In recent months there’s been much talk about talent shortages. Following the COVID-19 pandemic and the Great Resignation, many employers have been faced with increasing employee turnover and open positions.
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.
Want to learn how to retain your employees? Get our guide to 11 strategies for employee retention
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 job seekers with those skills.
This often occurs on an organizational basis, where a particular company doesn’t have enough specialized talent. However, these shortages can also affect industries or the entire global economy.
Staff shortages can lead to slower growth, business closures, increasing reliance on automation, and higher employee turnover.
When staff shortages are present, employees are likely to be poached by competitors with higher salaries and better benefits than they are currently being offered, resulting in more turnover.
Is there a shortage of talent?
As of 2022, a global talent shortage has impacted the economy. During the Great Resignation, 47 million Americans quit1 their jobs in 2021. Most of these workers found employment elsewhere where open positions were available.
This led to a surplus of job openings in many industries. The unemployment rate has dropped to new post-pandemic lows with many available jobs.
According to the U.S. Bureau of Labor Statistics2, the unemployment rate was 3.7% in August 2022. This is down from 5.2% in August 2021. The number of open positions is significantly higher than the number of unemployed people, with 10.7 million openings compared to six million unemployed. That means if every unemployed person seeking work was guaranteed a job, there would still be more than four 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 survey3 and predictions, 62% of professionals surveyed believe the current shortage is long-term or permanent.
Additionally, Arizona State University4 cited a report from Korn Ferry predicting the global talent crunch and shortages could grow to more than 85 million people, potentially costing organizations trillions of dollars.
It’s important to note that some industries have a surplus of talent, such as transportation and mining. If all job seekers were hired, there wouldn’t be enough positions available. Yet, thousands of positions remain unfilled, signaling that there are other factors 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 train job seekers
- High turnover rates, such as what happened with the Great Resignation
- Increase in retirements
- Improvements in technology innovating faster than job seekers are learning the technical skills required
The Great Resignation involved millions of workers leaving their positions for better opportunities. This was because of poor company culture, low pay, and a lack of quality employee benefits. Many switched industries while others enrolled in college. Some also became independent contractors through the growing gig economy.
This left many positions open when the economy was rebounding and growing after the pandemic.
Alongside the shifting American workforce, many Baby Boomers and Silent Generation employees are retiring. According to Pew Research Center5, the number of Baby Boomers retiring increased by 3.2% in 2020, or 3.2 million more retirees than in 2019.
And, with most Baby Boomers expected to retire before 2030, millions of positions will open for younger workers, potentially exacerbating the 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 needs to 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 candidates.
Benefits and compensation
One of the best ways to attract and retain talent is to provide a competitive compensation and benefits package.
Our 2022 Employee Benefits Survey Report found that 82% of employees say the benefits package an employer offers is an important factor in whether or not they accept a job.
According to Paycor’s survey, 70% of organizations currently offer increased compensation, while 53% offer health and wellness benefits to attract talent.
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
Health benefits are the most-valued benefit for employees. Unfortunately, the high cost of traditional group health insurance can put off many small to medium size businesses (SMBs). Thankfully, alternatives like health reimbursement arrangements (HRAs) and health stipends are available.
With an HRA, you can reimburse your employees tax-free for their 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 reimbursements are taxable for both you and your employees.
An excellent way to offer benefits to your employees is with employee stipends. With a stipend, you offer a monthly allowance to your employees for them to use or get reimbursed for certain expenses. This 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 required skills, you can use a stipend to provide training, professional development 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.
Most stipends will be taxable for you and your employees and must be reported as income on your employees’ W-2s. However, some fringe benefits may be tax-free.
With software solutions like our WorkPerks stipend administration software, you can easily create custom stipends to suit your organization’s needs.
Another important consideration for retaining your current staff is your company culture. While many employees will stay temporarily, thanks to improved benefits or compensation, a positive culture is essential for long-term retention.
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 candidates.
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 offer personalized benefits to assist in your recruitment efforts, PeopleKeep can help! Our HRA and employee stipend benefits administration platform makes setting up and managing your benefits easy.
Get in touch with a personalized benefits advisor today to see how personalized benefits can help your organization weather the global talent shortage