The lockdowns imposed during the Covid-19 pandemic led to chaos in the labor market and flung the unemployment rates to record highs. The Bureau of Labor Statistics reported that in July 2020, shortly after the outbreak, 16.9 million people became unemployed — out of which 9.6 million people lost their jobs as their employers closed or lost business due to the pandemic. Now, however, the world is struggling with a massive labor shortage. What caused such a significant change in the labor market? Here are some insights:
Employees are leaving their current jobs for better opportunities, higher wages and improved benefits. This scenario has led to a conflict as companies are unable/unwilling to meet the increased demands and prioritize covering the cost of high inflation.
Many people left their jobs to start their own businesses. For instance, Salesforce reported nearly 4.4 million new businesses were created in the US alone during 2020, and half a million new businesses were started in January 2021.
Increased integration of modern-day technologies like artificial intelligence and automation has subsequently increased the demand for skilled people who understand these complex techs. Unfortunately, many businesses around the world are experiencing skill gap issues, which has played a part in spurring the labor shortage. Per McKinsey & Company, 87% of companies worldwide admit they have a skills gap or will have one in the coming years.
The aging workforce is one of the most significant contributors to the ongoing labor shortage. For instance, 10,000 people reach the retirement age of 65 every day in the US alone. And the World Health Organization states by 2030, one in six people worldwide will be aged 60 years or over, and the population of people aged 60 or above will reach 1.4 billion.
The labor shortage is surely one of the biggest challenges for the business world in modern history. Businesses are struggling to retain their employees with 3.9 million people in the US alone quitting their jobs in January 2023 and 61% of US employees considering resigning in 2023. A report by Korn Ferry suggests that if left unchecked, the global human talent shortage may reach 85 million people and $8.5 trillion in unrealized annual revenues by 2030.
What’s the Solution?
The ongoing labor shortage cannot be solved with a single solution — surely not at the global level. However, organizations can work on individual levels to make an impact and move toward a fully staffed workforce with a multifaceted approach.
Reimagine organization culture. Organizations need to reimagine and invest in their company cultures to foster a place where employees feel safe, valued and motivated. Moreover, organizations should start acknowledging the fact that employees are an asset (and an investment), not an expense. A great culture also gives a boost to employee referral programs.
Reengineering employee relationships. During the pandemic, the personal and professional lives of employees collided, which completely changed the game. And thus arose the need for reengineering employee relationships. Employees now look to work with employers who prioritize the human approach, focus on employee growth and development, offer targeted training, and personalize their job search approach.
Close the skills gap. Regular training and upskilling opportunities, mentoring and coaching, and ensuring on-the-job learning are some of the most effective strategies that can help in closing the skills gap. Integrating technology is crucial to enhance operational efficiency, but utilizing multiple tactics for closing the capability gap is equally important.
The labor shortage has created a candidate-driven market. Workforce preferences have changed, and employees demand enhanced benefits as part of the overall compensation packages. Apart from competitive salaries, they ask for a healthy work-life balance, job security and considerate work environments. Thus, companies need to overhaul their strategies, innovate recruitment and build an employee-friendly culture to attract talent while retaining their existing workforce.