The war for talent – we really need to do something different…

What we economists really like is when all of our high-brow theory and our clever calculations tell us something that we already knew. We take comfort from the fact that an approach that looks like it combines looking at chicken entrails and throwing an awful lot of Greek letters randomly at the wall comes up with an answer that was what we knew in the first place. We like our ‘art’ to mimic reality, and when it does, we can do clever things with models to tell you what might happen if things changed.

Now take my wife. Please take my wife. When the long suffering Mrs Hart was a little girl, her mother raised her on science fiction. These were dystopian ‘what if’ stories. What if one thing about today’s world changed – how would things pan out? Consider for a moment what would happen if you couldn’t find and keep good workers – what would that mean for your business?

Growth theory tells us that there is a relationship between economic growth and population and productivity growth (‘n’ plus ‘g’ plus ‘d’ plus ‘theta’ – for those of you that remember your Swan-Solow model). For you Marxists out there, the labour theory of value tells you that only labour matters in creating value and that goods change hands for about what the labour used to produce them cost.

This is a roundabout way of saying something that you, as business leaders, already know. Your employees are your best asset. Your knowledge and experience and economics are saying the same thing – without good people you don’t have a business. It’s not dystopian science fiction it’s a blindingly obvious truth, science fact if you like.

Finding good people is tough

But finding good people is tough, and at the moment it’s tougher than ever. The papers are full of it – a combination of a historical lack of training, some covid and technological changes to our economy, and Brexit, have led to some shortages. You’d be forgiven for thinking that this is a temporary blip, but sadly it’s not. Historically we’ve always had skills shortages, and there has always been a ‘war for talent’. There’s nothing new here, it’s just that imports of overseas labour papered over some of the cracks.

Let’s try a ‘what if’. What if these labour shortages weren’t temporary? What if there was a permanent shortage of workers in general, and skilled workers in particular? What if things were going to get worse? That would be a strategic threat to the continued existence of your business, let alone a hammer blow to your growth plans. You’d want to do what you could to mitigate that risk.

Well, without wanting to be too alarmist, that ‘what If’ scenario isn’t science fiction, its science fact if we don’t start to do things differently. Let me show you what I mean. But before I do let me just say that there is no chicken entrail stuff going on here, no clever forecasts – tomorrow’s workers are already born and being educated. All we are really doing is running the profile of the population forward.

So here’s the first part of our nightmare scenario – we are all getting older. Obviously, that’s a truism, and I remind myself of that every time I try to stand up without making a noise (yes I’m at that age). But, according to the UN, whilst the world population is getting older, Europe is the world’s oldest population, and is ageing faster than anywhere else – it’s a combination of lower fertility and higher longevity rates. The UN argue that its going to get worse beyond 2021 when Europe’s population starts to shrink. That in itself presents issues, but here’s the real problem – the workforce (people aged 20-65) is shrinking. In Europe it’s been declining since 2010. In 2020, there were 12m fewer working age people in Europe than in 2010, and the UN projects that by 2035 there will be about 50 million fewer.

There are going to be fewer workers

Problem 1 then is that there are going to be fewer workers. But that’s not all. A recent report by Mckinsey looked at how these demographics (they call them ‘megatrands’) and other trends like technology would impact on the workforce and employers demands for skilled workers. Circling back to our dystopian science fiction, it’s not a report that makes for pleasant reading.

So, at precisely the time when Europe’s workforce is shrinking according to McKinsey, its demand for jobs in the most skilled areas that will grow fastest. They project the fastest growth in demand (around 19% between 2017-2030) to be for those in the highest skill quintile. These are management level jobs, engineers, teachers and so on. These are jobs where there is already a shortage. So, we are forecasting that the biggest growth in demand, and where the most critical positions for businesses to succeed are, are those where there is already an acute shortage. That’s a troubling picture, but it gets worse.

A report by the Industrial Strategy Council in 2019 forecast acute skills shortages by 2030. For example, they forecast that by 2030 about 21 million workers—or two thirds of the workforce–might lack the necessary basic digital skills employers will need in 2030. Five million of those workers could be acutely underskilled in digital. More than 10 million workers could be underskilled in leadership and management, while a similar number could lack skills in decision making and advanced communications.

But that’s not the scary thing. We’ve known that this was coming for quite some time. Heres a quote from a Government report from way back in 2000: “The main areas of deficiency which were identified embraced a wide range of technical and practical skills and shortcomings in generic skill areas such as computer literacy, communication skills, problem-solving skills, and customer handling skills.”

So here’s our problem

The workforce is shrinking, the demand for highly skilled workers (those in the shortest supply) is growing, and what we are doing isn’t working. It’s pretty clear that we need to do something different.

So what’s the answer?

Well how about doing three simple things:

1. We need to bring more workers in – now that might mean workers from nations whose workforces aren’t shrinking. But it also means bringing those people who have traditionally had poor labour market experiences (eg ethnic minorities, people with disabilities, single parents, older workers) back into the workforce.
2. That means we have to look at recruitment, ways of working and retention differently;
   it’s clear that a poaching strategy wont work for all businesses, so we need a fresh approach to training. That means apprenticeships, career planning and development;
3. and finally, if we are going to really invest in training our people we will want to keep them, and that means a fresh look at retention schemes, career planning and progression and so on. Especially for the highly skilled, where the investment in greatest and who are the most mobile, we must ensure that the incentives are to stay rather than to leave.

We need a fresh approach

Sometimes, when the economics and business experience say the same thing, the picture is a not a rosy one. But what it’s telling us, is that if we want to avoid the twin problems of fewer workers and acute shortages of skilled workers – that we need a fresh approach, and we need one now.