I have a guest post over at HR Examiner today. Editor John Sumser has started a series of posts on the skills shortage. You really should read it. And my post, too.
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Skills Shortage or Inflated Job Requirements
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What’s your budget?
Great sources of free and relevant talent management data are vendor research, white papers and blogs. Of course, vendors have a bias towards research and conclusions that support their cause, but that doesn’t make the research less interesting or actionable. It just means that the reader has to understand the context.
I read an interesting article in the May issue of Talent Management that referenced a survey done by Cornerstone OnDemand and Harris Interactive on performance management. I traced the survey results back to a post on the CSOD blog by Charles Coy. The survey data about the effectiveness of legacy performance management systems is interesting and not at all surprising. They don’t work and everyone knows it – employees and HR.
What was more interesting to me were the math and sources behind the potential price tag of $2 Ttrillion to U.S. employers in 2012 simply due to voluntary turnover. That’s right: $2 Trillion!
$2 Trillion is a big number. A very big number. Could it be true? If we take the stats one by one, it absolutely could be true. Take a look:
Here’s the equation where E = total employees and AW = their average wage (divide total salary cost by the number of FTEs):
(E x .15) x (AW x 2.5) = Total Turnover Cost
Try the math in your organization. If you have 350 employees and the average wage is $50,000 then
- 350 x .15 = 52
- Average wage = $ 50,000.00
- Average full replacement cost = $ 125,000.00
52 x $125,000 = $6,500,000.00
And what’s your budget?
But, you say, your voluntary turnover is only 8%, not 15%. Well, even if that’s true – and congratulations if it is – that’s still a lot of money.
28 x $125,000.00 = $3,500,000.00
And what’s your budget?
But, you say, that 2.5 times the average wage calculation for replacement costs is way too high. You don’t buy that the loss of an average employee means a potential loss of intellectual capital or client relationships. OK. How about the impact on internal relationships and getting things done? How about the productivity and morale of colleagues left behind? How about the experience and job skills that you’ve lost? Add in the hard costs of recruiting a new hire, the onboarding time, the training time to full productivity and you’ve still got a big number – even if you found and hired replacements really quickly. Try the math at 1.5 the average wage as the full replacement cost. With 8% turnover and 1.5 times the average wage, that’s still a big number
28 x $75,000.00 = $2,100.000.00
And what’s your budget?
And what if your voluntary turnover is higher than 15%? Or what if the training time to productivity is longer than average? Or what if you – like 52% of employers – can’t find the replacement talent quickly or at all? Then the impact will be greater. Much greater.
This is a useful discussion because it can help create a context for the broader conversation about the real cost of voluntary turnover and the cost savings in having an engaged workforce. It can be part of the rationale in a business case for investing in any of the levers that will increase retention and reduce turnover.
It’s almost budget time in most organizations. Financial resources are still scarce. As you plan your 2013 budget requests for more spending on talent management solutions, be prepared with fact and data. This might help.
Data Source Highlight: SHRM Foundation
From time-to-time we won’t discuss a particular data point, we’ll highlight a particular data source. Due to the ubiquity of content on the web, it’s important to find trustworthy and relevant sources of data. Today, I recommend the SHRM Foundation.
You don’t have to be a SHRM (Society for Human Resource Management) member to avail yourself of the wealth of knowledge published for free by the SHRM Foundation, SHRM’s separate 501(c) (3) nonprofit affiliate. The Foundation’s mission is to “advance global human capital knowledge and practice by providing thought leadership and educational support, and sponsoring, funding and driving the adoption of cutting-edge, actionable, evidence-based research.”
In addition to providing scholarships to SHRM members for degree completion and certification, the Foundation performs two very important functions for the Human Resources profession:
- It is one of the leading funders of rigorous academic HR research
- It creates educational resources for the profession, including EPGs (Effective Practice Guidelines) which makes research findings easily accessible.
I make this introduction to the Foundation because many in HR don’t know what the Foundation does for all HR professionals – SHRM members or not – and so don’t avail themselves of the research that is practical and relevant to the job of HR.
Of the most useful of the Foundation’s products, EPGs integrate current research findings on what works in real life with expert opinion on how to conduct HR effectively and have been published on a wide array of topics critical to talent and organization management success. Recent EPGs have included:
- Human Resource Strategy
- Promoting Employee Well-Being
- Recruiting and Attracting Talent
- Retaining Talent
- Developing Leadership Talent
Case in point:
HRM’s Role in Corporate Social and Environmental Sustainability, the newest in the series of Effective Practice Guidelines (EPGs) from the Foundation.
Want a readable, rigorous overview of how HR can integrate CSR and environmental sustainability into the culture of an organization? Want to know what new competencies you need to develop to be a credible leader in this regard? Want a roadmap to embed CSR and ER into an organization’s mission so that “its impacts on employees, communities and their stakeholders align with the sustainability vision” of the organization?
In 31 pages, noted CSR experts Elaine Cohen, Sully Taylor and Michael Muller-Camen provide an extraordinary review of what the research says, what effective practice looks like, the inclusion of several case studies and the introduction of successful organizational models – all written for easy consumption by HR practitioners. It’s a goldmine of information.
For example, early in this EPG, a discussion of the different manifestations of CSR ends with this very useful diagram:
This visual, based on work by Archie Carroll, brings useful context to any business discussion about CSR – and would be a strong starting point for any business case an HR professional would bring forward. The Foundation’s EPGs are full of these kinds of easy to understand and extremely useful data points.
If you aren’t familiar with the SHRM Foundation’s EPG series, I recommend that you visit their site and start browsing the titles. I guarantee that after reading one you’ll not only feel smarter – you’ll actually be smarter.
Full disclosure: I served on the SHRM Foundation Board of Trustees from 2007 – 2010.
Data Point #11: Talent optimism vs. realism
We’re surrounded by all kinds of data points about the talent/skill shortage. I wrote about it here and here. Today we have two data points: one comes from SHRM’s Q2 2012 Jobs Outlook Survey Report and the second comes from the BLS 2012 Occupational Outlook Handbook.
SHRM’s Jobs Outlook Survey has some interesting data from a small sample of its 250,000+ members. (This particular survey was sent to 3,000 randomly selected SHRM members with 336 members responding, for an 11% response rate.) These quarterly JOS surveys ask HR professionals interesting questions about optimism in job growth, planned changes in total staff levels, categories of workers companies will hire and categories of workers most difficult to hire in the previous quarter.
I was particularly interested in the responses to the question asking which categories of workers were most difficult to hire in the 1st Quarter of this year. The sample is small (n=246), so the data are directional at best, but do line up with other data sources.
This data is congruent with BLS (U.S. Bureau of Labor Statistics) data relative to education level attainment and the corresponding unemployment rates in April. The higher the unemployment rate, the lower the difficulty to hire:
- Less than high school: 12.5%
- High school no college: 7.9%
- Some college or Associate degree: 7.6%
- Bachelor’s degree or higher: 4.0%
In other words, it’s more difficult to find skilled professionals and managers in this job market because there are fewer of them unemployed and there are fewer of them overall. It’s easier to find service workers and unskilled manual workers because more of them are unemployed and there are more of them overall.
But still, as the SHRM report highlights, employers are having difficulty in hiring at all levels. Which makes me wonder: are we being unnecessarily restrictive in our job specifications? Are we hiring people with college degrees when an associate degree would suffice? Are we requiring associate degrees when a high school degree would be adequate? I don’t know the answer, but considering the data is interesting.
The Occupation Outlook Handbook, published by the BLS, shows the projected job growth by education category in the 2010-2020 decade:
While the number of jobs created in this decade that will require a Bachelor’s degree or higher is predicted to be nearly 5 million, the number of jobs predicted to be created requiring some college/no degree or less is nearly 13 million.
So if the key to employment (and financial) security for the average worker is a Bachelor’s degree, but the greatest numbers of jobs being created in the next decade won’t require a Bachelor’s degree, how do we reconcile this as employers?
Do we hire college educated workers for jobs that only require a high school diploma? Are we already doing that now?
Do we work to raise the general level of worker education because we believe it’s the key to global competitiveness?
Do we encourage students to enroll in career and technical education programs in and after high school rather than college because those are the skills needed in the economy?
The data around employers having difficulty finding the talent/skills they need isn’t as simple as it looks. It’s actually quite challenging. Under every layer of data is another layer of data. Solving our talent attraction and acquisition needs won’t be solved with one tactic. But it’s a safe bet that solving our talent challenges will include strengthening relationships between employers and the education infrastructure to produce the skills our economy really needs.
As I look at the data, the optimist in me says we’re covered over in opportunity. The realist in me says we’ve got a lot of work to do and not a lot of time in which to do it.
Data Point # 10: The Unemployment Rate Went Down? Really?
There is no irony in data. Except if you put two graphs side by side that tell the same but different story.
The April employment data was released on Friday by the Bureau of Labor Statistics, which is part of the U.S. Department of Labor, which, of course, is part of the U.S. Federal Government. The BLS paired these two graphs together. Chart 1 shows the civilian labor force unemployment rate from April 2010 through April 2012. Chart 2 shows the growth (or not) of nonfarm payroll employment in the same time frame.
Given this data, it’s a little hard to understand why the unemployment rate went down .1 point to 8.1% during a month when far fewer jobs were created than in the previous 6 months.
During the slow crawl out of the Recession, many economists and pundits positioned that for the unemployment rate to hold steady month over month, a minimum of 150,000 new jobs would need to be created in that month. And yet the data show that in a month when only 115,000 new jobs were created and the number of employed people was down 169,000, the unemployment rate still went down. How does that math work?
Here’s the chart that makes sense of it all direct from the BLS Employment Situation Report:
The civilian labor force actually decreased from March to April by 342,000; the number of employed people decreased 169,000; the number of unemployed people (still looking for work) dropped by 173,000; and the number of people not in the labor force grew by 522,000. What we can’t tell is how many of the unemployed became discouraged and stopped looking for work. They drop out of all calculations.
If we do the math, the lower unemployment rates over the last several months are not the result of job growth, but rather a shrinking civilian labor force and a decrease in the labor force participation rate.
While the numbers of the unemployed – that’s people unemployed and actively looking for work – appear to be shrinking, the numbers of people “not in the labor force” is growing. And growing rapidly – by nearly 3 million in the last year alone. We can’t tell from this data whether the rapidly growing number of people not in the labor force are Baby Boomers retiring (that wouldn’t be totally unexpected) or more discouraged unemployed people dropping out of the job search. But it’s a safe bet that it isn’t entirely people – Boomers or otherwise – voluntarily leaving the workforce.
So. The number of discouraged unemployed workers grows at the same time the number of participants in the labor force is decreasing. And that results in a lower unemployment rate. Maybe data is ironic after all.
How’s this scenario? What happens when the economy and the job market really improve and the discouraged unemployed workers re-enter the job market? Under this math, the unemployment rate could very well go up. The more workers are in the workforce — either employed or actively looking for work — the higher the number of jobs we’ll need to create to keep the unemployment percentage even.
Bottom line: the lowering unemployment rate isn’t about more workers going back to work at all. It’s about more workers leaving the economy. Really.
Data Point #9: Employer Loyalty Isn’t Dead? Wait. What?
MetLife published its 10th Annual Study of Employee Benefit Trends on March 19th, 2012. At 80 pages, it’s a read. But it’s a fascinating read.
The report shows clearly that the strong role of workplace benefits in driving employee attraction, retention and productivity continues as reported by these MetLife studies during the last 10 years and persists today during the slow economic recovery. Interestingly, the study correlates satisfaction with benefits to employee job satisfaction, and also shows clearly that employees who are dissatisfied with their benefits are more likely to want to work somewhere else.
The data are fascinating. And I recommend the investment of 30 minutes to read it through.
The data point that I found most interesting in the study follows:
I haven’t seen anyone discuss employer loyalty to employees in a long time. I think I assumed, by looking at other trends, that the issue of employer loyalty was long dead. Building employee loyalty, however, was a whole other discussion: we call it employee engagement. And employers are starting to pay attention to this issue because of the rapid shift in workforce demographics coming down on us like a load of bricks. (See my posts on this topic here and here.)
But where has been the focus on employer engagement? Have we all assumed that employer loyalty is dead and gone forever? That employees “know the score” and don’t expect employers to be loyal to them? Well, MetLife reports that between 2008 and 2011 employer loyalty scores have increased 5% from 52% to 59%! Wait. What?
In the same time period, however, the perception by employees that their employers are loyal to them has decreased 8% from 40% to 32%. How pitiful is that? Employers think they’re doing better, but employees aren’t getting the message. And in fact, more of them aren’t getting the message as time goes on.
I think this is interesting. Despite all the attention being paid to employee engagement – through salary, through benefits, through recognition, through providing strong ethical cultures, through providing meaningful and interesting work — in fact, the study finds evidence of a widening disconnect between employers and employees.
Job insecurity and expectations that benefits will be cut may well be contributing to employees feeling less important to their employers. This “loyalty gap” presents an immediate opportunity for HR and C-Suite leaders to really step up communication and feedback about their increased loyalty. Of course, the proof is in the pudding, and for employees to believe that their employer is growing more loyal to them, they are going to have to see a change in behavior – if they stick around long enough.
HR Rockstar Tour
If you live in Dallas, Chicago, New York, Miami, Los Angeles or San Francisco I’d like to invite you to attend a complimentary seminar that introduces and discusses groundbreaking new research and analysis about Recognition and Rewards. Sponsored by the good folks at Achievers, this will be great morning with a little breakfast, a little networking, a couple of HRCI credits — and a whole lot of new data about what’s working to engage employees more effectively. Join me, Josh Bersin and Razor Suleman. I guarantee that you’ll leave smarter than when you arrived. It happens to me every time I’m with Josh and Razor. It can happen for you too. Just send an email to Loren Maisels at Achievers asking for an invitation (Loren@achievers.com) or call her at 415-967-7809. Tell her I invited you.
Data Point #4: Cyclical vs. Structural Unemployment
The U.S. Department of Labor/Bureau of Labor Statistics is a gold mine of information. It crunches massive amounts of data having to do with labor and the economy, and is prolific in providing projections for the future. (See previous posts here and here.)
An interesting monthly publication put out by the BLS is the Monthly Labor Review. The January edition included an Overview of projections to 2020 based on its Employment Outlook 2010-2020. The overview contains a review of the underlying data behind all of the BLS’s projections. Labor force participation by demographic, the connection between GDP and productivity, job growth by sector/industry, job growth by occupation, job growth by education level – all are included in this overview.
What I found most interesting was a graph and brief discussion comparing the most recent recession and the resulting time to labor market recovery to the previous four recessions. Take a look at the graph.
We all know that the effects of the 2007-2009 recession are still being felt. In fact, the graph shows that we are a long way from reaching “recovery to level at start of recession” — some 30 months out from the official end of the recession. No surprise, but perhaps the combination of the length of the recovery together with the continued gap between where we are and the “recovery to level at start of recession” is noteworthy. Also of note: this overview reports that the BLS sets the “natural rate of unemployment” at 5.2%. We’re still a long way from the recovery to level at start of recession rate — and a much longer way from the natural rate some 40 months from the official start of the recession.
The real question is, why is this recovery taking so long compared to the previous recoveries shown in the graph? Labor market analysts discuss the cyclical vs. structural causes that continue to depress hiring and job creation. Cyclical unemployment occurs when workers are laid off because of weak demand, but who expect to be re-hired when demand picks up – usually by the same organization, and usually in the same occupation or industry.
Structural changes in the economy also create job loss – our most recent recession proved that unequivocally. Structural unemployment could also be caused by weak demand, but is fundamentally caused by other dynamics that impede workers’ abilities to return to work when demand picks up. For example, new technology and resulting productivity gains may reduce the need to rehire workers with less current skills and may reduce the number of workers needed even after recovery. As time goes on, the skills deficit of the structurally unemployed gets bigger and so they may well experience longer periods of unemployment. Retraining in new occupations will be required for these workers in many cases. Sound familiar?
As HR and talent management professionals take into account the impact of both cyclical and structural unemployment in their locations and industries, their approach to creating a robust talent pipeline will be far more realistic and attainable if they focus on causes of structural unemployment. Just as employers are having difficulty finding the skills they need, the structurally unemployed are having difficulty finding new homes for their outdated skills.
Surely the answer is obvious to more than me.
AT&T, JAG and the Talent Deficit
In my post yesterday, I suggested that employers will need to start making strategic partnerships with education institutions and economic development organizations, among others, to start dealing with the upcoming acute shortage of workers who have graduated from high school and have some college under their belt.
A great example of this came to my attention yesterday. On Monday AT&T announced an investment of $250,000,000 over the next five years to improve high school graduation rates. Here’s how their announcement began: “ As access to skilled workers becomes increasingly vital to the U.S. economy, AT&T is launching a quarter-billion-dollar campaign to help more students graduate from high school ready for careers and college, and to ensure the country is better prepared to meet global competition.”
Investing in JAG – Jobs for America’s Graduates – is an example of strategic corporate investment in the future of the talent pipeline. JAG, the most effective program of its kind – is a state-based national non-profit organization dedicated to preventing dropouts among young people who are most at-risk. In more than three decades of operation, JAG has 
delivered consistent, compelling results – helping nearly three-quarters of a million young people stay in school through graduation, pursue post-secondary education and secure quality entry-level jobs leading to career advancement opportunities. The kids in the AT&T Aspire video are great examples of JAG at work in the trenches.
Who wouldn’t hire those kids?
I ended my Data Point Tuesday post yesterday with this imperative: “The sooner talent acquisition professionals and learning/development professionals in organizations begin to work together on workforce planning and tackling the education deficit, the sooner the talent pipeline will begin to be prepared for 46 million new jobs.”
Looks like AT&T is out in front. Again!
Data Point #3: The U.S. Education Deficit and 46.8 Million New Jobs
Many business leaders and most talent management professionals know that the demographic shifts that are happening now and are projected to happen in the next several years will impact every organization’s ability to meet its business goals. On top of demographic trends, education trends are also going in the wrong direction. Between 1997 and 2009 the U.S. position as a world leader in education has slipped from 4th to 11th, as an example.
According to Help Wanted: Projections of Jobs and Education Requirements through 2018, a report published by Georgetown University, the U.S. economy will create 46.8 million openings by 2018 – 13.8 million brand new jobs and 33 million “replacement” jobs,” positions vacated by workers who have retired or permanently left their occupation by 2018.
Good news for the economy and the working population of the U.S., right? Well, maybe.
Let’s peel back just one layer of the onion and look at what these new and replacement jobs will require. According to the Georgetown report, nearly 63% of these jobs will require workers with at least some college education.
This data projects that one-third of the new jobs will require a Bachelor’s degree or better and nearly 30% will require a two-year Associate’s degree or some college. Only 36% will require a high school diploma or less – and that percentage of all jobs continues to decline.
Here’s the challenge for employers, according to the Georgetown report: by 2018 the U.S. post-secondary education system will have produced 3 million fewer college graduates than required by the labor market. And what if the economy recovers faster than expected with greater job growth and greater Baby Boomer retirements? The delta gets even bigger.
Here’s where talent management professionals should be thinking creatively and strategically.
If the working population will not be educated enough for these 46 million new jobs, employers will have to be focused on educating them.
But how to begin? Individual employers, groups of employers (aligned geographically or by industry) will have to have a multi-faceted approach, but the cost effective bet is starting with their existing workforce. Organizations are going to have to educate their own workers and look to current best practice (tuition reimbursement programs, for examples) as well as innovate new approaches.
Strategic partnerships between employers and education institutions are beginning to create new education paradigms. But that won’t be enough. Other stakeholders will need to begin their involvement in educating the workforce: local and regional economic development organizations, local workforce boards, state departments of labor and education, professional associations, labor unions – all will begin to partner with employers to deliver the educated talent they need. Talent management leaders should be out in front on this issue, defining the skills outcomes required.
It’s clear that demand will outstrip supply in almost all occupational categories soon. The sooner talent acquisition professionals and learning/development professionals in organizations begin to work together on workforce planning and tackling the education deficit, the sooner the talent pipeline will begin to be prepared for 46 million new jobs.
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