The Silver Tsunami – The Real Cost Of Unfilled Positions
“I am convinced that nothing we do is more important than hiring and developing people. At the end of the day you bet on people, not on strategies.”
– Lawrence Bossidy, Former COO of GE and author
Contrary to conventional wisdom, I believe economic development professionals would better serve companies doing business in their community by focusing less attention on job creation and more attention on helping those companies get access to the skilled labor required to be competitive.
Overview of The Problem
Forbes: There Are 4 Million U.S. Job Openings
This number is only going to increase when you take a look at the baby boomer generation retirement rates. Fox Business wrote a very interesting article entitled “Older Boomers Jump Into Retirement”. The article highlights findings of a study conducted by the MetLife Mature Market Institute. One key finding is that the vast majority of baby boomers plan to retire fully by the time they reach 70-years of age. In fact, more than half (52%) of the 1946 boomers are already fully retired, and only 21% remain employed full time (the rest are either working part-time, self employed or are unemployed). Pew Research indicates 10,000 baby boomers will reach age 65 every day over the next two decades. For perspective, this trend started in 2011.
NY Times: More than 200,000 boomers exit the labor force each month
One comment in the NY Times article that caught my attention is “…you cannot repeal the aging of the boomers.” The point being that you need to deal with the statistics as they are and not assume boomers will stay longer in the labor market than their current behavior would indicate. Not only does this impact policy strategies (the main focus of the article), but it also impacts the dynamics of the labor market for companies in need of skilled workers. To make matters worse, I don’t believe it is simply a numbers game. It is also an experience game. While I don’t have the answer, a question that needs to be addressed is – “How many new entrants into the labor pool are required to replace the productivity of an experienced retiree?” In my opinion, CEOs have a real reason to worry about their company’s future competitiveness. Most will be losing experienced labor at an unprecedented rate. Undoubtedly their HR Directors will be scrambling to find access to replacement labor and the competition will be stiff.
Money: The Average Age of Retirement Among Those Already Retired is 59.5
Obviously, one reason for the early retirement was the global economic downturn and resultant early retirements (i.e. layoffs) that caught many older workers by surprise. I don’t believe the trend toward earlier retirement is going to necessarily change with an improving economy. But, even if more baby boomers stay in the workplace longer, the problem is simply delayed rather than solved.
SHRM: The Writing Has Been On The Wall For Awhile
The SHRM paper entitled “Concerns Growing over Workforce Retirements and Skills Gaps” positions the impending challenge well – “Corporate America must reinvest in its workforce and come up with creative ways to retain that massive amount of knowledge that will walk out the door as millions of Baby Boomers retire.”
Visions For HR: Companies May Struggle to Survive The Exodus of The Baby Boomers?
I think this statement from the article says a lot – “The optimistic belief that companies will be able to source talent from an unlimited supply of workers from developing countries cannot be supported in the long run. Talent shortages are happening everywhere, even in countries like China, India, Eastern Europe and South America, in fact, it is a worldwide phenomenon.”
The Real Need is Access To Top Talent
Whether you believe the problem will ultimately be solved by increased immigration, new programs to encourage baby boomers to remain longer in the workforce (even in a part-time capacity), or some other way, the fact remains that for the next few decades access to top talent will be a key priority for CEOs and their HR Directors. The big reason is the cost of an unfilled position to companies.
The economic development profession has historically tried to address this issue with training incentive programs. But, the incentive amounts pale in comparison to the actual cost a company incurs when a needed position remains vacant.
Dr. John Sullivan has authored a decent paper titled “The Cost of an Unfilled Opening” that helps explain how a company’s P&L is impacted when it cannot backfill gaps created by baby boomer retirements.
Dr. Sullivan writes – “These costs can be significant: anywhere from $7,000 dollars per day to $50,000 per day for an engineering position. Key leadership positions may cost as much as a million dollars per week. Couple these amounts with the fact that the length of many vacancies often exceeds 100 days, and you are talking about some serious financial impacts ($7,000 X 100 days = $700k).”
Is it any wonder Company executives appreciate, but are not overly impressed with training incentive amounts in the $5,000/employee range when they are incurring costs of $7,000/day (or greater) for their vacancies? Assuming the strings associated with training incentives are not too onerous, companies will always take the money. But, we should not be fooled into thinking that the Band-Aid we put on the bleeding artery is much help.
Help looks like designing and deploying strategies to allow companies doing business in your community to gain access to the top talent they need.
That brings us full circle to my opening statement. I believe economic development professionals would better serve companies doing business in their community by focusing less attention on job creation and more attention on helping those companies get access to the skilled labor required to be competitive.
One way to do this is to shift your focus from measuring job growth as a performance indicator to measuring your community’s impact to enable residents to achieve their American Dream. This will help drive the design and deployment of strategies that will help make your community a magnet for top talent and in turn, help your companies more easily deal with both the loss of employees to retirement and the creation of incremental jobs to support expansion.
How important do you think your CEOs feel access to top talent is? For companies with multiple location options that meet minimal project criteria, how differentiating would it be for your community to have a program that provides easy and cost-effective access to top talent? Do you believe strategies to help your community become a magnet for top talent will help businesses in your community be more successful?
Leave a comment with your thoughts.
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