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The Coming Labor Glut: Implications for job seekers, employees, employers, and investors

By Marty Nemko

A welter of recent books are predicting a U.S. labor shortage, for example, Get 'em While They're Hot : How to Attract, Develop, and Retain Peak Performers in the Coming Labor Shortage, Lost Knowledge: Confronting the Threat of an Aging Workforce, Workforce Wakeup Call, and most well known, Ken Dychtwald’s Workforce Crisis: How to Beat the Coming Shortage of Skills And Talent.

I believe these books underestimate six factors that make a shortage unlikely:

1. Corporate downsizing has only just begun. Corporations are realizing that infrastructure--big central and regional offices, staffed with legions of managers--are unnecessary. Those companies are seeing nimble new organizations compete well with the big guys. For example, the new book, The Starfish and the Spider: the unstoppable power of leadership organizations points out how infrastructure-light companies like Skype, Wikipedia, and Craigslist are beating megacorporations because of their small staffs. For example, Craiglist has taken away huge market share of newspapers’ classified ad revenues. Many experts predict that corporations have gotten as lean as they can be. I don’t agree: I believe the downsizing has only just begun. 2. It’s becoming ever more cost-effective to replace employees with technology. Why? Because technology is becoming ever better and cheaper while employees are becoming ever more expensive: not just because of the much discussed increases in health care costs but because the number of employee lawsuits for sex and race discrimination--incredibly stressful both in dollar and human costs--continue to rise. 3. Ever more just-in-time hiring. Even trailing-edge companies now realize that they need few employees 52 weeks a year, year after year. Not many employees have a skill set so current and so important every week of the year to justify paying them for all 52 weeks, not to mention the expensive benefit package that permanent employees expect. Employers know that many full-time employees spend part of their year marking time during slow periods, contributing less than what the company is paying them. So, employers are deeming it wiser to hire on a just-in-time basis: hire people with the skill set needed for a particular project, on a contract that expires when the project is complete. That way the employer is not paying employees when there is no work to be done. When the next project comes up, the employer hires people with the right skill set for that project. The result of just-in-time hiring, of course, is a smaller workforce. 4. Global hiring is ever more desirable. Ever more jobs can be done from home, so employers can recruit worldwide. Thanks to the Internet and companies that assist in offshore hiring such as Infosys and Tata, an employer in New York can easily recruit the best talent in the world, whether it be a home-bound quadriplegic in Manhattan, a 16-year old in Israel, or 10,000 engineers in India. And because all those people will be competing for a position--not merely those who answer an ad in the local newspaper as in the old days--not only does worldwide recruiting avoid a shortage of applicants, those applicants won’t be as expensive to hire. The U.S. government is wringing its hands about the lack of science and math graduates. Fact is, that will not put U.S. companies at a disadvantage. There are so many science and math graduates in the megacountries of India and China that U.S. companies can find most of the help they need abroad. 5. Illegal immigration will ensure a supply of low-level workers. America seems to have decided to not get serious about enforcing its borders. So the ever accelerating influx of illegal immigrants will provide all the cheap labor the U.S. needs. 6. The boomers are not retiring in the predicted numbers, some because they haven’t saved enough for retirement, others because want to keep working and can do so because they’re the healthiest aging population in history (Hence the cliché, today’s 60 is the previous generation’s 50) Retiring to the golf course has become passé. If my analysis is correct--that the U.S. is likely, at least for the next decade, to have a labor glut--what are the takeaways? Employees and job seekers: Your negotiating power is eroding. You better be a star or you’re vulnerable to salary cuts and downsizing. I believe that, for many people, a wise move is to learn how to start your own business so you can use the employee glut to your advantage. Rather than an M.B.A., get more practical help for free through the workshops, mentors, and online advice offered by the Small Business Administration ( Employers: Learn how to attract the best talent, including those who can’t show up to your office even for the interview: the aforementioned paraplegic, the genius in Appalachia, and of course, the still largely untapped talent that resides outside the U.S. For example, the population of India and China alone is eight times that of the United States! And their populations are notable not just for their low cost of hiring, but their work ethic and intelligence. With regard to the latter point, the term “educated” rather than “intelligent” is normally used to explain Chinese and Indian high achievement, but fact is, India spends half of what the U.S. does per capita on education. China spends just one-third. Some of the disparity is explained by the fact that those countries educate a smaller percentage of their population and don’t spend what we do on special-needs students, but that statistic certainly makes clear that education isn’t the magic pill we like to think it is. For U.S. consumers: U.S. companies still seem to have an edge in innovation and in cost control. Those should conflate to result in better products and lower prices for U.S. residents.

For U.S. investors: As you consider where to invest your money, I believe there’s no need to look to volatile Chinese or Indian stocks, where reporting requirements are flimsier than in the U.S. I believe that investing long-term in a market basket of blue-chip U.S. companies (for example, an index fund of the Dow Jones 30 or S&P 500) should pay off, as those companies reap the profits and productivity that come from ever improving technology and use of a worldwide labor force.

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