Low Unemployment Is Causing a Staffing Drought Here's Your Survival Kit

November 1, 1996
Sure, you've probably faced some tough times staffing your organization in the past, times when you couldn't find exactly the right workers for one job or another, for one reason or another. But the words "labor wasteland" don't begin to describe the staffing shortage U.S. employers in every industry are currently facing. Not only are companies of all sizes already having an extremely difficult time finding qualified applicants, but the situation is bound to get worse. If the current pace of job growth continues, unemployment will soon drop to less than 5 percent, the level economists consider to be full employment.

Not even the words "evaporated employee sources" define the situation that's pressing onto HR's already full agenda, especially when you consider the following: The U.S. unemployment rate is at its lowest point in seven years—down from a high of 7.8 percent in June 1992 to a low of 5.1 percent this August; basic skills among potential employees have declined to nearly illiterate proportions; demographic changes have drastically limited the number of available workers; and to top it off, employers now require more advanced skills than ever, even of their lowest-level employees, because of staggering global competition. Add to this the fact that your HR colleagues are competing for the exact same people using the highest high-tech technology, aggressiveness and ingenuity, and you've got yourself a bona fide employment drought from which there seems no escape.

Although imminent danger of a workplace resembling nothing less than a Saharan desert looms, there is hope. Some employers already have weathered the staffing drought—and survived—but it's taking much more than a few isolated recruitment tricks or updated training techniques to overcome the problem. To combat the staffing shortage, HR professionals must roll up their sleeves and do some serious thinking about how they find, utilize and keep good employees.

Would you divvy out $10,000 for employee referrals? Would you hire people you've never seen? Would you steal away recently downsized workers? If you haven't asked yourself how far you will go to get the workers you need, brace yourself. You will. Especially since your colleagues already are utilizing such tactics, and more.

A close-up look at what's causing the labor shortage.
Here's the bad news: The current unemployment rate is 5.1 percent. Unfortunately, it isn't just a few industries that are facing low unemployment. From construction to utilities, and finance to manufacturing, recruiters in all industries are having fits. (See "U.S. Unemployment Declines 5 Years In a Row,".) And the worst news of all—two of your prime worker categories are experiencing even worse unemployment rates. The 25 to 54 age group (men and women) is currently at 4.1 percent unemployment, and the 55 and older age group is at 3.1 percent. No wonder HR is feeling parched.

Take Ann Rhoades, executive vice president of HR for Doubletree Hotels Corp. based in Phoenix. For her, the good old days of staffing meant that at any given time, at any of its hotels, there were just five open job slots out of 100 positions. Today, the number of unfilled jobs runs as high as 20. Multiply this by 180 hotels nationwide, and Rhoades well understands the meaning of the words "staffing drought." "I'm thrilled the unemployment rate is so low—for employees," Rhoades says. "But as an employer, I don't like it very much."

So what's causing the current labor shortage? Demographic changes, for one. Seventy-six million baby boomers entered the workplace years ago, building companies and creating jobs that the 50 million baby busters now coming into their own can't possibly fill.

Our healthy economy is also to blame. Despite all the talk about downsizing, there are plenty of jobs to go around thanks to all the displaced workers who took fat severance packages and started their own companies. As downsized organizations start to rebuild, they're finding that experienced workers who were given the boot have said goodbye to Corporate America for good. Furthermore, while the number of potential applicants has decreased, companies have upped the ante in terms of the skills they're looking for in new employees. It's no longer enough for employees to possess good technical skills, says David Axson, vice president of The Hackett Group, a management consulting firm based in Hudson, Ohio. "Now, they also have to relate to the customer, have good communication skills and be great team players." The problem is, not enough applicants remain who possess those skills. Thus, employers are left deciding whether they should hire people without those skills and then train them.

Put all this together, and what you have are fewer people to fill more demanding job slots. No wonder companies are struggling. Furthermore, because these are such sweeping changes, the labor shortage is likely to continue at least until the end of the decade. "This may even go another eight or 10 years," says Roger Herman, a business futurist based in Greensboro, North Carolina, and author of the book, "Turbulence."

Given that the labor shortage isn't a temporary blip in the nation's employment picture, companies are rethinking the strategies they use to find and keep good people. In a competitive labor market, recruitment is the first line of defense.

Getting applicants in the door.
Innovative companies are using a whole host of strategies—some old, some new —to get people into their organizations, and they're starting with employee referrals. Although encouraging existing employees to make referrals has been a tactic used for years, never have the stakes been so high. In fact, awarding cash bonuses for referrals that result in new hires is becoming a standard operating procedure in many industries. Depending on the position to be filled, those payments can be substantial. At one end of the spectrum is Doubletree Hotels where employees get $100 for referring an entry-level housekeeper. In the middle is Cambridge Technology Partners, a fast-growth, high-tech company that's now offering employees $3,000 for every successful referral. At the far end of the spectrum is Steven P. Jobs' NeXT Software Inc., where employees get as much as $10,000 for referring an executive.

Savvy employers realize they can't just throw money at the problem, however. They're starting to view recruitment as a creative endeavor. At Autodesk Inc., a design software firm based in San Rafael, California, the market for high-level programming talent is so tight that the company uses several strategies to find and attract people. Posting jobs on the Internet is particularly effective, given that the company is looking for young, technically astute people. If these individuals don't want to relocate to the expensive San Francisco Bay Area, the company is willing to let them telecommute—from day one. "I hired a multimedia specialist earlier this year who lives in Minneapolis," says Fred McAmis, employment programs manager. "I've never even met him." The company also has full-time staff members in New York, Oregon and Central California.

"Recruiting telecommuters is the kind of creative strategy more employers should be considering," says Herman. "Not only does it broaden the pool of applicants, but it saves the cost of relocation. With the technology we have now, there's no reason not to do this."

Companies searching for new sources of applicants should also not overlook the obvious—downsizings at other companies. Their loss could very well be your company's gain. For example, AMP Incorporated in Harrisburg, Pennsylvania, an electronics manufacturer, scans newspapers in the communities in which it does business looking for news of company downsizings. When a layoff or plant closing is announced, AMP contacts the HR department to find out what positions are being eliminated to see if there's a fit with its own labor needs.

Companies also are going back to college campuses to recruit, a practice many gave up during the recession in the early '90s. Take AMP, for instance. The company, with a 10 percent annual growth rate, has special difficulty finding employees with information technology skills. Believing it's easier to find these people when they're actively looking for work, AMP has stepped up its college activities considerably.

"Today, we use recruiting 'teams,'" says Don Prowell, director of HR. "Our Penn State team, for example, includes an HR representative, a manager from the business unit that's recruiting and a couple employees who also graduated from Penn State. We're working to speak more directly to the students about our business needs."

While college campuses and the Internet provide help finding highly skilled employees, finding entry-level workers with basic skills presents a different challenge requiring different solutions. Lisa Filkins, HR and safety manager for Stone Container Corp. in St. Louis, was so frustrated by her inability to find entry-level American workers who could pass a basic math test that she started working with the International Institute in St. Louis, an organization that places foreign refugees into jobs.

"Our basic skill requirement is for employees to be able to read a ruler to within 1/16 of an inch," Filkins says. Out of 35 Americans recently tested for eight open positions, only two passed. For the other six positions, she tested individuals referred by the institute. All six passed, and today she has three Bosnian employees, two from Iraq and one from Somalia. "I keep hearing about all these qualified Americans who need jobs," she adds. "But I'm sure having a hard time finding them."

Olds Products, a mustard products manufacturer, took a different approach to recruitment when the company moved its plant from Chicago to Kenosha, Wisconsin. According to a report in Business Week, the company searched for employees through local churches, synagogues and mosques, trading $100 donations for employee leads. The effort was successful and the company was able to find a number of older workers this way. Many companies have found recruiting older workers to be an effective tactic in today's marketplace, which has caused the joblessness rate for males aged 55 to 64 to plummet from 6.1 percent in 1992 to 3.2 percent today.

Getting employees to stay.
It makes sense that if companies are going to spend all this time and money finding qualified applicants, they better have a compensation and benefits package that's designed to keep them. But in a job market in which candidates can be picky, they're looking at more than money. They want a relationship. They want to work for companies that excite them. This is especially true among younger employees who don't have the same loyalty and work ethic.

To court potential employees in today's market, you need to pretty yourself up before you propose. This means taking a hard look at your retention policies. What do you offer employees that other companies don't? Silicon Graphics Inc., based in Mountain View, California, plays up its "cool" product line. AMP Incorporated emphasizes its reputation as a successful business concerned about the communities in which it operates. Flexible schedules and work/family programs such as onsite child care also get top marks for their seductive qualities, but staffing professionals agree the hottest selling point today is ongoing development. Employees who've heard the death knell of lifetime employment aren't only shopping for companies based on training opportunities, they're staying there because of them. This is true regardless of the level of employee.

Autodesk, for example, credits its four-day Employee Leadership Program with keeping top employees around. "We put 25 employees together with three instructors for a week of professional development activities," McAmis says. "Although it's a huge investment on our part, employees leave the program fired up to help the company reach its goals. I believe this helps increase employee commitment."

Doubletree Hotels reports similar results. Among the many development opportunities offered by the hotel chain are classes to help employees get their graduate equivalency diploma, and English and Spanish language courses. Additionally, through its "Care" University, Doubletree provides the training needed to help employees move up the corporate ladder. "This is one of the few industries left in which employees can enter at the level of a housekeeper and end up as CEO," says Rhoades. "We do everything we can to facilitate that." What has the impact been on retention? In an industry that reports 120 percent turnover annually, Doubletree's is just 60 percent. "Our goal is to reduce that to just 30 percent by the end of next year," she adds. Bruce Tulgan, founder of Rainmaker Inc. a New Haven, Connecticut-based consulting firm that helps companies recruit, motivate and retain Generation-X workers, agrees training is the "ace in the hole," especially for younger workers. "In today's job market, you want to train employees to leave at any time," he says, "which they won't [ironically], because they'll see working for your company as an incredible opportunity to grow and develop."

Despite the vital importance of training, the American Society of Training and Development in Alexandria, Virginia, reports employers actually are spending less on training than they did more than a decade ago. According to Laurie Bassi, vice president of research, companies spent just $569 per worker last year, a decline of 10 percent since 1983. If you're serious about keeping good workers, you've got to get serious about teaching them.

But don't stop there. Keep track of what you're teaching employees and how they're developing. Why? Because these days, you can't afford to waste any talent that's already on board. As The Hackett Group's Axson explains: "You've got to optimize your resources by creating better internal HR management processes."

Right under your nose: Don't overlook internal talent.
Axson provides several suggestions as to how companies can maximize their existing human resources. First, he suggests better tracking of the skills, competencies and interests of existing employees. Instead of going to the external labor market when a need arises, companies can fill a position more quickly by looking within.

He provides an example of a company that was opening a new division in China. Seeking management professionals who could speak Chinese, the company recruited externally, eventually hiring 60 individuals. Sometime later, an internal skills "audit" showed the company already had more than 200 employees with management experience who also spoke Chinese. Doubletree Hotels has developed the kind of skills assessment process Axson recommends for uncovering these internal candidates—with good reason. With an annual growth rate of 25 percent, the company doesn't have the time to look externally for management talent. Twice a year, the company asks managers what opportunities they're interested in, where they'd like to work, and if and when they'd be willing to relocate. This way, when a new property is acquired, managers can be relocated from other hotels immediately. At any given time, Rhoades says, the company knows what the ambitions and skills are of managers—which comprise 35 percent of its workforce.

In conducting a skills audit, Axson suggests looking beyond the skills exhibited on the job and asking about employees' outside experiences and interests. "Employees gain experience all sorts of ways," he says. Through volunteer assignments, for example, or by coaching Little League. If companies can identify where hidden talents lie internally, they may find they're not suffering from a skills shortage after all.

Take a look at Silicon Graphics. The company, which had 9,000 employees at the end of last year, will probably top the 12,000 mark next month. "We need a lot of talent to keep up this growth rate," says Eric Lane, director of worldwide staffing. For this reason, managers talk with their direct reports frequently about their goals, ambitions and areas of interest. "We look for overall capability, not just specific talent," Lane says.

The knowledge of existing talent helps the company make internal placements that might not otherwise be obvious. Recently, for example, Lane placed a professional with 20 years of telecommunications management experience in a management position for the company's immigrant relocation program. Sound like an unlikely fit? It wasn't. "She'd acquired extensive expertise managing vendor relationships which is what the new position required," Lane said. Westinghouse Electric Corp., in Pittsburgh, used a similar process three years ago when the company established an internal marketing organization. According to Nancy Breen, director of staffing and planning, 60 employees were relocated from other areas of the company to run the new department. As she explains, many companies already create a database of internal leadership talent, skills and experience in the process of succession planning. "Now, because of the skills shortage, this process has to be done throughout the organization," she says.

Other strategies companies use to maximize existing human resources are outsourcing and using temporary workers. ISSC, a business services outsourcing company based in Somers, New York, has seen business "boom" as the unemployment rate has dropped. Larry Cabler, HR Services executive with the company, says employers are holding on to people with high-level and specialty skills, and contracting out tasks that are less value-added. "It makes sense in a tight labor market to recruit, retain and invest only in the people who continually add value to your organization," Axson says. If a service such as compensation planning or data processing can be purchased more effectively outside, either through outsourcing or temporary services agencies, he believes companies should do so.

Finally, regardless of the skills needed, staffing professionals in industries particularly hard hit by the labor shortage agree companies should not wait until a position is open to start trying to fill it. Because the labor shortage is destined to be around for a while, companies need to think ahead of time about filling empty positions. Lane calls this "relationship recruiting," as opposed to "incident recruiting." To stay ahead of the worsening labor shortage, HR professionals must continually be cultivating internal and external leads, and making sure the company has the kinds of HR policies candidates are looking for. With a little foresight, perhaps you can avoid the tactic used recently by Sybase Inc., an Emeryville, California, maker of database software. The company, which needed to fill 900 positions in a short amount of time, not only invested tens of thousands of dollars in recruitment advertising, but also rented a biplane to circle Silicon Valley and buzz competitors with a banner reading: "Sybase Wants You."

Desperate tactics? Maybe. But drastic employment problems require innovative solutions. Even though you may not want to try the kind of unusual recruitment antics Sybase used, you can count on the fact that employee prospects won't respond to traditional company invitations anymore. They simply have too many suitors.

Because the end of the labor shortage is nowhere in sight, you must rethink your strategies for finding and keeping good employees. While these strategic employment tactics might not end the staffing drought, it will, at the very least, bring in the people you need, when you need them. Now that's an oasis you can count on.

Personnel Journal, November 1996, Vol. 75, No. 11, pp. 58-67.