The Rising Storm: Business Leaders Navigate America’s Labor Shortage

The United States workforce is growing very slowly, and what growth we have comes mostly from immigration rather than natural increase. Labor force participation has leveled off. Yet many business attitudes developed when labor was abundant. That is a message from Lightcast’s report, “The Rising Storm: Building a Future-Ready Workforce to Withstand the Looming Labor Shortage.” This excellent report summarizes where we are, where we are going, with advice for employers.

The key elements of our demographic future have been in place for years, and a few us have emphasized the importance of business leaders understanding how these changes necessitate new business practices.

The attitudes of business leaders are changing, and that’s the good news. In the era from 1970 through 2010, baby boomers and the early waves of their children entered their working years. At the same time, female participation in the labor force soared. Workers were in abundance.

Now, however, boomers are retiring. The generation that is now entering their working years is not greater than the exiting boomers. Even worse, many people of working age are not working. Some are beset by addiction or perhaps sheer laziness. Inheritances from boomers enable others to retire early. The pandemic heightened the labor shortage, as many retired early for health reasons and many stayed home to care for children whose schools were closed. The labor market is tight.

Business leaders have caught on to the trend, though finding solutions is difficult. Ron Hetrick, a co-author of the Lightcast report, spoke to me on a video call. He acknowledged that those who learned how to be managers during the era of labor abundance taught the next generation how to manage employees—poorly. But, Hetrick said, those lessons have been un-learned by the new business leaders. They get that we are in a long-term tight labor market.

Businesses are finding some solutions, Hetrick said. He mentioned “load management,” with an example from manufacturing. A factory’s orders may come in seasonally or with other variation over time. Companies pursuing lean inventory management would cut back staffing when orders were low, then ramp up when orders rebounded. Now, however, employees who have been laid off temporarily, or had their hours reduced, may not come back. Now businesses don’t vary production, but instead use the period of slow orders to ramp up inventory. They then work off the inventory when orders are strong.

That’s a great concept for goods, but manufacturing accounts for only eight percent of employment. Services are where most employees are. People underwriting insurance policies or bank loans cannot inventory paperwork for the crunch times. Hotel housekeepers cannot make extra beds for the future. And today’s diners don’t want yesterday’s french fries.

Some clever executives may come up with load management techniques outside of manufacturing. Perhaps fewer storewide sales and more targeted sales in different departments will become the norm. Perhaps more companies will offer discount for out-of-season purchases of services, as hotels routinely do. These methods will gradually emerge as executives confront the challenges of the tight labor force.

Some bright lights for employee productivity have emerged. Physicians and other health care providers are using AI-powered scribing technology to shorten the time they spend writing patient visit summaries. Robots are more capable than ever before. Many shoppers prefer self-checkout and pumping their own gas.

Hetrick, who is an economist specializing in labor markets, also commented on political policies. He said that the politicians he spoke to “get it” about the tight labor market, but they cannot openly say, “We don’t need more jobs.” It’s also hard for a candidate to tell general audiences that immigration should be loosened up. And it’s dangerous to tell the public that we should ease back from occupational licensing requirements in health care. If politicians understand the issues but won’t speak up, then the public doesn’t understand the issues.

I recommend using three broad strategies. Most important is increasing employee productivity. This can be attained not through driving workers harder but by providing better training, better tools and better management. The second strategy is improving employee retention, best accomplished by first-line managers who are coached and incented by senior leadership to make retention a priority. The third labor force strategy vital to the future is better employee recruiting, including recruiting those most likely to stick around.

Lightcast’s report makes a great place to start the labor strategy initiative.