Cappelli: Where are all the workers?

By: | October 28, 2021
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.

The big problem dominating almost all conversations about the economy is still, where are the workers to fill all these vacant jobs? They didn’t disappear. So, why aren’t they applying for our jobs?

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Here’s what I find irritating about this discussion: Why are we assuming this is some problem with the employees? It is the same narrative that we heard after the Great Recession when the complaint was, why can’t we get workers with the right skill set to apply for our jobs? Or sometimes, why aren’t all employees more capable? Talent management is supposed to address problems like this, and it seems to have been dropped completely.

As we know, talent management is about estimating our human capital needs and having a plan to meet them. The real story of the current situation in the labor market is about the absence of talent management in organizations that did not think past the “cutting” decisions early on in the COVID-19 pandemic.

To see the issue, it helps to think about supply chains and the problems that are holding up the ability of individual producers, and ultimately the economy, to get going again. There are two things going on that are new, at least in this generation.

The first is that, because so many organizations outsource so much of what they do, problems with any crucial supplier will slow them down. The best-known example now is that the production of cars has slowed because car companies don’t make their own computer chips, and a shortfall of production among chip makers puts the car companies in trouble.

Got that. But why are the chip producers slow to get started again? They have their own suppliers who might have trouble getting started. But this problem has to start somewhere, right?

The second part of the problem has to do with inventory and capabilities. One of the mandates from the finance people in most companies has been to keep your own inventory of products down because they are costly just sitting on your shelves. When there is a bump up in orders, we have no inventory to meet them, so customers have to wait until we produce more.

See also: Fearing the Great Resignation? Focus on your people

The same logic applies to the supply of components to produce our products, where the mandate is also to keep those low. The biggest cost and, by far, the most important input in most operations is labor. The squeeze has been on for decades now to run as lean as possible on labor, to keep the equivalent of an inventory of supply really lean—no relief workers, delay filling vacancies and so forth. When we do start back up, it’s going to take us longer because we’ve cut back our own internal capabilities to save money. So, customers have to wait for us.

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That takes us to talent management and the supply chain of talent. Most all organizations, no matter what they think or say, have a very simple talent management process: Wait for a vacancy, then go outside and hire to fill it. If you don’t think so, check to see what percentage of your vacancies are filled from the outside labor market. The average figure across the economy has been about 70%-75%.

In the pandemic, the finance push was simple and the same advice that companies have increasingly followed in every downturn: Cut jobs early when the downturn starts, and cut hard. Sixty million people lost their jobs in the U.S. in March 2020 when the pandemic began. While many got their jobs back soon, millions did not.

Related: How can HR leaders ensure a safe, successful holiday hiring season?

If we are practicing talent management, though, we are also thinking about what we are going to do when the restrictions lift. I’ve written in previous columns about the research done by Wayne Cascio, Arjun Chatrath and Rohan Christie-David that documented that the slow restart following layoffs is, on average, so costly that it more than offsets any savings from the layoffs, per se.

Some, and maybe most, employers did not initially sever ties with employees completely. They were furloughed, which means they weren’t being paid, but they were not cut from the company roles, which made it easier to bring them back should they want to do so. That was a smart thing.

The problem came later on when we should have begun planning for a reopening. We learned that vaccines were coming almost a year ago and vaccinations began in December 2020, but few employers were planning to rebuild a workforce. Hiring barely budged—it actually dropped in January 2021. Not much was done to try to reconnect with laid-off employees. It wasn’t until late spring when restrictions began to lift and business was back that employers really felt the cost of having unfilled jobs and jumped into hiring.

Earlier in the pandemic, I talked about how many companies immediately cut their recruiters at the start of the crisis. A big complaint among employers now is that they do not have enough recruiters to go get the candidates, something that is slowing their restart and was also completely predictable.

So, here’s the question: When will we stop assuming that talent is like a public utility that we can simply turn on when we want at the price we want to pay? My sense is that, if anyone bothered to see what understaffing cost them in lost business, it might get some attention the next time around.

Read more insights from Peter Cappelli here.