Where Has the Workforce Gone?

RECORD JOB OPENINGS AND THE LOWEST PARTICIPATION RATE SINCE THE 1970’S; WHERE ARE THE EMPLOYEES?

Last year I wrote a blog entitled, “RECORD JOB OPENINGS AND THE LOWEST PARTICIPATION RATE SINCE THE 1970’S; WHERE ARE THE EMPLOYEES?” Based on recent conversations with major employers across the country, labor markets continue to tighten. Employers are wondering where their next workers will come from all the while discussing the need for significant expansion. Many employers are desperate to find workers who will show up each day on time and ready to work.

During a recent conversation with a local major employer, we discussed the possibility of alternative sources of workers. We discussed state level training programs currently in place in the correctional centers that allow inmates to complete training programs and procure nationally recognized certifications allowing them to transition into the workforce upon release. These are excellent programs designed to provide those transitioning into the workforce with a tangible asset to help them become more employable.

We also discussed a program offered by another state that is raising the bar for inmate training programs to another level. In this instance, companies are partnering with correctional centers to bring inmates to their facilities as a part of their current workforce. Inmates earn competitive wages, are responsible for the transportation costs to and from work each day and are learning to be a productive part of society. And the companies? The companies are gaining access to an untapped workforce. In many cases, companies are hiring inmates as they transition away from the correctional centers as well. In some cases, these new employees earn positions supervising/mentoring inmates that are currently enrolled in the programs.

During this same conversation, we discussed the company’s experience with hiring legal immigrants. While the company has had some success in this area and testifies to the quality of these employees, owners shared their difficulties in verifying legal status and tracking the proper paperwork. Even with participation in E-Verify, at the height of their immigrant employment, the company experienced a challenging setback and became very concerned about additional liability with this program.

By the way, all of these options are under consideration following multiple across the board wage increases in an effort to impact recruitment effectiveness. Why are these conversations important? This is the space that many of our employers are operating in each day. The constant grind to find quality employees to fill their open positions. So I pose the question again, “Where has the workforce gone?”

While there are a number of plausible explanations for this most recent shift, one idea in particular seems to be gaining in significance.  The gig economy. According to Lawrence Katz and Alan Kruger in their Working Paper entitled “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015” , the percentage of workers engaged in alternative work arrangements – defined as temporary help agency workers, on call workers, contract workers and independent contractors or freelancers – rose from 10.7 percent in February of 2005 to 15.8 percent in late 2015. In fact, according to the white paper, estimates indicated that 94% of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.

While there is much to discuss in this white paper regarding the gig economy in general, (we will save that for future blogs) two areas of particular interest for employers arise from the document.

First, are these workers satisfied with their alternative working arrangements? In other words, do they plan to reenter the traditional workforce? Answer: Yes and No. According to the study, more than 80% of independent contractors and freelancers continue to indicate they prefer such an arrangement to being an employee. In the contrast, the vast majority of those employed by temporary help agencies on temporary jobs would prefer a permanent job, and almost half of the on-call workers would rather have regularly scheduled hours. It appears that independent contractors and freelancers prefer being their own boss while most on-call workers and temporary help workers prefer more steady employment with regular hours.  This finding is confirmed in recent conversations with employers who indicate that they are having positive experiences in recruiting potential employees through temporary agencies.

Second, what caused this shift? According to the whitepaper a number of possible factors exist. From the worker, or supply side, a greater preference for alternative work arrangements as well as a desire for workplace flexibility are the key indicators. Company, or demand side, factors include potential growing efficiency gains to contracting out as well as increased rent shifting incentives. While the report indicates that additional research is needed to provide a more complete explanation, the authors did provide some leading explanations:

• Alternative work is more common among older and more highly educated workers and the workforce is becoming older and more educated over time
• Technological changes that lead to enhanced monitoring, standardized job tasks, and make information on worker reputation more widely available
• Fairness norms and morale considerations often motivate firms to share rents with their employees and create wage compression pressures within firm boundaries
• Finally, it is plausible that the dislocation caused by the Great Recession in 2007-2009 may have caused many workers to seek alternative work arrangements when traditional employment was not available.

Savvy employers are researching worker preferences and determining how alternative work arrangements can be a part of their employment practices to better engage their employees in the future. Savvy communities and economic developers are commissioning primary research reports to determine the preferences of the underemployed in their area in support of existing employers and those they are working to recruit to the area. Savvy workforce development/educational partners are working to identify employer needs and designing curriculum to train workers to meet those needs.

While many service oriented employers are finding advantages in recruiting and retaining quality employees through alternative work arrangements, this type of flexibility does not always exist for employers in other sectors like manufacturing. For instance, in many manufacturing facilities across the country, efficiencies are gained by 24/7 operations which require three shifts of employees to keep machinery and operations running consistently. These efficiencies are critical to margin. Flexible hours are more difficult to achieve and traditional shifts are all but required.

Pew Research Center data indicates that over 30% of American workers today are millennials. Additional data shows that millennials are highly motivated by experience. Recent surveys also indicate that a majority of college graduates are choosing where they want to live, moving there and then looking for a job in that community which is a stark contrast to their parents who searched for a job and moved where the job was located.

This recent shift in preference suggests that place making is critical for recruitment efforts. That said, it is incumbent upon communities, workforce partners and companies to work together to create an environment that is attractive to potential workers. Walkable downtowns, residential opportunities in historic buildings, boutique restaurants/shops, wineries/breweries and trail systems are among the desired community attributes. The U.S. Bureau of Labor Statistics reports that more than 20 million Americans actively choose part-time work to deliberately secure work-life balance and gain more flexible work hours.

Above all; technology, technology, technology. Technology makes it possible for some businesses to eliminate the traditional 9-to-5 schedule. Savvy business leaders are creating work environments that give employees more flexibility over their schedules, using technology to allow people to work when and where it works best for them. Creativity is essential for talent attraction in highly competitive labor markets.

Corey J Mehaffy, CEOWorkforce Intelligence for Growing Business GROWTHSERVICESGROUP.COM | 809 FOX RUN, MOBERLY MO 65270 | 660.353.1726

[1] Lawrence Katz and Alan Kruger, “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015” March 2016; https://krueger.princeton.edu/sites/default/files/akrueger/files/katz_krueger_cws_-_march_29_20165.pdf

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