The Human Capital Implications of a Weak Labor Market

09 Oct. 2012 | Comments (0)

The state of the labor market has a profound impact on the types of challenges that human capital professionals face. Some of the implications of this current weak labor market are shared across most businesses:

1) Strong profits versus weak wage growth: In recent years, profit rates have been at a 40-year high, while wage growth has been at a 40-year low. The reason profit rates are so high is due, in part, to a weak labor market that allows employers to keep labor costs low. Employers have struggled with how to explain this discrepancy to their work forces.

2) Low employee engagement, but high retention rates: The Conference Board Job Satisfaction survey confirmed that job satisfaction rates have been at historic lows in recent years. Low raises are just one reason for this, but there are several other reasons why workers have had very little reason to be excited about their work: new workers who entered the labor force into positions that are well below their initial expectations; older workers who want to retire but cannot; workers who were hired from unemployment and are earning well below their wages during their pre-unemployment period. Yet, despite low satisfaction and work engagement, retention rates have been high. This surprising situation is due to the fact that retention rates are highly correlated with the unemployment rate. When there are not a lot of lucrative options out there, people will stay put. In booming industries, such as mining and extractions, quit rates are back to pre-recession levels.

3) Cautious hiring due to lack of demand: Most employers are growing their workforce more slowly than in a typical expansion. The reason is clear – demand is weak. There are no reasons to aggressively expand.

4) Many qualified applicants in spite of emerging pockets of talent shortages: We read more and more about talent shortages, and indeed, in some occupations and locations they are becoming a problem. For more information, read Is There a Talent Shortage in the U.S.? Start By Looking at Hours Worked.

However, even before the 2008 recession, and certainly before the 2001 recession, it was much more difficult to find qualified workers. Does this mean that we don’t need to worry about finding qualified workers? No. As the baby-boomers are retiring, talent shortages will become a growing concern for most businesses.

5) Older workers are delaying retirement and the workforce is aging quickly: The share of older workers in the workforce is growing rapidly, partly as a result of the financial concerns that led to delaying retirement. This evolving situation will bring about many HR issues in the coming decades, not the least of which is the potential for further cases of age discrimination.

6) Beginning to think about re-shoring: The gap in the operations costs between advanced and emerging countries is shrinking and transportation costs are historically high. As a result, more employers are considering increasing operations in advanced economies.

Unfortunately, the labor market is unlikely to considerably improve in the next year, so many of the trends listed above are likely to occur in the foreseeable future.

View our complete listing of Labor Markets blogs.

  • About the Author: Gad Levanon, Ph.D.

    Gad Levanon, Ph.D. Gad Levanon is director of macroeconomic research at The Conference Board, where he also leads the labor markets program. He also serves on The Demand Institute™ leadership team. Levanon create…

    Full Bio | More from Gad Levanon, Ph.D.

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