Due to the COVID-19 pandemic and the Great Resignation, many employers are still facing increasing employee turnover and open positions. These talent shortages can negatively impact productivity, decrease revenue, and even drive small employers out of business.
But what exactly is a talent shortage, and why is it important to understand for your organization?
This article will explain what talent shortages are, why shortages occur, and how you can adapt your hiring strategy to attract and retain talent in a tight labor market.
What is a talent shortage?
A talent shortage occurs when there’s a significant disparity between the skills employers need for their organizations to thrive and the number of available employees or qualified candidates with those skills.
These shortages often occur on an organizational basis, where a particular company needs more specialized talent. However, these skill shortages can also affect industries or the global economy.
Staff shortages can lead to slower growth, business closures, increasing reliance on automation, and higher employee turnover. When staff shortages are present, competitors with higher salaries and better benefits are likely to poach employees, resulting in more turnover.
Is there a shortage of talent?
In recent years, a global talent shortage has impacted the economy. More than 50 million Americans1 quit their jobs in 2022, surpassing the 2021 number by 3.5 million. Most of these workers found employment elsewhere where open positions were available.
This led to a surplus of job openings in many industries that still continues today. In fact according to the U.S. Bureau of Labor Statistics the number of open job postings in summer 2023 was significantly higher than the number of unemployed workers, with 8.8 million openings2 compared to 5.8 million unemployed3.
That means if every unemployed worker seeking a job found one, there would still be three million positions remaining unfilled.
Despite job openings beginning to drop in the U.S., thanks partly to recession fears, many predict the shortages will continue beyond the near future.
According to Paycor’s HR in 2023 survey and predictions4, 62% of professionals surveyed believe the current talent shortage is long-term or permanent.
Additionally, Arizona State University5 cited a report from Korn Ferry predicting the global talent crunch and shortages could grow to more than 85 million people by 2030, potentially costing organizations trillions of dollars.
It’s important to note that some industries have a surplus of skilled talent, such as transportation and mining. If all job seekers in these industries got a job, there wouldn’t be enough positions available. Yet, thousands of positions remain unfilled, signaling that other factors are at play.
Why is talent scarce?
Many factors can cause talent shortages:
- Global pandemics, such as COVID-19
- Industry changes
- Lack of skilled workers
- Inability to implement training programs for job seekers and new hires
- High turnover rates, such as what happened during the Great Resignation
- Increase in retirements and unemployed workers
- Improvements in technology, like artificial intelligence (AI), innovating faster than job seekers are learning the technical skills required
The Great Resignation involved millions of workers leaving their positions for better opportunities. Poor company culture, low pay, and a lack of quality employee benefits contributed to the resignations.
Many switched career paths while others enrolled in college courses. Some also became independent contractors through the growing gig economy. This left many positions open when the economy rebounded and grew after the pandemic.
Alongside the shifting American workforce, many Baby Boomers and Silent Generation employees are retiring. Some experts6 are projecting that 75 million baby boomers will retire by 2030.
And, with most Baby Boomers expected to retire before 2030, millions of positions will open for younger workers, potentially exacerbating the skilled talent shortage.
While the number of open positions could dwindle thanks to the conversation around inflation and a possible recession, most organizations say they plan to hire soon.
According to Paycor’s survey, 91% of professionals surveyed said they plan to hire in the next 12 months.
How do you attract qualified workers during a global labor shortage?
With the ongoing talent shortage likely to continue through 2023, your organization must understand how to attract talent and retain current employees. In the following sections, we’ll look at a few ways you can avoid talent disruptions and attract qualified job candidates.
Benefits and compensation
One of the best talent strategies to attract and retain employees is to provide a competitive compensation and benefits package.
Our 2022 Employee Benefits Survey Report found that 82% of workers say an employer's benefits package is an important factor in whether or not they accept a job.
According to Paycor’s survey, 70% of organizations offer increased compensation to attract talent, while 53% offer health and wellness benefits.
By strengthening your compensation package, you can attract a more skilled labor pool while being able to retain your employees.
According to our benefits survey, some of the most in-demand benefits are:
- Health insurance
- Paid time off (PTO)
- Dental insurance
- Retirement benefits
- Flexible work schedules
- Paid family leave
- Mental health benefits
- Professional development programs
Health benefits are the most-valued benefit for employees. Unfortunately, the high cost of traditional group health insurance can put off many small to midsize businesses (SMBs) from offering a health benefit. Luckily, alternatives like health reimbursement arrangements (HRAs) and health stipends are available.
With an HRA, you can establish a formal health benefit through which you reimburse your employees—tax-free—for qualifying medical expenses, such as individual health insurance premiums and out-of-pocket expenses. You can set monthly allowances, giving you complete cost control while your employees get more freedom to use their benefits the way they want.
Three of the most popular types of HRAs are:
- Qualified small employer HRA (QSEHRA)
- Individual coverage HRA (ICHRA)
- Group coverage HRA (GCHRA), also known as an integrated HRA
You can also offer a health stipend to your employees. This works similarly to an HRA, except that it is not considered a formal health benefit and allowances paid out through the stipend are taxable for you and your employees.
An excellent way to offer lifestyle benefits to your staff is with employee stipends. With a stipend, you provide a monthly allowance to your employees for them to use or be reimbursed for any perks or expenses you deem eligible. These could be wellness expenses, such as gym memberships, or anything else from remote work expenses to professional development.
With many talent shortage challenges relating to skill gaps, you can use a stipend to provide access to training programs, growth opportunities, or tuition assistance for employees who take classes to grow and move up to higher-level positions, allowing you to focus on recruiting for less specialized roles.
With software solutions like PeopeKeep’s WorkPerks stipend administration platform, you can easily create custom stipends to suit your organization’s needs.
Another critical factor that can help you retain your current employees is your company culture. While many employees will stay temporarily thanks to improved benefits or compensation, a positive culture is essential to maintain a high retention rate.
Paycor’s survey found that 22% of professionals are motivated to stay at their current job because of their company culture.
By fostering a positive culture where your employees feel welcomed and valued, you’ll increase your organization’s productivity and morale, reducing turnover.
By understanding the reasons behind the global staff shortages, you can work to prevent turnover at your organization and improve hiring practices to attract potential employees.
By offering competitive salaries and benefits and improving your company culture, you can build talent pipelines that ensure continued business growth well into the future.
If you’re ready to boost your recruitment efforts by developing a better benefits package, PeopleKeep can help! Our HRA and employee stipend benefits administration platform makes setting up and managing personalized health and lifestyle benefits easy.
This article was originally published on October 12, 2022. It was last updated on September 25, 2023.