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Staff shortage

Human Resources

Three solutions to acute labor shortages post-COVID

Published 16 September 2021 in Human Resources • 6 min read

In the early stages of the pandemic, carefully managing expenses and avoiding unemployment was a major concern for business leaders; more than 18 months after COVID struck, one key challenge for leaders in some industries is in fact the shortage of staff rather than a glut.

Tuesday’s UK employment data underscore a global trend of labor shortages reported in many European countries including Germany, France, Italy, the Netherlands, Scandinavia, and in the US across sectors such as hospitality, construction, health and social care.  

The number of job vacancies in the UK rose above one million in the three months to August for the first time since records began.  

Worker shortages in the UK, EU and US have been fueled by a potent combination of pandemic pressures. As economies reopen after prolonged lockdowns, employers are all hiring at the same time, but they are finding that many workers have either reskilled or decided to reskill, or are trading up for better pay and conditions.

The continued combination of generous unemployment benefits, health concerns and limited global mobility have all conspired to starve employers of workers, just as they begin to ramp up operations as COVID restrictions are loosened.  

An exodus to rural areas has also worsened the situation facing employers clustered in cities. So what steps should business leaders be taking now to fill critical job vacancies?

Go beyond pay and perks: build a culture of empathy 

Many businesses have sought to attract new talent by improving pay. This has been a major factor behind the recent surge in inflation across many advanced economies. 

The uptick in wage growth may well signal a new era for workers who are finally seeing their bargaining power strengthen after a prolonged period of wage stagnation across Europe, especially in the industries most affected by labor shortages.  

Business leaders should prepare to loosen the purse strings to attract the best and brightest in a tighter labor market.  

Other decision-makers have attempted to lure workers with workplace perks — from gyms and free meals to financial advice, flexible hours and unlimited vacation.  

Netflix, the streaming company, now urges staff to set their own working hours. Such benefits are, however, becoming table stakes in the war for talent.  

The younger generations in particular are fighting back against traditional cultures of long hours, a trend illustrated by a cadre of junior Goldman Sachs bankers who recently hit out at having to work a punishing 95-hour week.

Workers everywhere have become more attuned to the salient risk of burnout that has been greatly increased during Covid.

Corporate perks once focused on boosting productivity, but the focus is now on employee wellbeing as bosses attempt to create a more empathetic culture, one marked by leadership kindness instead of the command-and-control management styles of the past.  

Numerous studies show that employees don’t leave organizations; they leave terrible bosses.  

Meanwhile, flexibility in working practices has become a key battleground for hiring managers as lockdowns come to an end. Employers who attempt to mandate a return to the office in rigid ways risk an exodus of staff. The overwhelming preference is for hybrid working, and managers will need to lead by example. 

Invest in a home-grown workforce  

Covid ended a decade’s growth in global migration as borders closed and visa processing stalled, according to the OCED, an economic club of nations, which tracked the flow of migrants in 37 economies. Mobility is not expected to return for some time given the persistent travel restrictions.  

An outflow of migrants has been especially acute in the UK following its Brexit divorce with the EU, exacerbating labor shortages. Special visa schemes or labor mobility agreements between nations would help to ease these pressures, as could the rise in remote working.  

Some governments in central Europe made exceptions for migrants who worked in critical parts of their economies by extending visas for doctors, for instance, or arranging cross-border travel for medical care or agricultural workers. 

But it may be necessary for companies to reduce their dependency on migrant labor, which has increased with globalization, especially in southern European countries such as Italy, Spain, Greece and France that have high levels of youth unemployment, as well as the US.  

One approach has been to create apprenticeships in public-private partnerships between the state, education and business sectors, lowing the cost burden of training on employers. German-style apprenticeships have long been mooted as a solution to unemployment elsewhere in the EU.  

An example of efforts underway is the UK, which has since 2017 forced employers to invest in training the workforce through an apprenticeship levy. The scheme has been plagued with problems, but employers stand to benefit from investing in the training and development of the domestic workforce, particularly with demographic pressures and shrinking workforces in advanced economies as populations age.  

It’s worth noting, however, that apprenticeships do not always lend themselves to remote work: what the next generation of business leaders really value is mentorship, and that’s much easier to achieve in person.

Accelerate automation and artificial intelligence 

The sectors with the worst skills shortages and which are repetitive are also at the highest risk of automation that could displace human workers — low-paid and low-skilled jobs in manufacturing, retail and hospitability among other industries.  

Employers may look to automation to plug their staffing gaps, especially tasks that are more fraught during Covid, in particular in cleaning. The pandemic has boosted automation, with 67% of 800 executives surveyed by McKinsey last year accelerating its use along with artificial intelligence to ease cost pressures.  

During economic dips tighter margins tend to push organizations to improve productivity with fewer resources. It has long been assumed that manufacturing plants and distribution centers would take the brunt of the AI hit to jobs.  

But during Covid even service workers have found themselves under threat. Many restaurants have used QR codes for ordering, and retailers have installed more self-checkout kiosks that displace human cashiers, for instance. Such roles seem unlikely to return.  

That underscores the social responsibility of business leaders to ensure training is available for low-paid workers in highly automatable sectors who are unprepared to move into the new roles technology will create, along with advising government policy on education that would boost workforce development.   

 McKinsey has estimated that up to 375 million workers may need to switch occupations and be retrained by 2030, underscoring the scale of the challenge ahead

Authors

Bettina Büchel - IMD Professor

Bettina Büchel

Professor of Strategy and Organization at IMD

She has been Professor of Strategy and Organization at IMD since 2000. Her current research topics include strategy implementation, new business development, strategic alliances and change management. She is the Program Director of Internet of Things program.

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