The Incredible Disappearing Workforce

If you thought the recession meant you no longer had to worry about a tight labour market, think again. The labour crunch is making a comeback and could stick around for 15 years

 
Written by Jim McElgunn

It’s an anguishing moment for a business owner to turn down several million dollars’ worth of work. But Rajesh Ahuja had no choice. In the current construction boom, builders are clamouring for the services of Ahuja’s mechanical-contracting firm. Dependable Mechanical Systems Inc. has the finances, knowledge and experience needed for projects such as installing heating and plumbing systems in institutional buildings. But the Vaughan, Ont.-based business is consistently short of one essential element—skilled workers—forcing Dependable to turn down so many projects it will cut the company’s 2011 growth rate to half its fully staffed potential.

Ahuja, the firm’s president, says he’ll do about $15 million in business this year, up from $10 million in 2010. But, he laments, “Our revenue could be at least 30% to 35% bigger if I had the right people working with me.” That’s about $5 million worth of forgone revenue. Ahuja says that since the recession, his company has experienced worsening shortages of foremen, plumbers, pipefitters and sheet-metal mechanics: “We’ve advertised every day for six months for these jobs, but rarely do we come across a guy who meets our qualifications.”

Faced with an industry-wide scarcity of skilled labour, Dependable has sometimes wound up taking a chance on people who claim to be qualified but prove to be not up to snuff. “I was scared leaving some of these guys on-site,” admits Ahuja, whose firm has spent heavily to fix these subpar workers’ mistakes. Dependable now has slashed its error rate by developing project-planning software that it painstakingly uses to allocate its most rare resource: experienced foremen. This ensures it always has someone on job sites to give the less-reliable workers the supervision they need.

And, rather than settle for the limited employee pool in Dependable’s own sector, the firm now recruits skilled people from related industries, then retrains them. That eats into profits. “I have to spend 12% to 15% of my margin on training,” says Ahuja ruefully. “But if I didn’t do that, I wouldn’t be able to grow my business at all.”

Skills shortages are bedevilling far more sectors than just Ahuja’s. Growing numbers of businesses are struggling to find the people they need as shortages spread into more industries, occupations and geographical areas. If you thought the recession meant you no longer had to worry about the tight labour market that was so painfully evident in 2006 and 2007, think again. The labour crunch is making a comeback.

Forecasters suggest that tight job markets will give employers chronic headaches for at least the next 15 years. If you haven’t already crafted a strategy for attracting and retaining employees despite this challenge, it’s time you did. Fail to adapt, and you’ll risk losing out to businesses that are responding to this increasing threat to companies’ growth prospects.

The recession offered Canadian employers a reprieve. But not much of one, and it has since largely dissipated. Unemployment peaked during the slump at a rate—8.7% in August 2009—well below the double-digit levels reached in past downturns. And, although a few sectors implemented mass layoffs, most didn’t reduce their head count at all. By this past July, unemployment had fallen to 7.2%—more than halfway back to the pre-slump level of 6%, a 35-year low. (In stark contrast, the U.S. rate rose by a shocking five points and is still only a fifth of the way back to its pre-recession level.) The decades-long trend of declining joblessness in Canada has reasserted itself.

“Fundamentally, nothing has changed since before the recession,” says Pedro Antunes, forecast director at the Conference Board of Canada, an Ottawa-based economic-research body. He says we’re on track to return by 2013 or 2014 to “rock-bottom unemployment of 6%.” Even if, as many people fear, a double-dip recession unfolds, that would only interrupt this trend, not eliminate it.

It’s striking that unemployment is falling this fast in such a sluggish recovery. The key driver is no mystery: the boomers. “The single most important factor shaping the labour market over the next two decades will be the retirement of the baby-boom cohort,” stated the 2010 Conference Board book Crisis and Intervention: Lessons From the Financial Meltdown and Recession. “Failure to adequately plan for the forthcoming deceleration in labour-supply growth will leave organizations facing shortages of the skilled employees they need—a situation that threatens further growth.”

The problem is that the boomer generation is so huge it will push the workforce’s growth rate ever lower as it retires. Too few young people and immigrants are entering the labour force to avoid a major slowdown in its expansion.

Vincent Ferrao, a labour force analyst at Statistics Canada in Ottawa, provides figures that show how dependent we’ve been lately on boomers to grow the labour pool. From 2005 to 2010, the number of people aged 55-plus in the workforce grew at a sizzling average annual rate of 6%, generating two-thirds of the labour force’s growth. Meanwhile, the 15-to-24 age bracket grew at an anemic 0.3% rate, generating less than a twentieth of total growth. Antunes says boomers, especially women, fuelled the rapid 55-plus growth by participating in the job market at a much higher rate than their predecessors did. But this trend has now pretty much run its course, eliminating the mainstay of labour-force growth.

Forecasters have been warning about the great boomer-retirement wave for well over a decade. What’s different today is that it’s no longer a “someday” problem but a reality here and now. StatsCan reports that the average retirement age in 2010 was 62.1. Given that the oldest boomers are now 65, a back-of-the-envelope calculation suggests that hundreds of thousands of them have already retired. And late boomers, who are now 45 to 54, outnumber early boomers 55 to 65 by almost a quarter. This means the retirement wave will rise throughout this decade, cresting around 2023.

The Conference Board projects that the labour force will grow by a so-so 1.2% annual rate from 2011 to 2015, down from 1.5% for 2006 to 2010, then fall to a feeble 0.7% from 2016 to 2020—and even lower after that. Even the most bearish economic oracle would forecast that demand for labour will grow at rates faster than that.

Yet business owners show a conspicuous lack of urgency about this. The Canadian Federation of Independent Business (CFIB) regularly surveys its members about their most important concerns, and in the first half of 2008, before the recession, 58% cited labour shortages. This plunged to 39% in the first half of 2010, then crept up to 43% in the first half of 2011.

“Business owners in general are not as concerned as they should be,” says Mike Corbett, senior vice president at staffing agency David Aplin Recruiting in Edmonton. “But the ones with the most knowledge of what’s going on in the labour market are the most concerned.”

Dan Kelly, the CFIB’s senior vice president of legislative affairs in Ottawa, says employers with so much on their plates may be tempted to see labour shortages as something to worry about later. “But they need to pay close attention to this,” he says, “because the unemployment rate has come down a lot more quickly than many people thought it would.”

Kelly remembers how acute the problem became by 2007, especially in Western Canada, “where it was the only issue our members wanted to talk to us about.” Alberta endured an extreme crunch. Ultra-low 3.5% unemployment forced fast-food restaurants to pay counter staff $20 an hour and many employers to settle for bottom-of-the-barrel hires. Today—with 5.5% unemployment, down from a peak of 7.2% during the recession—Alberta isn’t in nearly as bad a situation. Yet signs are proliferating there, and in fast-growing swaths across Canada, that it’s becoming ever harder for employers to find people.

Human Resources and Skills Development Canada (HRSDC) reports that several categories of managerial and professional occupations—notably, engineers, HR specialists and business-service professionals—have shown clear signs of shortages in recent years. And HRSDC data show employers also are having trouble finding less-skilled people. This past May, two of the three hardest-to-fill job categories were motor vehicle and transit drivers; and retail salespeople and sales clerks. (The other was auditors, accountants and investment professionals.)

Steve Byrne, CEO of ThinkWrap Solutions Inc., an Ottawa-based web content and e-commerce solutions provider, points to two signs of the labour market’s tightening since 2009. One is “the different sense of swagger” that job candidates who come in for an interview show, thanks to having other offers. The other is that the two HR firms ThinkWrap uses, which recruit across all sectors, have three or four times as many job postings from their Ottawa-area clients now as two years ago.

In Saskatchewan, whose 4.9% unemployment rate is Canada’s lowest, Ottawa is making one entrepreneur’s daunting labour-shortage problems even tougher. Rajesh Jain, president of Mississauga, Ont.-based Globeways Canada Inc., says that all three of his pulse-crop processing plants in Saskatchewan are struggling to find staff, even low-skilled general labourers. Worst of all, the province, as a newcomer to pulse processing, lacks people who have completed the 10 to 15 years of apprenticeship needed for the most critical job: the master splitter who runs a plant. Globeways has found qualified people in India. But a frustrated Jain says the federal government takes years to process his firm’s work-visa applications for master splitters—then rejects them “because they’re reluctant to let in foreign workers, given that the national unemployment rate is higher than in Saskatchewan.”

This forced Jain to leave a plant he had bought to sit idle for two years, and to pass up on millions of dollars’ worth of orders. Even now, Globeways has ramped up the plant only to about 35% of capacity—and that only by hiring a local man to run it who hadn’t apprenticed. Jain worries that the man, although he seems to be doing a good job, may be making mistakes an experienced master splitter would not, so Jain sought help from clients in India to whom the firm ships partially processed pulses for higher value-added processing: “We videotaped our operations, then sent the tapes to India and asked our clients to tell us whether we’re doing anything wrong.”

If your situation isn’t that dire, you may see concerns about growing labour shortages as overblown. And there are three plausible key arguments for why the crunch won’t be that bad—what we’ll call The Case for Complacency.

For starters, won’t the boomers work past 65? After all, they’re living longer and are more committed to the workforce than their predecessors were. And it’s true that the average retirement age, after sliding for decades, has risen. But only modestly, reports StatsCan, from 61.4 years in 2005 to 62.1 in 2010. It’s also true that more people 65-plus are remaining on the job: 11% in 2010, up from 6% in 2000. Yet that’s too few to make much difference. Although Antunes expects the trend toward more people working past 65 to continue, “you’ll never raise that from 11% to 50%.”

A Conference Board survey conducted late last year found that 20% of Canadians 55 to 64 planned to delay retirement by at least a year due to the recession. But, Antunes says, this would increase the labour force by only about 1% by 2015.

The second key argument in The Case for Complacency is that immigrants will make up for the shortfall in the number of young, native-born Canadians entering the workforce. Yet the Conference Board already assumes in its projections that Canada, which admitted 281,000 newcomers last year, will maintain one of the world’s highest immigration rates. Rick Miner, co-owner of Miner & Miner Ltd., a Toronto-based HR and higher-education consultancy, says that seeing immigration as a cure-all overlooks “the pretty dismal results over the past decade from our immigration policy. We’ve been deceitful to many immigrants, letting them in based on their educational attainments, only for them to get here and be told, €˜We don’t recognize your credentials, you don’t have Canadian experience and you lack language skills.'”

Miner says immigration will ease labour shortages, “but at the current level, it’s not a solution. You’d need to let in 500,000 to a million people per year to make up for the boomers’ retirement. How likely is it that we’ll do that?” Besides, given that many immigrants don’t have the combination of the right age and qualifications to start working right away, even if we were to admit such an enormous number of immigrants, it might not suffice.

It’s also easy to overlook the fact that talent flows out of as well as into Canada. According to StatsCan figures, a fifth as many people, including native-born ones, leave the country per year as arrive. And countries with tighter labour markets than ours are poaching Canadian talent. This past spring, Australia-based mining-industry giants BHP Billiton and Rio Tinto Group came to Alberta to recruit highly skilled people—as did the New Zealand government, with several major Kiwi firms in tow.

The final key argument in The Case for Complacency is that we’ll simply substitute technology for people. Like the other arguments, there is some merit to this one; but we can only ease the problem with technology, not solve it.

Canadian companies have historically underinvested in technology. Antunes says that even if they do spend more, which they must in order to compete internationally, “they’ll also need highly skilled workers to cope with all the technology.”

The CFIB’s Kelly says SMEs lack the economies of scale that larger companies have for replacing staff with technology: “A Loblaws can easily switch five of its 20 checkouts to self-checked ones; but for a small grocer, it’s not practical to convert just one of your two checkouts.” And, he says, SMEs tend to be more labour-intensive and service-oriented, so must be cautious about relying more on tech than warm bodies.

Those interviewed for this story agree that even if boomers work a bit longer, we admit more immigrants and employ more technology, we’ll still face growing labour shortages. They also agree that these shortages will vary widely. For the outlook most relevant to your business, see the HRSDC’s forecasts for 140 occupations and 33 industries at www23.hrsdc.gc.ca. These projections, to be updated later this year, include the forecasted number of job openings versus job-seekers for 2009 through 2018. (Ottawa is now urging students to use this tool as part of their education and career planning.)

But even these forecasts miss a key aspect of the problem. Industries aren’t walled off from one another, so if a firm can’t meet its labour needs in its own sector, it may come looking in yours. “Companies are finding themselves competing for talent with companies they haven’t traditionally seen themselves as competing with,” says Corbett.

Kelly points to one example: “Construction companies are afraid to send their people to training classes because resource companies have recruiters standing outside the doors who will recruit those people to bring them up North.”

Big firms are also increasingly returning to tactics widely seen in 2006 and 2007, hiring talent away from SMEs and outmuscling them to land post-secondary graduates. Shannon Bowen-Smed, president and CEO of Bowen Workforce Solutions Inc., a Calgary-based HR firm, says it won’t be easy to fend off the giants. “SMEs can’t compete with big companies’ pay rates or their capacity for branding and reputation management, whereas kids coming out of school haven’t heard of most SMEs,” she says. “And big companies are tapping into social media with an energy and sophistication that smaller firms will find hard to match.”

Still, your company does have several options for responding to labour shortages. One is to hang onto experienced older workers—many of whom are open to sticking around, at least for a while.

Bowen-Smed says you should stop seeing retirement as an on/off switch. “The traditional view is €˜You’re in the game and then you’re completely out,'” she says. “But many companies are now asking €˜How do we move from an on/off switch to a volume dial?'” in which older workers taper off their contribution gradually.

Miner says some older boomers who are eager to keep working want to come in two or three days a week to pass along their knowledge to younger colleagues. Others prefer to work full-time on a project for a few months and then take a long break before starting another one. And, says Bowen-Smed, although positioning your firm as an employer of choice isn’t a new strategy, “what’s now starting to happen is companies positioning themselves as a contract location of choice.”

Donald Venneberg, a business professor at Colorado State University and co-author of The Boomer Retirement Time Bomb, interviewed retired senior managers who were keen to return to the workplace. Most were adamant about what they didn’t want to do anymore: work 60-plus hours a week, move up the corporate ladder or have anyone report to them. Instead, what excited them was the chance to return to being individual contributors.

Another option is to invest substantially in training. In the first few years after ThinkWrap was founded in 2004, the firm could find people who combined experience in a specific type of software development with experience in e-commerce and knowledge of retailing—largely by hiring heavily from a rich talent pool in the co-founders’ previous company. But ThinkWrap now has fully tapped that pool and, says Byrne, the labour market is so tight these days that his firm can’t find many people with all three qualifications. Instead, the company hires people with the first of these, then trains them for six to nine months in the other two.

That strategy isn’t cheap. ThinkWrap, whose 2010 revenue was $7.6 million, spends “in the six figures” on this training, says Byrne, including the opportunity cost of having six or seven senior executives spend a full week running a boot camp for new hires. Given how long it takes to get newbies up to speed, ThinkWrap also must forecast its sales—and, therefore, its staffing needs—well in advance of landing new business. Byrne says finding the right talent still isn’t easy, but at least the company has made the process more predictable.

What’s working for ThinkWrap may not for your firm. The key thing is to have a strategy, says Bruce Powell, managing partner of IQ Partners Inc., a Toronto-based executive recruiting agency. “Almost every company has a sales or marketing plan, but the vast majority don’t have any sort of talent strategy,” he says. “You don’t need a complex, 10-page document. Even just a phrase will do: €˜We’ll do X, Y and Z to attract and retain talent.'”

Your company might, say, become flexible in its hiring criteria. When IQ’s recruiters couldn’t find anyone combining the experience and salary expectations a client wanted, that client rethought its approach. “We ended up hiring a much more capable and senior person to work three days a week for the same pay as the employer had planned to pay for five days,” says Powell. You also could implement flexible work hours to gain an edge in what he calls the talent game: “It’s a game, not a war. You don’t conquer talent; you win them over.”

Another strategy is to focus on recruiting people under 25. Miner says SMEs should emulate bigger firms that participate in co-op programs: “If you develop a relationship with local universities and colleges, you’ll gain access to the better students.”

Debra Horsfield, a senior consultant at HR consultancy Towers Watson in Toronto, suggests targeting non-traditional labour sources, such as by partnering with groups in the fast-growing Aboriginal population. And, she says, “As pools of labour get smaller and smaller, you need to develop a value proposition in order to attract people.” Horsfield says Towers Watson’s 2010 Global Work Study showed that the five factors most important in attracting employees in Canada are, in order, competitive base pay, vacations or paid time off, competitive health-care benefits, career-advancement opportunities and competitive retirement benefits.

Yet, even with an appealing value proposition, you may still fall short. “Often, the only way to get the specialized labour you need will be to purchase those skills by acquiring other companies,” says Horsfield.

However you respond to labour shortages, all you can do is soften their impact. The hard truth is that shortages will increase, especially as the continuing shift to a knowledge-based economy places greater demands on employees. Dependable’s Ahuja says finding qualified people in his sector will become even tougher as energy-efficiency standards add a new layer of complexity to construction projects that fewer workers have the skills to handle.

He has resigned himself to the reality that this is a problem he can only manage, not solve. “It’s a struggle, day in and day out, to find the people we need, and it will stay a struggle,” says Ahuja. “There’s no respite from this.”

Originally appeared on PROFITguide.com

Comments are closed.