The Supply Side of Labor: HR Must Be Ready to Steer

Organizations to the Future

Thomas D. Cairns
2010 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com). DOI 10.1002/ert.20303
E
conomist and Nobel Prize winner Paul
Samuelson is credited with having stated
that the stock market has predicted seven of
the last three recessions, and his joke has
been widely circulated as economists have
tried to forecast the end of the Great Reces-
sion, the direction of the stock market, and
other aspects of the U.S. economy. This state-
ment suggests the difficulty in accurately
interpreting key economic indicators. The
same difficulty exists for experts who try to
understand and predict workforce trends.
Since the start of the twenty-first century,
human resource professionals have been pre-
dicting a huge exodus of workers through
retirementwhat we characterize here as a
retirement tsunamibased on analysis of
an aging baby boomer generationthose
born postWorld War II (1946) and up to
1964. This retirement tsunami will affect all
industries and all business sectors of all
sizes.
The normal retirement age in the United
States is 65, although many pension plans
allow employees to retire early at age 60 and
in some instances even sooner (i.e., those
employed by the federal, state, and local gov-
ernments, as well as the military). Further,
many private organizations as well have
offered incentives for employees to retire
early. These factors and perhaps others have
resulted in an average retirement age of 62.
1
In 2008, the first wave of baby boomers,
nearly 3.4 million, reached age 62. Since
then approximately 10,000 baby boomers
attain age 62 every day, and that will con-
tinue until 2026. Over 50 percent of baby
boomers will achieve retirement age by 2018.
By the time the retirement tsunami is over,
76 million boomers will have attained age 62
and represent at least 35 percent of the total
U.S. population.
2
A new wave of energy was introduced
into the U.S. population through the passing
of the Immigration and Nationality Act of
1965. This wave of immigration that has
been growing may serve to dissipate the
expected retirement tsunami. The passing of
this law has resulted in over 36 million peo-
ple immigrating to the United States, a figure
equal to almost half of the baby boomer pop-
ulation. By the end of the twenty-first cen-
tury, immigration is expected to account for
over 70 percent of the growth in the U.S.
population. Without the immigrants and
their descendants, there would be a decline
in U.S. population.
3
The aging workforce and growth in the
U.S. population due to immigration will
intensify HR management issues, such as
talent acquisition, retention, employee
engagement, talent development, succession
planning, health and pension benefits, and
managing a diverse workforce. The expected
1
Employment Relations Today
retirement tsunami and immigration wave
should compel employers to rethink their
human resource management programs, poli-
cies, and practices
4
and consider the effect
the expected retirement tsunami and immi-
gration wave will have on the supply and
demand for talent and future HR manage-
ment strategies.
LABOR SUPPLY AND DEMAND
The war for talent (for purposes of this arti-
cle, talent and labor are synonymous) revolves
around supply and demand. There are simi-
larities and differences in how the concepts
of supply and demand apply in the market-
place and in the workplace.
Economics 101
In the marketplace, the supply and demand
of products and services are moderated by
price. Assuming all things are equal and no
special factors enter into the equation, the
amount of a product or service supplied is
determined by the price of that product or
service. The higher the price, the more prod-
ucts or services will be supplied; the lower
the price, the fewer products or services will
be supplied. The demand for products or ser-
vices is also moderated by price but in oppo-
sition to the way price affects supply (i.e., the
Thomas D. Cairns
Employment Relations Today DOI 10.1002/ert
2
higher the price of products or services,
the fewer products and services will be
demanded and vice versa). When the supply
matches the demand for products and ser-
vices, the market for those products and ser-
vices is considered to be in equilibrium.
However, there is also the concept of scarcity
that comes into play.
5
The concept of scarcity in economics is
that demand will exceed supply if the avail-
ability of products or services is limited.
Products and services become scarce if the
resources to produce themsuch as land or
the natural resources associated with the
landare finite. This constraint requires
choices in how to use or manage limited
resources through, for example, pricing or
trade.
The supply and demand for talent follow
the same basic tenets of supply and demand
for products or services. However, the supply
and demand for talent (number of people
available for employment versus the number
of positions or jobs available) are affected by
wages (instead of prices). Generally, the sup-
ply of talent will increase as wages increase
and vice versa. The demand for talent will
decrease as the cost (wages) of talent
increases and vice versa. But other factors
enter into the supply and demand of labor.
The supply of talent is moderated also by the
skills required to meet the demand, and the
skill sets required will also affect wages (or
cost of talent). Further, the concept of
scarcity may be affected by the previously
mentioned retirement tsunami and immigra-
tion wave.
Talent Shortage or Surplus?
In most organizations, downsizing, rightsizing,
restructuring, reorganizing, and reengineering
The supply and demand for talent follow the
same basic tenets of supply and demand for
products or services. However, the supply and
demand for talent (number of people available
for employment versus the number of positions
or jobs available) are affected by wages
(instead of prices).
Fall 2010
are common management practices driven by
marketplace realities. The need to cut costs
has focused on cutting labor costs, which has
decreased labor demand and created a labor
surplus. Technology has driven down the
demand for labor as well by automating
many job functions and eliminating many
previously available jobs.
To address the decrease in the demand
for talent, many employers have endeavored
to soften the impact of labor cuts on the
workforce by offering eligible employees
early retirements. Baby boomers were the
age group most affected by recent early-
retirement incentives, which may have
helped reduce the average retirement age to
62. However, after accepting early retire-
ment, many boomers went to work for other
companies. Thus, the demand for talent with
high-level skills was still being met, and it
seemed that no noticeable shortage of talent
occurred.
One could argue that baby boomers will
remain in the workforce in some capacity
postretirement. This is a plausible position
considering a struggling economy and other
factors such as people living longer, uncer-
tainty concerning Social Security funding,
shrinking investments, and so forth. Accord-
ing to a study of 1,500 workers ages 45 to 74,
69 percent planned to work in some capacity
during their retirement years.
6
However, the majority of support for the
view that there will be no shortage in talent
is found in a study published in 2008.
7
Pro-
fessors in the economics departments of
Harvard University, Northeastern University,
the University of Texas at Austin, and Syra-
cuse University analyzed 35 sectors of the
U.S. economy, from agriculture to general
government. The researchers concluded that
while the population is aging, there is a
The Supply Side of Labor
Employment Relations Today DOI 10.1002/ert
3
corresponding growth in the population,
albeit a moderate growth, that will be suffi-
cient to provide an adequate supply of labor
well into the 21st century, although that sup-
ply would likely vary by industry sector. In
addition, they reported that changes in tech-
nology would continue to decrease the
demand for labor but not to a significant
degree because there will be a need for labor
to use the technology in the performance of
their jobs. Finally, the study projects that
growth in productivity will be less than the
productivity growth experienced from 1960
to 2004.
Another factor that supports the position
of no labor shortage is the U.S. rate of unem-
ployment (at 9.5 percent in the July 30, 2010,
Bureau of Labor Statistics report,
8
with some
economic forecasts for higher rates by year
end). The fact that about 14.6 million people
in the United States were unemployed as of
June 2010 suggests that there may be a sur-
plus of workers available for employment.
The cumulative effect of current unem-
ployment, continued staff reductions, moder-
ate population growth, and changing technol-
ogy may suggest that the expected retirement
tsunami presents a low to moderate risk for a
talent shortage. However, it is counterintu-
itive to expect that one-third of the U.S. pop-
ulation leaving the workforce will not result
in a labor shortage.
Other data suggest that an immigration
wave may dissipate the effect of the retirement
Baby boomers were the age group most
affected by recent early-retirement incentives,
which may have helped reduce the average
retirement age to 62. However, after accepting
early retirement, many boomers went to work
for other companies.
Employment Relations Today
tsunami. It is quite possible the immigration
wave could become an immigration tsunami.
To demonstrate the magnitude of this possibil-
ity, consider that approximately 33 million peo-
ple immigrated to the United States in the 100
years preceding the passing of the Immigration
and Nationality Act of 1965. In the last 45
years, over 36 million people have immigrated
to the United States. This trend is expected to
continue, and by the end of the twenty-first
century, the population in the United States
may actually double. If the projected growth
occurs, the United States may actually experi-
ence overpopulation. This growth would most
likely result in a labor surplus,
9
at least on a
macro level, when considering only the num-
ber of workers available. However, on a micro
level, there may be a labor shortage, as the
supply of talent may not be the right talent for
every industry sector. Moreover, it is likely that
new industry sectors will emerge, others will
be eliminated, and there will be resulting shifts
in demand from one sector to another.
All of these variables make it difficult to
predict exactly how these two cataclysmic
eventsthe retirement tsunami and immigra-
tion wavewill affect labor supply and
demand. The probability is that the effects
will be dramaticregardless of whether the
result is a shortage or surplus of talent.
One thing seems certain: HR management
should be preparing for either eventuality.
STRATEGIC HR PLANNING
To address the challenges created by a retire-
ment tsunami and immigration wave, leaders
Thomas D. Cairns
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should insist that their organizations engage
in strategic human resource planning. Assur-
ing the organization has the right people, in
the right place, at the right time is tanta-
mount to achieving the organizations short-
and long-term goals and objectives.
For many organizations, the future is short-
term survival. However, while this daily battle
is fought, there must be a longer-term focus.
Even as racecar drivers speed around the
track, they also need to shift gears, brake,
accelerate, pass, and so on. That can only be
done by focusing on the track and checking
the dashboard for the future. In the same
way, organizations must also be able to stay
the course during unprecedented changing
conditions by keeping organization goals in
view and adeptly selecting the right levers
that will steer the organization to future suc-
cess. HR planning will be critical to helping
organizations win the race.
Every organizations management deter-
mines the number of employees that organiza-
tion needs to produce the products or services
of that entity. However, in practice it is more
a budgeting process than an HR planning pro-
cess. Organizations need to return to the fun-
damentals of human resource planning.
Assess the Internal Workforce to Identify
Gaps in Skills
An internal assessment of the workforce is
necessary to identify gaps between current
skills and skills needed in the future. It can
be an informal or formal process, and it
needs to be done on a recurring basis. It can
be as simple as identifying who does what,
how many are doing it, and whether it is nec-
essary that it be performed in the future.
An employer should begin with an assessment
of the impact of the projected demographic and
By the end of the twenty-first century, the popu-
lation in the United States may actually double.
Fall 2010
labor-market changes on its own workforce
and the resulting implications for the talent it
needs to execute its business strategy. By
understanding what talent the organization
will possess and what talent it will or will
not be able to obtain outside the organization,
a company can identify areas of vulnerability
and make the business case for addressing
them.
10
Organizations certainly assess the
strengths and weaknesses of their work-
forcebut usually in a performance context,
not in an HR planning perspective. Organiza-
tions also spend more time identifying gaps
in skills necessary for present performance
and less time focusing on the skills necessary
for the future. As gaps in skills are identified,
HR management must find ways to close
those gapsthrough succession planning, hir-
ing, training, and the like.
Most of what is labeled succession plan-
ning focuses on management-level employees.
However, management is a small percentage
of the workforce. Succession planning needs
to be expanded to include all levels in the
organization.
Most talent forecasting is done as the
result of employee turnover. Data from
employee turnover is used to project staffing
requirements; however, it can be used to
manage labor surpluses and prevent short-
ages. Gaps in employee satisfaction that are
identified earlier can be closed, thereby pre-
venting voluntary turnover and improving
employee engagement.
Retirements also create turnover and gaps
in current and future skills. Most organiza-
tions address retirement turnover as a staffing
decision. However, it is broader. An organiza-
tion may replace someone who retires, but
there is no way skill levels remain static. The
result is a skill shortage. Most organizations
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believe that such shortages cannot be avoided
and that on-the-job training and experience
will help balance things out. That is one
approach; another is to keep some retirees on
staff in some capacity. This is happening now
as an exception to policy, but in the future it
may become accepted as policy.
Assessing the External Environment
The external environment encompasses gov-
ernment influences, economic conditions,
geographic and competition issues, and work-
force changes.
11
An assessment is essential
in HR planning because all organizations
compete for talent in the same labor market.
The external environment needs to be evalu-
ated in the context of the effect it may have
on the organizations demand for talent.
For example, a shortage of skills exists in
the manufacturing industry. There are other
warnings of job shortages for other industries
such as information technology, global
energy, and electrical utilities. Skill shortages
are anticipated in the global competition for
managers, engineers, technicians, skilled
craftspeople, and frontline workers, as well as
other types of jobs that require a college
degree or technical education.
12
Additionally, reports like the Leading Indi-
cators in National Employment published by
the Society for Human Resource Manage-
ment can be used to project the hiring needs
for manufacturing and service industries on a
An internal assessment of the workforce is nec-
essary to identify gaps between current skills
and skills needed in the future. It can be an
informal or formal process, and it needs to be
done on a recurring basis.
Employment Relations Today
monthly basis. In July 2010, employment
needs were up 32 percent for manufacturing
jobs and 37 percent for service jobs. Further,
the anticipated difficulty of filling critical
positions was up approximately 20 percent.
13
Effective forecasting of human resource sup-
ply and demand will require an understanding
of the internal and external environments.
WHAT WORKERS WANT
It is a given that, at least for the short term,
the workforce will continue to age. Organiza-
tions can stave off some of the potential
damage from the retirement tsunami by cre-
ating policies, programs, and practices that
focus on acquiring and retaining mature
talent (i.e., workers age 50 and above). One
of the job characteristics this group values
most is greater flexibility, in the form of:
Work arrangements that include part-time,
shortened workweeks, or working for
blocks of time;
Special projects or challenging work;
Mentorship opportunities; and
Tailored rewards.
14
Another work arrangement that is gaining
attention is phased retirement, where
employees transition to retirement in a vari-
ety of ways, such as gradually reducing their
work hours or taking a leave of absence to
try out retirement.
15
However, if an organi-
zation really wants to let the air out of the
retirement tsunami, they should offer raison
dtre, an opportunity to make a significant
Thomas D. Cairns
Employment Relations Today DOI 10.1002/ert
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contribution to something bigger than the
paycheck.
16
Many employers have policies that cover
many of these flexible work arrangements.
Policy is not the problem. The problem is
application. Employees do not take advantage
of the policies because their jobs will not per-
mit it or they fear repercussions if they do.
This is changing, but more needs to be done
to promote flexible work arrangements as
standard practice.
JACK IS NIMBLE . . .
Mostly everyone knows the nursery rhyme
Jack be nimble, Jack be quick, Jack jump
over the candlestick. Without delving into
the origin of this rhyme, it is easy to imagine
why Jack would have to be nimble and quick
while jumping over the candlestick. Organi-
zations that are going to succeed in the
twenty-first century will have to be agile and
resilient and will need people like Jack who
are quick and nimble and able to adapt to
changing circumstances. The alternativea
lack of agilitywill result in both the organi-
zation and its employees getting burnedor
whatever result you prefer to complete the
metaphor.
The contribution that human resource
management makes to talent acquisition,
retention, employee engagement, talent
development, succession planning, health and
pension benefits, and managing a diverse
workforce is critical. Human resource
management needs to design an organization
structure and ensure human resource man-
agement programs, policies, and practices
that (as Susan M. Heathfield suggests):
Create a work environment without barri-
ers and hierarchical control that emphasizes
Effective forecasting of human resource supply
and demand will require an understanding of
the internal and external environments.
Fall 2010
empowerment and puts people directly into
contact with customers and suppliers;
Create flexible job descriptions that change
regularly to meet organization needs;
Provide opportunities for people to work
on cross-functional, even virtual, teams
that solve a problem or approach a new
opportunity;
Foster an environment in which diverse
ideas, training, and education that develop
individual capacity are the norm; and
Reward results and impact, not longevity
or seniority (and the reward should be fre-
quent and include sharing profits).
17
Some skeptics believe HR professionals do
not have the capability to add value at the
strategic level. Maybe that is why many are
still struggling to get a seat at the table. The
expected retirement tsunami and immigration
wave is an open invitation to provide evi-
dence of value. To assure success, organiza-
tions must engage in strategic HR planning,
and HR management must be ready with a
plan that can be adapted to whatever changes
the organization faces.
NOTES
1. Hewitt, J. (2010). What is the average retirement age in
America? Retrieved from http://www.ehow.com/about
_4618296_average-retirement-age-america_.html.
2. Baby Boomer Headquarters. (2010). The boomer stats.
Retrieved from http://www.bbhq.com/bomrstat.htm.
3. Ibid.
4. Rappaport, A., Bancroft, E., & Okum, L. (2003, January).
The aging workforce raises new talent management issues
for employers. Journal of Organizational Excellence, 23(1),
5566. Retrieved from ABI/INFORM Global (Document
ID: 446063511).
5. Roberts, N., Silva, E., Atwood, M., & Hatch, T. (2010).
Economics for dummies. Retrieved from http://www
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.strom.clemson.edu/becker/prtm320/economics_primer
.html#scarcity; International Society for Complexity,
Information, and Design. (n.d.). Economic scarcity.
Retrieved from http://www.iscid.org/encyclopedia/
Economic_Scarcity.
6. Cole, C. L., Gale, S. F., Greengard, S., Kiger, P. J.,
Lachnit, C., Raphael, T., Shuit, D., & Wiscombe, J. (2003,
June). Fast forward: 25 trends that will change the way
you do business. Workforce, 82(6), 4356. Retrieved from
ABI/INFORM Global (Document ID: 350517251).
7. Jorgenson, D., Goettle, R., Ho, M., Slesnick, D., &
Wilcoxen, P. (2008). U.S. labor supply and demand in the
long run. Journal of Policy Modeling, 30, 603618.
Retrieved from ABI/INFORM Global (Document ID:
1517884221).
8. http://www.bls.gov/eag/eag.us.htm.
9. Support US Population Stabilization. (2010). Population
numbers, projections, graphs and data. Retrieved from
http://www.susps.org/overview/numbers.html.
10. From baby boomer to ticking bomb. (2004). Human
Resource International Digest, 12, 2326.
11. Mathis, R. L., & Jackson, J. H. (2008). Human resource
management (12th ed.). Mason, OH: South-Western; p. 47.
12. See note 6.
13. Society for Human Resource Management. (2010). SHRM
leading indicators of national employment. Retrieved from
http://www.shrm.org/research/monthlyemploymentindices
/line/pages/default.aspx.
14. Harder, D. (2008, November). Employers ill-prepared to
woo mature workers. Canadian HR Reporter, 21(19), 1, 12.
Retrieved July 23, 2010, from ABI/INFORM Global (Docu-
ment ID: 1596694171).
15. Wiatrowski, W. J. (2001, April). Changing retirement age:
Ups and downs. Monthly Labor Review, 124(4), 312.
Retrieved from ABI/INFORM Global (Document ID:
73663450). See also Noble, P. F., & Harper, E. (2009,
Spring). Phased retirement for trying times. Employment
Relations Today, 36(1), 1725.
16. See note 14.
17. Heathfield, S. M. (2010). Are you ready for an agile future?
Retrieved from http://humanresources.about.com
/od/careerdevelopment/a/agile_business.htm.
Employment Relations Today
Thomas D. Cairns
Employment Relations Today DOI 10.1002/ert
8
Thomas D. Cairns, DBA, is the principal and chief career coach of Cairns Blaner Group,
a consulting company focused on delivering career-management strategies and services.
He is a career coach for the Graziadio School of Business at Pepperdine University and
adjunct professor of management at Azusa Pacific University. Previously, he served as
chief human capital officer for the U.S. Department of Homeland Security and senior vice
president of human resources for NBC Universal, a division of GE. He may be contacted
at tom@cairnsblaner.com.
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