A recession won’t solve the labour shortage: The marathon for talent
By Derek Dobson, CEO and plan manager, CAAT Pension Plan
As Canadian businesses continue to face staffing challenges, some believe the expected impending recession to be the solution.
Traditional views of labour economics suggest that market downturns create stickiness between workers and employers, dissuading resignations and aiding recruitment. Leaders would be mistaken to count on a recession to solve talent challenges.
Over the past three years, workers were exceedingly mobile despite unprecedented financial volatility and social uncertainty. Undeterred, recent surveys suggest that as many as half of all Canadians plan to find new work this year.
Through our networks of business leaders, researchers and economists, the Conference Board of Canada’s Dr. Susan Black and I have studied the real financial and business impacts of the marathon for talent, which we explored in a recent virtual fireside chat. Recession or none, the competition for skilled talent will continue to heat without a cooldown on the foreseeable horizon – the demographic trends are too strong a force.
Bottom line of the talent gap
The emerging underlying theme of the labour shortage is that generational, structural and cultural changes in the workforce are driving the talent crisis. Fundamental shifts comprise of:
- a widening skills and technology gap that can’t be filled quickly,
- waves of retiring stalwarts with institutional knowledge that can’t be transferred, and
- evolving employee expectations that require new workplace values to satisfy.
Canada’s labour market has a simple math problem: fewer workers are entering the workforce compared to those exiting, and a limited supply of candidates with the skills needed for the future. Draining the pool further, the remaining qualified candidates expect more from employers, including benefits, retirement plans and flexible work.
My advice to leaders is to start with retaining the talent you already have. If you don’t fix the retention issue, then all those other issues get a lot bigger and more complicated.
Short-term solutions to structural problems don’t last
The “war for talent” was coined by consulting firm McKinsey in the late 1990s to refer to the fierce competition in advanced economies to attract and retain employees at a time when too few workers were available to replace the retiring baby boomers. Over 20 years later, the competition wages on.
In Canada alone, studies estimate that one in five workers will retire next year or two, varying by sector. This includes a record number of early retirees (those between ages 55 and 64) opting out of the workforce. Demographers predict that there will only be four candidates for every five jobs in the future, leaving open vacancies that account for $25 billion or 1.3 per cent in lost GDP each year.
After years of change in workplace conditions, the scarcity of skilled workers across various sectors, including industrial and professional services, inhibits growth and the capability to rebound and take advantage of the economy’s reopening.
It also fuels burnout and weakens loyalty and retention of the existing workforce. Employees absorb higher workloads, lose productivity and become flight risks. With referral bonuses becoming the norm among talent-hungry companies, the loss of one disengaged, overstressed employee can quickly lead to departures across the organization.
Employers are mitigating resignations with pay increases or stay incentives as high as 30 to 40 per cent in some industries. A stay bonus is really a retention payment to show high performers that they’re valued and vital to the business. Retraining is costly and difficult to access. However, as some leaders see, the perpetuating effect of stay bonuses increases compensation costs and the widespread and unsustainable wage-price spiral. These short-term band-aid solutions chip at the bottom line and do not address the root issues.
Strategies to retain for the future
The core of what employees want is to be paid fairly, to have career mobility to grow their role, and to feel respected and included. Leaders who grasp these values and adjust the employee value proposition based on the business model will have a pole position in the talent marathon in 2023 and beyond.
One key focus for leaders has been retaining talent, particularly with increased wages and salaries. Approaching pay as total compensation that includes better benefits, retirement plans and upskilling reimbursements can be more efficient for employers and more meaningful for employees. Combined with an integrated employee experience from day one at orientation, these investments are long-term programmatic changes that can really help position the organization for better retention and more success, because it is going to be even more competitive to get talent now.
Leading a virtual-first company, Dr. Susan Black articulates that Canadians will continue to expect flexible work arrangements. For essential roles with limited capacity to support remote or flexible work options, leaders can overcome the ‘front-line flexibility dilemma’ by dialing up the stay factor through other desirable elements of the employee experience, such as workplace wellness programs.
Leaders benefit by sharing experiences, being open to failure and succeeding together. The fireside chat explores many themes and trends from discussions with broad networks of business and thought leaders. It emphasizes that now is the moment of opportunity to begin evaluating and evolving organizations to adapt to structural changes of the labour market.
The sheer scale of the skills gap, generational turnover and cultural expectations driving the labour shortage requires sustainable and experimental strategies to solve. Organizations that successfully eke out the global competition for talent will be those that test, iterate, adjust and repeat.
Derek Dobson has more than 30 years of experience in the pension industry and consults with employers of all sizes in Canada. He leads one of Canada’s highest performing defined benefit pension plans for private, non-profit and broader public sector employers.
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