We established our first offshore delivery center in 2004 when American companies started experiencing a shortage of skilled IT specialists. However, as we now realize, it was just the beginning. Today talent shortage is a global problem, and the situation is much worse than before. Attracting and retaining employees has become super challenging. Over 4.3 million people have left their jobs every month since the beginning of 2022. The Russian invasion of Ukraine has only aggravated the talent crisis and added risks. These days, organizations are forced to reconsider and strengthen their human talent management strategies to survive.
So, let’s dig deeper into the real reasons and trends of the US labor shortage to see how you can avoid being trapped in a local skills deficit.
How is scarcity different from shortages?
Well, the two words are similar but not identical. We may say that scarcity is the natural limitation of resources like water and oil that can never be replenished through production. Meanwhile, a shortage is a market phenomenon that refers to temporary constraints of a resource or good due to a mismatch in supply and demand or other purposeful human intervention, in this case, the labor market.
Speaking of the labor market, we’re observing a growing talent shortage worldwide that could exceed 85 million people by 2030, bringing a loss of $8 trillion. With the market recovering from the pandemic, the skills deficit has skyrocketed in America. A record 74 percent of US employers have difficulties in filling positions.
So, how is scarcity different from shortages? Well, companies can address the talent shortage through specific measures, whereas scarcity implies inherent constraints of a resource with a limited amount available.
You should be intentional about hiring and employee retention to attract qualified staff and maintain a competitive edge. More on that further in the article.
1. The impact of the pandemic and the shift in workers’ expectations
At the pandemic’s peak, over 120,000 businesses shut down in the US, leaving 30 million workers unemployed. The jobs lost during COVID-19 are reopening much faster than many leaders have anticipated. In 2021, the talent shortage situation aggravated with 10.9 million jobs open but only 8.7 million available professionals spanning all industries. A skill survey of executives found that 60 percent of business leaders believed the events of 2020 widened the skills gaps in their businesses.
Apart from that, lockdowns and COVID-19 have changed people and spurred them to reevaluate what they want from their employers and life in general. For many, it was a wake-up call that a different future was possible with an all-time high of job openings to entice them to new opportunities. In 2021, over 47 million people quit their jobs seeking telecommuting opportunities and higher compensation.
Finally, travel restrictions due to the pandemic resulted in about 1.2 million foreign workers facing challenges with work visa application, which added to the increasing talent shortage in the country.
2. High demand for flexibility
Many Americans have enjoyed the benefits of remote work and now want to have flexible schedules. A recent skill survey shows that 56 percent are open to new opportunities that may provide more flexibility, and 21 percent are likely to jump ship to get it. So, businesses that want to close the talent gap should adopt flexible performance management strategies to build a highly motivated workforce.
3. Low wages
Most people are changing jobs due to better job opportunities or higher salaries. Nearly 62 percent of workers worldwide rank salaries as the strongest motivator for changing jobs.
Moreover, in North America, 100 percent of countries expect to see wages rise in 2022. Average hourly earnings have already ticked up by 5.2 percent over the last year. Not enough to surpass inflation, but supposedly sufficient to lure more people back into the workforce or at least motivate them to start searching for work. So, consider increasing compensation to minimize the risk of losing valuable employees.
4. Massive and early retirements
Organizations with significant numbers of aging staff will start to experience the knock-on effects as the pace of 55+ retirements has accelerated. The pandemic forced nearly 3 million professionals into early retirement by 2021. Those retirees took the skills, knowledge, wisdom, and relationships developed during their tenures, intensifying the talent growing gap and skills deficit on the labor market. According to a skill survey, 21 percent of employers believe entry-level workers will require specific upskilling.
That’s why the participation rate of workers above 55 remains drastically low – 38.6 percent in August compared with 40.3 percent pre-pandemic. The lack of recovery among aging workers plays one of the main roles in the current talent shortage situation.
5. The mismatch between workers availability and the job openings
With most adult workers moving out of the workforce, skills shortages become more evident, as younger generations may not have the experience necessary to fill the jobs left behind. Skill surveys found that organizations see an increasing skills deficit, and 73 percent of companies are experiencing a decrease in the number of job applications for difficult-to-fill positions.
There are numerous job openings, but they don’t match job seekers’ expertise, pay expectations, or locations. Another skill survey shows that 48 percent of job seekers are dissatisfied with the job search because open positions don’t match their expertise or interest. There isn’t actually a talent shortage considering the number of unemployed available but a growing gap between employees’ needs and employers’ offers.
The Gen Z generation will make up about 27 percent of the global workforce in three years. So, it’s vital to understand what they value. They are pursuing their own career progression and will not stay with a company if they don’t see perspectives for future development. Also, personal value and wellness have become their primary care, and most prefer high-paying jobs.
6. Workforce shortages stress remaining employees
In response to workers leaving, some business leaders are just working their existing workforce harder. Current team members become overcommitted as they try to do the work of the remaining unfilled positions. The situation when employees take on extra duties for an extended period results in mistakes, relationship friction, delays, and burnout. Consequently, companies may see increased staff turnover. It’s more than just temporary internal disruption, and businesses often see a domino effect if just one person resigns.
7. Boost in entrepreneurship
We could witness a boom in entrepreneurship and the biggest jump in new business applications. A whopping 425,698 new business apps were created in July 2022 alone, or close to 10 million during the last two years.
About 4.4 million new businesses were registered in the US in 2020. People who lost their jobs during COVID-19 decided to use government-provided capital to become self-employed. Others left their stable careers to start a business because of economic uncertainty and coronavirus disrupted lives. Moreover, 43 percent of Americans want to launch a business this year, and 47 percent of them are currently working for an employer.
What does it mean for your business?
While recruitment becomes an even more expensive and lengthy process, staff retention is another challenging task for businesses. The talent shortage hurts your productivity, staff turnover, profitability, and employee satisfaction, preventing the company from growth. Today, most shortages are in IT and technology positions, which can be the largest barrier to adopting 64 percent of new tech solutions within organizations.
Currently, employers struggle to hire people competent in their critical business functions. Organizations are not always using the proper strategies to attract professionals who will contribute to growing people, and companies should review their employee benefits and global talent hiring approaches. Furthermore, constant learning and development have become a critical skill source and a powerful means of professional attraction and retention.
How outsourcing helps businesses avoid a local skills deficit
It’s time to find strategic approaches to supporting your existing workforce to keep them and your business thriving. Outsourcing helps address talent shortage issues and skills deficit challenges by providing access to top specialists in their fields to expand your team.
Software development outsourcing with TEAM International means cooperating with a business partner that will transform your business, add value, and enable you to benefit from emerging technology. We offer outside support across your business and supply chain operations to keep your organization moving through disruption and scale your workforce regardless of the job market conditions.