Face of the Future The Aging Workforce

By Ed Frauenheim

Oct. 26, 2006

Nadine West is a living, breathing rebuttal to predictions of a massive U.S. labor shortage in the near future.

    West is 73, sells homeowner and automobile insurance for a unit of financial services company First Horizon National Corp., and has no plans to retire anytime soon. What keeps West on the job is the sense of community she finds in her Memphis, Tennessee, office, as well as the satisfaction of making a difference.

    Most people know very little about insurance, says West, who has spent four decades in the industry. “I enjoy helping and leading them.”

    There are other people like West in her company, her industry and in the U.S. economy. They are part of the reason why the alleged lack of talent looming from the aging of America is more a bogeyman than a legitimate worry for many companies.

    Peter Cappelli, management professor at the University of Pennsylvania’s Wharton School, likens alarms about a talent famine to breathless warnings from information technology professionals that computer systems could fail catastrophically when clocks rolled over to January 1, 2000.

    In retrospect, of course, the Y2K hype was overblown. With that example in mind, the current sky-is-falling labor predictions could easily be called Gray2K.

    It is true that in 2014, some 78 million baby boomers will fall between the ages of 50 and 68. But partly because many of them will work beyond the age of 55, the U.S. labor force will continue to grow during the next eight years, according to government projections. Other factors helping to soften the blow of baby boomer retirements include immigration and the prospect that U.S. companies will send more work offshore.

    The real question surrounding the U.S. labor force in the next five to 10 years is where tightness in specific talent markets might emerge. Already some industries, occupations and geographies are showing signs of a squeeze.

    Companies should pay close attention to the talent trends affecting their firms or industries, Cappelli says. On the other hand, he says firms would be wise to tune out the doomsayers.

    “The claim that there’s something about the demographics of the United States that will cause a labor shortage is wrong,” he says.

    The claim may be wrong, but Gray2K is everywhere. Consultants and vendors of HR technology frequently forecast a desperate battle over employees as they pitch their products or services.

    “Everyone is preparing for the impending war for talent as our population ages and people begin leaving the job market,” reads a recent promotional piece from recruiting software firm iCIMS.

Crisis mode
    Among the loudest voices sounding a Gray2K labor shortage alarm is consultant and author Roger Herman, who preached the importance of keeping good employees during the economic downturn in 1990. In 2003, he co-authored a book titled Impending Crisis: Too Many Jobs, Too Few People.

    The book’s cover jacket displays a chart purporting to show a shortage of 10 million workers by 2010. That figure comes from the difference between what the U.S. Bureau of Labor Statistics projected as the civilian labor force in 2010 and the number of jobs it estimated for that year.

    The BLS’ most recent projections show a smaller difference of 2.4 million between the two figures for 2014. In any event, the bureau explicitly warns that these figures are not strictly comparable. Norm Saunders, coordinator for research projects in the BLS’ projections program, says one problem in mixing the two data sets is that people can hold more than one job. But he’s not surprised the figures have been misrepresented.

    “If it’s a good sound bite, some people will run with it,” he says.

    Saunders says shortages in the U.S. labor market tend to be short-term and isolated, thanks to the laws of supply and demand: Wages rise in the area lacking enough workers, drawing new people into the field. He also says the overall labor force can increase beyond the BLS’ projections. A jump in wages could reverse a decline in the share of men in the workforce as well as accelerate the rate at which women are joining. Saunders also says immigration, which is assumed in U.S. Census Bureau population projections to be 900,000 documented immigrants arriving in the states each year, could be higher.

    A larger percentage of older people have been working than in the past, with the trend likely to continue. Plus, Saunders adds, work at U.S. organizations in many cases can be sent to other countries. That’s been happening in growing numbers of service fields, including banking, software and travel services.

    As a result, Saunders has a dim view of any looming wide-scale lack of talent.

    “My sense is, it doesn’t exist,” he says. “There are lots of different ways for the supply to grow to meet the demand.”

    Herman concedes that the bureau’s projections for the labor force and jobs are “apples and oranges.” Yet, he says, the numbers nonetheless point to trouble ahead in hiring.

    “We don’t know if the shortage is 10 million or 14 million or 8 million,” Herman says. “The key is, we’re going to have a multi­million-person shortage of skilled workers.”

Science, health care worries
    Many in corporate America share the labor shortage concern. Semiconductor giant Intel believes a U.S. labor shortage is coming, especially in the sciences. It’s particularly true for people with master’s degrees and doctorates in fields such as physics, chemistry and engineering, says Robin Renowden, who heads Intel’s global college recruiting activities.

    Attitude is part of the problem, he says. Americans of college age aren’t willing to stick it out to get advanced degrees in the sciences even if good jobs await them a decade later, Renowden says. “Nobody’s got that long-term focus anymore,” he says.

    Worldwide, the 100,000-employee company in recent years has been hiring 2,500 to 3,000 people a year directly out of colleges and universities. About 60 percent of those hires have earned advanced degrees, and roughly 50 percent of the hires are in the United States. Despite a move to cut 1,000 management positions, Intel expects to continue hiring newly minted doctorates and master’s and bachelor’s degree holders in the years ahead. With the advanced-degree holders in particular, Intel wants experts to do such things as improve manufacturing methods and create advanced computer chip designs.

    But Renowden says the company worries about both a lack of highly trained American scientists and fierce competition for a limited number of H-1B guest worker visas, which can be used to import technical talent for up to six years. The annual cap on H-1B visas is 65,000, down from a high of 195,000 earlier this decade. The H-1B program makes an exception each year for up to 20,000 foreigners with advanced degrees from U.S. universities.

    About a third of those receiving doctorates in science and engineering from U.S. universities are foreigners. But stricter immigration rules instituted after the terrorist attacks of September 11, 2001, combined with greater opportunities elsewhere, may be making the U.S. less attractive to top students around the globe. A report this year from the National Science Foundation said that while the United States remains the predominant destination for foreign students, the U.S. share of foreign students has declined in recent years.

    Some labor advocates argue for limited use of foreign scientists in the U.S. workforce. According to this view, U.S. students would have a greater interest in physics and computer science doctorates if fewer foreign scientists were admitted to the country and wages rose in the field.

    Not everyone agrees there’s a scarcity of scientists and engineers in America, or that one threatens. Donna Fossum, senior policy analyst at the Rand Corp. think tank, co-wrote a 2004 report finding no evidence of shortages of scientific, technical, engineering and mathematics personnel in the U.S. workforce since 1990. And future shortages appear unlikely as well, according to the report.

    Fossum still does not see signs that a shortage of technical talent is looming. Assessing the nation’s supply of science and technical workers is complicated, she says. New trends suddenly emerge, such as the growing importance of encryption and other security systems.

    “We’ve got a quickly moving target,” Fossum says.

    Health care, by contrast, seems certain to be hit by labor pains. By 2020, 44 states and the District of Columbia are expected to have shortages of registered nurses, according to a 2002 report by the federal Health Resources and Services Administration. For many health care organizations, the crunch has already arrived. An April report from the American Hospital Association trade group found that 118,000 registered nurses were needed to fill vacancies at U.S. hospitals.

    Physical therapists, occupational therapists and pharmacists also are in short supply, says Kevin Scanlan, chief executive of the Metropolitan Chicago Healthcare Council, a group that represents about 140 hospitals and health care organizations in the Chicago area. The aging of America amounts to a “double whammy” on the health care workforce, Scanlan says. That workforce is growing older and retiring just as the demand for hospital, clinic and home care services is taking off thanks to baby boomers’ increasing health needs.

    There are some 4,000 registered nurses graduating annually in Illinois, a number that must climb to 6,000 by 2010, Scanlan says. Chicago-area health care leaders are working to increase the capacity of nursing schools and drum up interest among K-12 students. But Scanlan is far from certain that a labor crisis will be averted.

    “I see our needs as potentially the greatest in any workforce segment that I’m aware of,” he says.

Skilled manufacturing
    Advanced manufacturing is another field facing a talent squeeze. A 2005 survey of 400 U.S. tool-and-die and machining companies found that skilled job openings equaled 4.7 percent of total skilled shop employment. The National Tooling and Machining Association trade group and machine tool maker Charmilles Technologies, a unit of Switzerland-based AgieCharmilles, published the report.

    Harry Moser, president of AgieCharmilles’ U.S. operations, says the key battle for U.S. manufacturers is to convince young people that they can earn as much, if not more, as a machinist or mechanic as they can as an office worker armed with a liberal arts bachelor’s degree. The best preparation for skilled manufacturing work, he says, is an associate’s degree with an apprenticeship or other technical training.

    “It’s a question of perception,” he says. “A technical A.S. (associate’s degree in science) and apprenticeship may not give you the prestige of a four-year degree, but will probably give you a better outcome.”

    Jay Doherty, a consultant with Mercer Human Resource Consulting, says a variety of industries that rely on experienced or credentialed professionals could be facing shortages during the next decade. It takes years, he says, for workers to get prepared and proficient in fields such as heavy manufacturing, mining, and oil and gas. “For those industries, it is a real concern,” he says. “You can’t just turn the hiring spigot on and off.”

    Mercer research has found that 20 percent to 25 percent of a key workforce in the oil and gas industry—the roughly 2 million people worldwide holding jobs in refining, exploration and production—are or very soon will be eligible for retirement.

    But those graying geologists and petroleum engineers aren’t necessarily going to quit suddenly and head for the golf course. At Baker Hughes, which sells drill bits, valves and other products and services to oil and gas firms, a substantial portion of the company’s 15,000 U.S. employees are of the baby boom generation, says Jim Wilhite, director of global human resources.

    “I just don’t see a lot of people retiring,” he says.

    Wilhite notices a similar trend in the broader oil and gas field. It has to do with accelerating exploration and extraction efforts, driven partly by China’s growing thirst for oil.

    “There’s a lot of excitement in the industry right now,” he says.

    With a current headcount of about 32,500 people worldwide, Baker Hughes has ambitious hiring plans. The Houston-based company aims to add 4,000 to 5,000 employees annually during the next several years. About 35 percent of the new hires will occur in the United States.

    It’s challenging to find enough U.S. workers with expertise in fields such as mechanical, petroleum and chemical engineering, Wilhite says. Still, the company has been hitting its U.S. hiring targets thanks to partnerships with schools such as the Colorado School of Mines and Texas A&M.

    A big question mark for the oil and gas industry is whether productivity gains in the field will continue at their historical level of 3 percent to 4 percent annually, Mercer’s Doherty says. “That probably is the key for some of these companies in terms of whether they’ll face a severe labor shortage in the next five years,” he says.

    Whether companies will face labor shortages in coming years may turn on how well they cater to older workers. By 2014, more than 20 percent of workers will be 55 or older, according to the U.S. Labor Department. That compares with 16 percent in 2004. Some firms are already taking steps to appeal to the graying set. First Horizon, for example, offers various flexible work options, including the possibility of working 20 to 32 hours a week without losing full-time benefits.

    Employee West appreciated the company’s flexibility about a year and a half ago, when heart bypass surgery kept her away from work for three and a half months. When you’re older, West says, “you don’t know when your health will be a problem.” Twenty-one percent of First Horizon’s 12,491 employees are over 50, and the Memphis-based firm earned a spot on advocacy group AARP’s list of the top 10 employers for workers over 50 in 2005 and 2006.

    Those who warn of a coming talent war often call for steps that seem to be sound no matter what the state of the labor market: become an employer of choice; use technology for better recruiting, employee performance management and succession planning; increase training budgets.

    But in Cappelli’s view, company officials who sound the alarm about an epic, demographically driven labor shortage are likely to suffer in the long run, as will their pet initiatives.

    “I’m not sure the IT people, after Y2K, benefited a lot from their arguing that ‘Oh my gosh, the sky is falling!’ ” Cappelli says. “They lost a fair amount of credibility on Y2K.”

Workforce Management, October 9, 2006, p. 1, 22-26Subscribe Now!

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

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