ARTICLE TOO MANY WORKERS

 By Aaron Bernstein (Excerpts from the article) 

Focused as they are on today’s problems, most companies aren’t looking too far around the bend. But when they do, they’re in for some big surprises. As the economy strengthens, say demographers and economists, labor shortages will come roaring back. What’s more, they’re likely to persist for years, even decades. The reason: a looming crunch that will hit as huge as numbers of boomers retire and fewer workers fill the pipeline. With more than two-thirds of women already working and with immigration at record highs, the growth of the labor force will remain at a crawl for decades to come. 

The prospect of more or less permanent labor shortages could set in motion profound changes in American business and society. Three decades of plentiful workers have given Corporate America great leeway to shape employment to its needs. But soon, the balance of power will shift to workers, forcing employers into wrenching adjustments.

The late 1990s may well have been a foretaste. Remember all those pay raises and hiring wars?  The new day-care centers, flexible work hours, and training programs for welfare moms? Get ready for a replay. “If employers thought the ‘90s were the decade of the workers, the next decade will be even more that way,” says Harvard University economist dale W. Jorgeson. 

America’s famously nimble employment system will come under mounting pressure. Today, employees shift from job to job and shoulder much of the responsibility for a career that isn’t tethered to one company. Relatively fluid labor markets help boost productivity and profits, economists believe, by channeling labor to companies and industries with the most promise.  But if companies become hard up for labor, managers will try to hang on to workers the way they did in the 1950s and 1960s. Employers may feel the need to rewrite pensions and early-retirement plans to keep aging boomers.  Indeed, Americans’ entire view about when to retire could alter if companies encourage longevity on the job. 

No matter which economic projections come true, the demographic challenges ahead are inescapable: There will be a sharp slowdown in the number of people entering the workforce. Since 1980, the U.S. workforce exploded by 50%, adding some 38 million people as baby boomers hit their prime and as women flooded into the workforce.  Now, baby boomers are aging and nearly 80% of women hold jobs outside the home.  By 2020, the labor force is set to grow just 16%, adding fewer than 20 million new workers, according to Ellwood’s projections. And that’s assuming immigrants continue to pour in at the record high pace of recent years. 

Labor-force growth began to slow in the 1990s, posting average yearly gains of 1.2%, about half the pace of the 1970s but still equal to the increases of prior decades. Now, benefits consultant Watson Wyatt Worldwide figures that the growth rate will drop to a 0.8% annual rate over the next decade, then gradually slide to a mere 0.2% a year for as long as anyone can predict. 

Corporate America’s biggest difficulties, thought, will come at the high end of the labor market, The number of workers with a college degree has more than doubled since 1980, to 40 million, lifting the share of workers with a BA from 22% to 30%.  Even so, the rapid expansion of supply nearly kept pace with demand. Wage hikes for college grads beat inflation by more than 2% a year in the late 1990s, according to the Economic Policy Institute, a Washington think tank. 

So far, the economic slowdown hasn’t changed the picture much. High-end workers still won inflation adjusted play hikes of around 2% or so in 2000 and 2001. Even the ravaged market for tech workers seems to be turning around. The high-tech workforce fell by 5% last year, to 9.9 million, according to a survey of 532 companies released on May 6 by trade group the Information Technology Association of America.  Now, employers say they expect to hire 15% more tech workers this year as the economy rebounds. At the Treasury Dept., about 11% of its 9,500 information-technology workers are currently eligible for retirement, a figure that will jump to nearly one-third by 2008, says Dagne Fulcher, who manages workforce programs.  With pay often higher on the outside, Treasury has been doling out retention bonuses of up to 25% of pay to hang on to its techies. 

Finding enough college-educated workers will be touch if the demand for skilled labor continues at the pace of the past two decades. For one thing, the echo baby boom simply isn’t large enough.  At 64 million people, the generation that started hitting college in 1998 is 8 million larger than the prior Gen X cohort. But the boomers numbered 76 million. So even if more of their kids off to college, the ranks of graduates won’t grow as rapidly.  “If we could jack up enrollment rates, we would come a lot closer to meeting the demand for skilled labor. But that’s a tall order,” says Anthony P. Carnevale, a training expert at Educational Testing Service who has written on future workforce-education needs.