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Nothing Seems to Be Clicking

Experts predict that the hiring drought, which has overtaken the U.S. employment landscape over the past few years, will continue in 2012 as companies are still cautious about the recovery.

December 5, 2011
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Related Topics: Top Stories - Frontpage, Layoffs, Growth, Mergers and Acquisitions, Workforce Planning, Compensation, Talent Management
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Glance across today's business landscape and it's apparent that the employment picture is incredibly jumbled and chaotic. On one hand, U.S. unemployment sits at about 9 percent as companies across many industries simply aren't hiring.

On the other hand, organizations complain they can't find the talent they require—particularly in critical skill areas—to fill open positions. "The recovery is slow and volatile. The economy is undergoing significant and lasting changes," says Laura Sejen, global practice leader at Towers Watson & Co.

As organizations prepare for 2012, it's clear that navigating this business and employment environment presents many of the same challenges they faced heading into 2011. Companies hesitate to pull the trigger on hiring new workers, though there's the possibility that waiting too long means losing a competitive edge. If and when companies do add staff, it's also likely they will wind up paying more for talent.

"A great deal of uncertainty and caution exists about how to approach employment issues," says Jonas Prising, president of ManpowerGroup, the Americas. "Unfortunately, there's no reason to expect any significant upturn or change in 2012."

The November job report from the U.S. Labor Department, which showed a net gain of 104,000 workers in the private sector, was not large enough to make any significant impact on the unemployment rate. John Challenger, CEO of global outplacement firm Challenger, Gray & Christmas Inc., describes the situation as neither cause for disappointment nor celebration. He says that it was "just another month of slow job growth," a trend that's likely to continue well into 2012.

Moreover, bickering in Washington over political policies isn't helping to solve the problem. "There is not much anyone in Washington can do to ignite job growth, short of [injecting] trillions of dollars in additional stimulus spending into the economy. Tax breaks, fewer regulations and easy access to low-interest loans are all meaningless if no one is buying a company's products," Challenger says.

The current economic and employment situation is especially obvious on the front lines of manufacturing. Appliance-maker Whirlpool Corp. announced plans to cut 5,000 jobs in late October—about 10 percent of its workforce in North America and Europe—as a result of lower product demand and higher costs for materials.

Overall, the manufacturing sector accounted for 25 percent of all mass layoff events (involving 50 employees or more) in September, according to the U.S. Bureau of Labor Statistics. In many cases, companies have invested more in equipment and information technology systems than people over the past few years.

There are exceptions. For example, Peoria, Illinois-based Caterpillar Inc., added 7,117 employees in the third quarter of 2011. That amounted to a 35.1 percent increase.

However, an October survey of national hiring trends by the Society for Human Resource Management reports that hiring in the manufacturing sector will rise by just 1.1 percent on an annual basis. Other sectors are treading water, as well.

For instance, hiring in the service sector will decrease by 10.4 percent on an annualized basis, according to SHRM. Yet, layoffs and slow hiring are only part of the story. The same study found that organizations face growing difficulty recruiting, and many see their organizations increasing overall compensation in 2012 and beyond.

Jennifer Schramm, manager of workplace trends and forecasting at SHRM, says that the situation "suggests that employers are having difficulty connecting with job seekers that possess the skills they are looking for."

The upshot? An increase in HR professionals reporting a bump in new-hire compensation. Schramm says that the uptick "is small but noteworthy given the weak economy" and that it is in part because of increased difficulty in recruiting.

Towers Watson's 2011/2012 Talent Management and Rewards Survey, North America provides further insight into this dichotomy. It found that nearly 6 in 10 companies are struggling to attract critical-skill employees.

And while only 11 percent say they're having trouble retaining employees, those struggling to keep critical-skill workers increased by 5 percentage points in the U.S. to 36 percent and 4 percentage points in Canada to 39 percent since 2010.

The overall numbers and averages mask a deeper issue. ManpowerGroup's Prising points out that individuals with college degrees or highly specialized skills face low unemployment rates (4.2 percent in September for those with an undergraduate degree, according to the BLS) while individuals with less than a high school diploma are facing an unemployment rate of 14.3 percent and high school grads are at 10 percent. In fact, the employment rate for 16- to 24-year-olds dropped to 48.8 percent in July, the lowest percentage ever recorded. Analysts such as Sejen see the problem getting worse in 2012. "Lower-skill workers are in ample supply and there isn't sufficient job growth to absorb them. There is a talent-skills mismatch in the economy," she says.

Indeed, colleges and universities are turning out fewer graduates in the science, technology and mathematics fields, and tighter restrictions on H1-B visas, which began in 2003, have made it increasingly difficult for organizations to import talent.

The U.S. gross domestic product is expected to grow by about 2.7 percent in 2012. That compares with 2.9 percent in 2010 and 2.5 percent in the third quarter of 2011. That's not enough to reduce unemployment, Sejen says. However, some companies are stepping up hiring. Consulting firm Ernst & Young will reportedly hire 9,000 students from the Americas, and Enterprise Rent-a-Car plans to add 8,500 college graduates. Employers surveyed by the National Association of Colleges and Employers report that they plan to hire 9.5 percent more graduates from the Class of 2012 than the previous year.

PNC Financial Services Group is among the companies hiring and acquiring talent as the economy emerges from the long shadow of recession. Jillian Snavley, vice president and senior recruiting manager, says that the bank is sorting through mergers and acquisitions while continuing to expand.

The company won't divulge numbers, but Chicago-based online job board CareerBuilder.com recently estimated that PNC is hiring for more than 1,000 positions, adding to its 52,000 employees in the United States and abroad. Snavley says that technology and the economy have contributed to changes in recruiting and hiring. The company is increasingly turning to social networking and audio screening tools. For senior positions, "The use of headhunters is becoming outdated," she says.

At Red Hat Inc. based in Raleigh, North Carolina, hiring is also in full swing, says L.J. Brock, vice president of talent acquisition. Because the company is in the superhot open-source software area of the tech sector, "For someone with the right skills in enterprise software, there's virtually zero unemployment."

And like PNC, it is moving away from conventional hiring models and adopting an approach that centers on social media. "We're leveraging these tools to identify candidates and proactively reach out to them," Brock says.

Patrick Tomlinson, senior vice president at Lincolnshire, Illinois-based Aon Hewitt, says that it's critical to prepare for the unknown in the current business environment. He expects a continued economic malaise and a growing need to conduct detailed workforce planning.

Towers Watson's Sejen says that companies must begin to detach their thinking from the effects of a lingering recession. For example, longer work hours—Towers Watson found earlier this year that 65 percent of employers report that workers are putting in more hours than normal over the past three years—threaten to derail productivity.

"Fatigue and work-related stress will eventually set in and affect morale," she says. "In many cases, the people who are the most skilled and valuable have the most options, and they know they can walk."

At the same time, companies have sharply reduced their merit-increase budgets—a trend that began in 2007. Although the strategy has helped reduce costs and aided employers in remaining profitable, it too could have a long-term detrimental affect on productivity, Sejen says.

In fact, Towers Watson found that organizations report declines in employee productivity, quality, customer service and overall engagement in the past year. The consulting firm concluded that although over the past few years 10 million fewer people annually left their organizations voluntarily, that rate is likely to increase by at least 45 percent when the economy returns to normal.

The situation has contributed to many organizations using part-time employees and a contingent workforce to amp up flexibility. The BLS hasn't compiled a comprehensive study on the use of contingent workers since 2005—when they made up somewhere between 1.4 percent and 4.1 percent of the total workforce—but it's clear that the trend is appealing.

A 2011 study conducted by Workforce Management sister company Staffing Industry Analysts found that 74 percent of organizations would not consider hiring permanent workers as an alternative to taking on agency workers. Jon Osborne, vice president of research, says that revenue associated with the use of temporary workers declined by 25 percent in 2009, snapped back to a 12 percent growth rate in 2010 and a 12 percent increase in 2011, and is projected to grow by 7 percent in 2012.

"Few buyers plan to cut contingent labor over the next few years but the one X-factor is another recession," Osborne says.

It's not unusual for the first hires out of a recession to be contingent workers. "Many organizations are reluctant to take on more employees and the associated benefits," Sejen says.

ManpowerGroup's Prising says that organizations can rapidly detect changes in business conditions to dial up and down employment levels.

"In some cases, we see organizations moving from full-hiring mode to a freeze within 48 hours," he says. "They can tell almost immediately when there is a slight softening of the economy or slackening demand for workers."

Samuel Greengard is a freelance writer based in West Linn, Oregon. To comment, email editors@workforce.com.

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