Cappelli: No, HR, we don’t have a ‘labor shortage’ crisis

Employees are being blamed for a problem that has largely been created by employers.
By: | May 26, 2021 • 4 min read

Those of us who are a little older will remember that, within two years of the 2001 recession, there was much hand-wringing about the coming labor shortage, which was apparently obvious—except to those actually looking at the labor market. It never came.

More recently after the Great Recession, another set of hand-wringing was going on about a labor shortage, despite the fact that millions were still laid off. We stopped hearing that one even as hiring increased and the economy improved. There was no shortage.

Once again today, we hear stories about labor shortages as the economy begins to open up, even though 9.8 million are still unemployed and another 6.6 million want a job but stopped looking. Stop me if you know where this one is going.

What is happening in all these periods is that employers are trying to hire a lot of people to backfill their earlier layoffs, and they struggle to hire the people with the skills and experience they want fast enough at the wages they want to pay. That is not a labor shortage.

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Folks, anticipating our needs for talent and having a plan to meet them is the most basic talent management task for employers. It is a management responsibility, and it’s not easy to do. It is not a government responsibility to provide us with the workers we want at the price we want to pay.

This is a moment for a sharp “point of view” by the human resources field.

If you laid off your skilled and competent workforce during the pandemic, what did you think was going to happen when the shutdown was lifted? Where were you going to get a replacement workforce that meets all those criteria and do it quickly at the same time everyone else wants to do the same thing?  Please don’t say there was no choice but to lay off because the shutdown lasted so long. Most of the layoffs happened early on, when we expected the shutdown to end within a month or so. It cost very little, if anything, to keep those workers engaged on furlough.

See also: Bersin-4 ways HR can prepare now for the labor market change

Here’s a piece of research looking at the financial performance of companies connected to downsizing, published by Wayne Francis Cascio,  Arjun Chatrath and Rohan A. Christie-David in AOM Insights. They found that the longer companies kept their workforce together and avoided downsizing, the better their performance was because they could jump as soon as business picked up. Meanwhile, competitors who did deep layoffs struggled to assemble a new workforce. Those companies paid the price for short-sighted talent management, and that price is bigger than the savings from earlier layoffs.

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More than twice as many jobs were lost in 2020—22 million—as were lost in the Great Recession, a stunning number. A third of those very quickly came back by May and June of 2020 because they were on “furlough” or “temporary unemployment” with the expectation that they would be recalled. Their employer did not terminate their employment, and the government helped out by allowing those workers to receive unemployment insurance.

The complaint that unemployment insurance payments are preventing the unemployed from taking jobs does not have much merit, either. Two-and-a-half million of the unemployed—without a job and actively looking—are not receiving unemployment insurance, and another 6.6 million people who want a job but have stopped looking are not receiving it, either—nor are the 5.2 million who want a full-time job but are working part-time because they cannot find one. That is a lot of people—14.3 million—interested in jobs and not getting unemployment insurance versus 7.5 million who are receiving UI benefits. When we combine them, that’s just under 22 million potential job seekers against 8.1 million openings. Many of those people are not serious about getting a job, but many of those “openings” are not serious, either, in that the requirements or pay are unrealistic, the recruiting efforts are not serious and the companies aren’t interested in hiring people who are currently unemployed.

Read more insights from Peter Cappelli HERE.

We should also remember that unemployment insurance is not welfare. To be eligible, individuals need to have had a job and lost it through no fault of their own. One of the program’s goals is to allow job seekers to keep looking for a while so that they can find a job that fits their skills. The CPA does not have to take a job flipping burgers just because they cannot find an accounting job.  No doubt there are some people who won’t take even a good job until the day after their UI benefits end in July, but those people are knuckleheads as good jobs don’t come along all that often.

The problems employers are having now result in large part from earlier choices to prioritize the short-term savings from layoffs versus the longer-term benefits of a fast rebound. We should not have a lot of sympathy for that, and we shouldn’t try to blame this—as we always do—on the employees.

Peter Cappelli is HRE’s Talent Management columnist and a fellow of the National Academy of Human Resources. He is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School of the University of Pennsylvania in Philadelphia. He can be emailed at hreletters@lrp.com.