Impending Labor Shortage: Myth or Reality?

Implications for Bangladesh

Impending Labor Shortage: Myth or Reality? Implications for Bangladesh

Prepared for: Suman Bhattacharjee Course instructor: Human Resource Planning Course Code: H401

Prepared by: Tanvir Ahmed Khan Tanu (ZR-06) BBA 18th batch

Institute of Business Administration (IBA), University of Dhaka Date: June 15, 2013

Table of Contents
1 2 3 4 What is Labor Shortage? ............................................................................................................. 1 How Labor Shortage Happens? ................................................................................................. 1 Why is it so bad? .......................................................................................................................... 1 Impending Labor Shortage: Myth vs. Reality .......................................................................... 2 4.1 4.2 5 6 Myth Arguments .................................................................................................................. 2 Reality Arguments ............................................................................................................... 3

Authors Viewpoint ..................................................................................................................... 4 Implications for Bangladesh ....................................................................................................... 4

References ............................................................................................................................................. 6

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1 What is Labor Shortage?

Labor shortage is a shortage or insufficiency of qualified candidates for employment in an economy or country (Collins English Dictionary). It is an economic condition in which there are insufficient qualified employees to fill the market demands for employment at any price. Such a condition is sometimes referred to by Economists as "an insufficiency in the labor force." Simply put, a labor shortage exists where there are not enough people to fill needed jobs.

2 How Labor Shortage Happens?

Most commonly, labor shortage occurs in economies where job growth outpaces population growth. Labor shortage is expected to occur out of demographic shifts in developed economies. As developed countries are experiencing an aging population they may soon face a growing class of retirees and a shrinking workforce. The baby-bust generation in United States, the group of people that followed the baby-boom generation into the labor market, is 16% smaller than the boomers soon to retire (Cappelli, 2003). Thus, the demand for labor may exceed the supply of labor resulting in labor shortage.

3 Why is it so bad?
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Labor shortage spells problem for an economy. With labor shortage, surplus capital and technology goes unused. Economic growth experiences slowdown due to loss of efficiency as capacities of plants, factories and research facilities goes unutilized.

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4 Impending Labor Shortage: Myth vs. Reality

Whether an impending labor shortage is looming around the corner or is it not much of a big deal is a heated topic for discussion among economists, human resource practitioners, policymakers and academicians worldwide.

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4.1 Myth Arguments

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Baby-boomers are postponing traditional retirement. Of the people aged between 50 and 70, 69% plan to continue to work through their retirement according to survey findings by American Association of Retired Persons (AARP). This trend of late retirement may hold true for other developed economies also.

Adequate baby-buster college graduates are there to replace baby-boomer college graduates. In United States, colleges did not cut back on the size of their graduating classes when the baby-busters came through school (Cappelli, 2003). Therefore, just because baby-bust cohort is smaller overall than the baby-boom cohort does not mean that every subgroup within the baby-bust group has to be smaller.

Demographic profile of a country may not be reflected in each and every industry and company. While industries such as steelmaking have older workforces, others such as software firms have much younger employees.

There may be a commensurate decline in labor demand to accommodate the labor supply. As the boomers will age and their consumer spending will weaken, it may impact the growth of new businesses and as a result, new jobs creation might slow down.

Employers might erroneously believe there is a sign of labor shortage when there isnt one. Employers believe that if they cant get the employees they want at the wages they

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are prepared to offer thats a labor shortage. (Beltrame, 2013). Also, due to changing nature of the psychological contract between employers and employees, job switching is high and employee turnover is high as a result. This may falsely signal labor shortage as employers have to hire more employees nowadays.

With technological advancements there may be a reduction in labor demand to accommodate the small labor supply.

4.2 Reality Arguments

While there may be a surplus of low skilled workers in future, research suggests there will be a huge shortage of medium to high skilled workers worldwide. According to a recent report by Mckinsey Global Institute, strains in the global labor market could lead to a surplus of 95 million low skill workers and a shortage of up to 95 million medium and high skill workers by 2020 (Dobbs, et al., 2012). MGI found that the challenge for developing countries "could be even more daunting" as there could be up to 58 million surplus low-skill workers in 2020 along with a glaring need of up to 45 million mediumskill workers (those with secondary education and vocational training) (Dobbs, et al., 2012).

The economies are rapidly shifting to becoming knowledge based but the education systems have been unresponsive and slow to catch up with the need of creating more knowledge workers with advanced skills.

The indications are clear that worldwide there will be huge demand for highly skilled labors such as scientists, engineers, programmers and IT personnels; skills that cannot be taught overnight, but the demand growth for these job far outpaces supply growth. The surplus of low skilled workers will therefore not be transferable to meet the shortage of high skilled workers resulting in a deadlock situation and market failure.

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The half life of jobs is all time high as new jobs requiring new set of KSAs are replacing old jobs with old set of KSAs overnight. Employees who cant continuously learn and keep pace with the changing dynamics will soon find them obsolete. Thus, employers may find it difficult to fill in those new positions with current employees.

5 Authors Viewpoint
Evaluating both the myth and reality side of the arguments, the author reached his own independent opinion. The author believes, if relevant variables move in a linear fashion, there will be a dire shortage of high skilled workers and a huge surplus of low skilled workers worldwide. Shortage of high skilled workers may strongly affect the developed economies whereas surplus of low skilled workers may hamper progress of underdeveloped and developing countries.

6 Implications for Bangladesh

Bangladesh has a demographic structure which contrasts that of the developed world. With her young population, Bangladesh is expected to soon experience a demographic window scenario. Therefore, Bangladesh is very unlikely to face a labor shortage overall. Rather, there are high chances that the labor surplus situation might worsen. This poses an interesting opportunity for Bangladesh. If Bangladesh can quickly train-up her population and export them as medium-skilled and high-skilled human services through investment in education and vocational training, the future will be prosperous for Bangladesh. Currently however, there is shortage in high skilled labor force and surplus of low skilled labor force in Bangladesh. It is common knowledge that many foreign nationals, mostly

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Indian, fill in important organizational positions in Bangladesh which require advanced skills. Such positions include CEOs, Plant Managers, Consultants, Engineers, and Doctors etc. Ironically, a huge proportion of the population remains unemployed as they dont possess the required skill sets to fill the positions where there is shortage. Without proper output from the education system and without adequate vocational training, the country will face dual terror, one from surplus of low skilled workers, and another from shortage of high skilled workers. The recommendations for Bangladesh include: Heavily invest in education and training of the population to capitalize on demographic window. Open more vocational schools to create skilled workforce. Try to eliminate public perception of vocational education as being inferior to formal education. Increase scientific and technical contents of formal education. Encourage and incentivize pursuing of advanced degrees in leading universities by citizens. Encourage and facilitate migration of human resources as labor force. Heavily invest in infrastructure development and other labor intensive sectors. Incentivize entrepreneurship in labor incentive sectors.

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References

Beltrame, J., 2013. What labour shortage? Number of Canadian job seekers grows, says StatsCan. Financial Post, 16 04. Cappelli, P., 2003. Will There Really Be a Labor Shortage?. Organizational Dynamics, 24 September.Issue August. Dobbs, R. et al., 2012. The world at work: Jobs, pay and skills for 3.5 billion people, s.l.: Mckinsey Global Institute.