopping will increase.  This means only the “best places to work” will survive. As for health care costs, my advice is to build higher costs in the budget until there is a societal solution to caring for an unprecedented aging population.

Currently, the norm is to increase co-pays and employee contributions to manage health care costs. When all is said and done, these cost containment strategies essentially take money out of the employee's take home pay. With more and more unhappy employees looking for new jobs and a shortage of skilled and talented workers, this strategy will likely backfire.

Really, really smart employers will put as much, if not more, emphasis on hiring the right people, and then holding them accountable for performance productivity. Just think - if every employee who shows up for work does the job well, maybe human resources staff will have time to work on a health care solution. 

Sidebar: A quick peek at how an aging workforce affects the bottom line.

Chronic conditions are the major cause of illness, disability, and death in the United States . Among people 45 years and older, hospitalization rates are higher for those with arthritis and hypertension—the two most common chronic conditions for that age group—than for the general population. Almost 100 million Americans have chronic conditions, with projections that, by 2040, approximately 160 million people will be so afflicted. The cost for treating chronic conditions was $470 billion in 1995. By 2040 that cost could be as high as $864 billion.

Coronary heart disease is the leading cause of premature, permanent disability in the United States ' labor force. More than one-fifth—22 percent—of workers with heart disease have work-related limitations.

Diabetes, an insidious disease, breaks down the body's systems. Diabetic workers use more health care services and are less productive than non-diabetic workers. Diabetic workers incur more than twice as many physician visits every year. Twenty-four percent of workers diagnosed with diabetes report being hospitalized in the past year.

Ira Wolfe founded Success Performance Solutions to help business owners hire and keep productive employees. He is a nationally recognized speaker and author for “Understanding Business Values and Motivators” and “The Perfect Labor Storm”. His full range of products and services includes High Motivation Employee Competency Identification and personality testing. Ira is scheduling 2005 speaking opportunities and is easy to reach at 717.656.4632.