What’s really behind the sputtering supply of talent?

If every country faces the same record tight labor market, then local policy failure may not be the cause.

“Where are the workers?” asks The New York Times desperately. The United States is facing an unprecedented labor shortage. There are more vacancies than job seekers. The reason? The Great Resignation: people are tired of their careers and are resigning en masse.

“Send migration signal to compete in global talent war,” cries The Australian Financial Review desperately. Restaurants are forced to close their doors. At our regular breakfast spot there is a sign: “Sorry, closed due to no staff”. The reason? The Australian borders were closed for two years and many migrants have left.

“UK unemployment falls to 48-year low,” reads The Guardian. For the first time since the figures were collected, fewer people are out of work than job vacancies in the UK. The reason? Brexit, of course.

“Germany skilled worker shortage reaches new heights”, headlines Frankfurter Allgemeine Zeitung. There are now more than 600,000 vacancies for which there are no suitably qualified unemployed people in Germany – a new record. The reason? Aging, most likely. About 100,000 fewer young people graduate from the school system each year than 10 years ago.

Strange, isn’t it? Exactly the same historical shortage on the labor market in every country, but every time newspapers come up with an explanation that puts the problem with poor local policy. There is, of course, a grain of truth in the local analyses; numbers back that up. But you don’t have to be a great economist to see that we are missing something. If all countries have the same record tightness, it is unlikely that it will have a different cause in each country.

Three ways COVID-19 has disrupted talent supplies

What is the elephant in the room? COVID-19, of course. The pandemic has indirectly led to three major disruptions. First, almost all central banks adopted the same free money strategy to protect the economy. In the US, the UK, Canada and Australia, those central banks have started raising interest rates significantly in recent weeks to urgently cool the economy and tackle inflation. The European Central Bank has now announced they’ll do the same – fairly late. If that cooldown is too abrupt in the coming months triggering a recession, the global competition for talent might soon be over.

The second problem is supply chains. Many people were without a job or left the labor market (or the migration country) during the pandemic and now have to find their way back, which can’t be a smooth process. That is a classic supply chain problem. Do you remember when we suddenly hoarded toilet paper during corona? The reason was not a shortage of toilet paper. It was an allocation problem. Toilet paper was supplied to company offices, but there were no employees left there to use it, because they were working from home. And because they urgently needed to go to the toilet at home, toilet paper was purchased en masse. Adjusting the allocation of toilet paper takes time.

Likewise, the talent supply line is sputtering. Some sectors are trying to rebuild, while others are running slower or faster than before. Redirecting all that talent efficiently into new jobs and industries takes time. It’s the ketchup bottle theory of supply chains. A disrupted supply chain fires in fits and starts. Scaling capacity takes a long time and once you’ve reached the capacity you were originally aiming for, it is often no longer necessary.

The third problem is a mismatch of skills. The pandemic with its lockdowns and homework has abruptly accelerated the digitization of the global economy. This means that companies need plenty of digital talent. Too few people have those skills. You see the same digital requirements over and over on LinkedIn.

Of the three problems, companies themselves have the most control over the latter. You can blame companies for not thinking long-term and investing too little in talent development. That is, you don’t want to reduce the talent pool by hoarding, but increase it by training and developing talent yourself. But that’s more complex than it sounds. It requires a much broader view of what talent is for the organization and where it can be found.

Perhaps that is the question that I need to address next time: talent, what is that anyway?

This article was previously published on the UNSW business school website.