The Labor-Shortage Myth

The Labor-Shortage Myth.

Want to feel extra cheerful about your career prospects? Take a look
at recent pronouncements from the U.S. Census Bureau, the General
Accounting Office, the National Bureau of Economic Research, and the
Conference Board, all duly reported by a host of newspapers and
magazines. “The Coming Job Boom,” proclaims Business 2.0
. Yep, there's a labor shortage coming!

would be a big deal. Workers, especially skilled workers, could expect
higher wages and better perks. Employers would have to recast their
hiring and retention strategies — and indeed, many are already doing
so. The ramifications for economic policy and investing would be

Just one problem: It's not happening — and it's not
likely to happen. Rather, it's an overblown theory, fed by questionable
assumptions, that has gained credibility through sheer repetition.

the Cliff Notes version of the labor-shortage argument: The workforce
is aging. By 2015, nearly one-fifth of workers will be over age 55.
Around then, huge throngs of baby boomers will begin retiring to
Florida (or wherever), leaving the much smaller “baby bust” generation
unable to fill all those jobs. The past three months of strong job and
wage growth in the United States, proponents would say, is a preview of
things to come.

“The year 2011, when boomers begin to retire,
will be when we'll start to notice the tightness in the labor markets,
and that's likely to become a pretty perpetual condition from here on
out,” says Justin Heet, a research fellow at the conservative Hudson
Institute, a contributing author of the book Workforce 2020
, and author of the follow-up report, “Beyond Workforce 2020.” By the
year 2030, avers a GAO report entitled “Older Workers,” “the United
States could experience a labor shortage of 35 million workers.” Says
David T. Ellwood, a respected Harvard professor of government: “CEOs,
labor leaders, community leaders, all came to the unanimous conclusion
that we will have a worker gap that is a very serious one.”

that argument rests on several logical flaws. First, folks are working
longer. The typical retirement age in the United States today is 62,
not 55, says Brigitte Madrian, a professor of financial gerontology at
the University of Pennsylvania's Wharton School. After declining for
decades, the labor-force participation rate for Americans aged 65 to 69
jumped to 26.1% in 2002 from 21.9% in 1994, according to the Bureau of
Labor Statistics, with a comparable increase for folks 70 to 74. The
AARP reports that half of its 35 million members (50 and over) are
still working today. More telling, it says that more than 80% of baby
boomers it surveyed plan to work well into their seventies.

who have always identified themselves more with work and career than
did previous generations, are likely to explore alternatives to
traditional retirement, such as second careers or cutting back on hours
rather than giving up work completely. In a very practical sense, they
have to: Their life expectancies have climbed past 77 at the same time
that health-care costs have skyrocketed and savings rates have

Besides that, the labor-shortage alarmists
underestimate the capability of younger generations. Peter Cappelli,
another Wharton professor and director of the school's Center for Human
Resources, notes that even though boomers outnumber busters overall,
“the cohort of college grads didn't shrink. We've just pulled more kids
up into the system,” he says. Some 930,000 bachelor's degrees a year
were conferred at the height of the boomers' run through college —
while the smallest graduating class for busters produced 1.16
million grads. Now college-educated members of the “Echo Boom,” a group
close in size to the boomers themselves, are starting to enter the
workforce. No evidence there of a shrinking skilled labor pool.

concedes that by 2014, “we're looking at slower growth in the labor
force than we're used to.” But that's a phenomenon the economy has
adjusted to before. The United States' gross domestic product, he
observes, is six times larger than it was at the end of World War II,
yet the labor force is only twice as large. That's about productivity,
folks. And this time, the inevitable increase in offshoring will curb
job growth even more dramatically. “Low-cost knowledge workers may well
do to Wall Street what low-cost manufacturing workers did to Main
Street,” says Richard D'Aveni, a professor at Dartmouth's Tuck School
of Business.

But the coming labor shortage? The job boom? They're
myths, kept alive mostly because they allow employers easy solutions.
“A lot of companies got whacked around in the 1990s when the economy
heated up and the labor market tightened. They learned it's easier to
lobby for more Indian engineers on H-1B visas than to address their own
retention policies and training programs,” Cappelli says.

real solution, of course, is more difficult. It requires companies to
invest in the right technologies and in their own employees in order to
stay ever more productive. It's not as sexy as a demographic crutch. It
just happens to be the right answer.
[Fast Company]

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