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Are You Prepared For The ‘Labor Cliff’?

Person looking over a cliff
As soon as next year, the labor market will compress further causing acute shortages of workers across industries. Three ways to get ahead of it.

For four years, companies have been put through the wringer as early retirements and the Great Resignation put a lid on the number of people in the labor force. The unemployment rate has been less than 4% for two years, even as higher interest rates slow the economy. It remains a job seeker’s market, and a lucrative one at that.

For many organizations, relief is not likely. A widely anticipated drop in rates later this year and a virtual halt in legal immigration are expected to further heat up the job market. Companies can opt to raise wages, which has been done to recruit and retain workers, but there’s only so much they can spend.

All that said, the situation is about to get worse as the U.S. barrels toward what I call the labor cliff. As soon as next year, the labor market will compress further causing acute shortages of workers across industries.

In addition to the peak in retirement among Baby Boomers, at a rate of more than 10,000 a day, fewer young people are attending college, depriving companies of talent in an increasingly complex and technological world.

So far, companies have been addressing labor shortages with the equivalent of Band-Aids, such as juicier perks, hiring nontraditional workers, promoting from within and the like.

But what’s required is structural change because today’s dynamic in the labor market is at least as significant as when computers and the internet were first widely adopted. It turns out that employment trends that started during the pandemic weren’t transitory—they’re here to stay.

Business leaders need to get in front of this challenge. This is what I would tell them:

1. Invest in AI. More precisely, a skills-inference plan. That sounds technical, but the concept is easily explained: Inference is the process that artificial intelligence uses to draw conclusions from new data. And you will need robust data about your company rather than industry data.

Keep in mind that AI isn’t being used to simply find workers with the right skills. Instead, it’s being unleashed company-wide to focus on, and validate, worker capabilities that will enable people to move into jobs, be they outside hires or promotions. Simply put, it’s a highly efficient way to match skills to jobs.

AI is superior to what I call traditional validators—a college degree or a manager’s opinion. It was once thought that a college degree conferred skills or expertise on a person. We now know that there’s a weak correlation between a degree and the right fit for a job. Bias and even discrimination can cloud a manager’s judgment. AI, in contrast, gives you clean, updated data in real time.

2. Get the word out. Tell all your teams—from top to bottom—that they need to make investments in talent before the need arises. That is, prepare for the future. Getting managers and employees to go along with the program will require steady and sustained effort. Stakeholders including investors must be notified about the extra investment, as it’s unusual to ramp up hiring efforts without a corresponding rise in demand for products or services.

The CEO and the rest of the C-suite need to do the heavy lifting here. HR, of course, plays a role, but it’s the top brass’s job to inform and explain to staff that there’s been a fundamental change in how the company hires, trains, and promotes employees.

3. Build networks. Create private pathways to tap talent pools wherever they may be. Job fairs and ads are too passive an endeavor—you can’t wait for prospective employees to come to you. As I touched upon in point No. 2, company leaders need to start thinking in time frames that are at least one year into the future.

Remember, also, that current employees are also prospective employees—for other roles within the company. The advent of AI in companies means that lower-level work will be automated, creating positions higher up that will require more skills or expertise. So, the hunt for talent continues unabated, regardless of robots or other technological help.

Companies that ignore the pending labor cliff face potentially severe consequences. Picture the dominoes that might fall: Open positions mean some projects don’t get done and, therefore, revenue is lost and profits fall. That scenario might lead to layoffs, of all things. But that’s the reality of business.

As businesses navigate the precipice of the labor cliff, those embracing innovation and foresight have a good chance to weather the storm, while others risk being swept away by the consequences of inaction.


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