In today’s complicated workplace there is a lot of discussion around taking a holistic view of the total workforce in order to make sure the organization has the right talent, in the right place, at the right time. Companies are challenged by the harsh reality of talent scarcity when trying to fill critical roles in order to execute their strategy. When looking for solutions many organizations are uncertain about the best talent strategy: Is it better to buy, rent, or build talent when riding the waves of talent supply and demand?
The Imperfect Labor Market
In market theory, marketplaces are a great way of organizing commercial activity because they are efficient, flexible, and filled with rational actors who can move quickly to meet demand with supply.
Unfortunately, most marketplaces are less than perfect in real life. The labor market is a great example.
If there is a shortage of labor, then market theory dictates that companies will increase pay and benefits in order to make their jobs more attractive and thereby attract the needed applicants. If there’s a surplus of labor, employees will lower their asking wages. Technology is an enabler, making this whole process happen quickly and effortlessly.
When it comes to labor, however, truth differs substantially from reality. The labor market isn’t at all like the stock market, where buyers and sellers can meet and transact deals instantaneously. In fact, the labor market is probably the most inefficient market.
Talent Supply and Demand
Talent supply and demand are completely interrelated, yet operate on very different cycles. The reality is that people and the companies that want to buy their talents often cannot move quickly enough to fill open positions when and where needed.
When we consider talent supply, we are challenged with the fact that most workers are not very mobile (i.e. most people can’t just pick up and move across the country for a new job starting next week) nor can workers be instantly re-skilled (from a Financial Analyst to a Java Developer, for example).
In addition, the skills needed in a particular sector can evolve over time. For example, we know that over the past two decades, automation and foreign trade have displaced millions of manufacturing jobs. So, one would expect that manufacturing companies who want to hire workers should not have any trouble finding the workers they need. Yet, there are over 324,000 manufacturing jobs open in the U.S. Why? Many of the people who were historically in the manufacturing labor market now lack the necessary skills and experience to thrive in today’s modern and automated factories. To work on an assembly line today, you now need to be experienced with computers and machines in a way that wasn’t even imagined 20 years ago.
When we consider talent demand, we are faced the challenge of a chaotic and unpredictable world economy, where an economic upturn or downturn can be triggered by a completely random terrorist act or new technological innovation. As a result, companies have come to value flexibility utmost and must make plans and investments cautiously.
In addition, some industry sectors (such as Energy, or Construction) are highly volatile and sensitive to economic conditions. Industries like these attract many workers during boom times and then throw them out just as quickly in a bust. This cycle then leaves them shorthanded when the industry inevitably comes back to life. The construction industry is a great example. Twelve years ago, at the height of the U.S. housing boom, companies hired hundreds of thousands of construction workers across a number of trades. When the number of new housing units completed in the U.S. crashed during the mortgage crisis (from nearly 2 million in 2006 to 584,000 in 2011) hundreds of thousands of workers were forced to go find new jobs, move, or switch careers. Now that home construction has rebounded (to about 1.06 million units in 2016) companies are facing talent scarcity. There are currently 184,000 openings in construction.
Solutions: Buy, Rent, or Build the Talent You Need
Strategic companies, who want to survive and thrive in uncertain times, must approach talent scarcity with a well-conceived buy, rent, or build approach to talent attraction and retention. One where vital workers with stable demand become your employees (“buy”), work that has variable demand or expert-skill requirements are supplied by independent flexible workers (“rent”), and anticipated future needs are built with company-sponsored training and development programs (“build”).
The primary challenge for companies is that demand for labor tends to change quickly (both up and down), yet it takes a lot more time, investment, and planning for companies to buy or build the talent with the skills and experience they need through training or apprenticeship programs. This is one reason why the flexible workforce (independent contractors, freelancers, consultants, temporary workers, etc.) is so valuable: This segment of the labor market acts as a shock absorber, allowing companies to quickly deploy the right talent, in the right place, at the right time.
Another option for dealing with short-term gaps in the labor market is to import people with the requisite skills who are currently living in other countries. This helps to explain the popularity of the H-1B Visa program here in the US, and why so many other developed countries have created similar programs that allow temporary visas or other working arrangements so that companies can find workers for hard-to-fill slots such as software engineers, farm workers, and doctors.
There are challenges for individual workers also. For example, pursuing a career in a specialized occupation (for example: an engineer, pilot or a nurse) requires workers to make a number of long-term investments and commitments. It can take years to complete the educational prerequisites, apply to a program, get accepted, finance it, and then complete the multiyear educational program. After which the job market may have shifted, or economic conditions might result in high unemployment.
The beauty of markets, in theory, is that the invisible forces of supply and demand tend to normalize into an equilibrium fairly quickly. Unfortunately, this does not apply to today’s talent marketplace. Strategic companies, who want to survive and thrive in uncertain times, must approach talent scarcity with a well-conceived buy, rent, and build approach to talent. Within this complex ecosystem, TalentWave is your trusted partner for safely and cost-effectively engaging the independent segment of your workforce. This segment of the labor market often acts as a shock absorber, allowing companies to quickly deploy the right talent, in the right place, at the right time while having the time to develop longer-term talent strategies.