Tight Labor Market Is For Real
Adrienne Fox
Investor's Business Daily - May 11, 1998
CEOs See No Loosening Before End Of Century
Friday's news that the jobless rate has plunged to a 28-year low came
as no surprise to those who run some of the nation's top- performing
companies.
The tight labor market that has resulted is something they anticipated,
deal with every day and expect to continue into the next millennium,
according to the latest IBD-TIPP Poll of business leaders.
Almost nine of 10 top managers say finding good workers is harder
than it was just three years ago. And they don't expect it to get any
easier for at least 18 months.
James McAtee, chief financial officer at Horizon Health Corp. in Dallas,
is part of the 87% who say the labor market is tighter today. "The other
13% are wrong or in denial," he joked.
But this is no laughing matter. Managers surveyed said the problem
is hurting productivity, crimping competitiveness and squeezing profit
margins.
These are some of the findings of an exclusive survey for IBD by the
TechnoMetrica Institute of Policy and Politics. The poll asked an ongoing
panel of 211 CEOs and CFOs from top-performing firms for their opinions
about the labor market. Of those, 100 participated.
Respondents were picked based on the growth of their companies' profits
and share prices - not their size.
"This thing has an upside for the individual and a downside for corporate
America," said Louis Horwitz, CEO of another Dallas-based company, Datum
Inc.
"These things always result in lost revenues because we cannot get
enough people," he said. "Higher salaries have to be paid. So our costs
go up, and our revenues go down. That's not exactly a happy combination."
Business expansion is the main cause of today's tight labor market,
say 57% of those polled.
"Our problem is trying to fill positions as we grow," said McAtee.
He added that secretaries and accountants are the hardest to find. He
used an outplacement firm recently for the first time in five years
to fill a position. About 69% of those polled said they go this route,
but only 6% said it was the most effective one.
The scarcest workers by far are in the information systems and technology
field - 88% of managers indicated difficulty in that area. Finding workers
to fill research and development jobs ran a distant second in terms
of scarcity - 42% - followed by finance and accounting professionals,
at 41%.
Horwitz thinks labor shortages in high tech will be resolved in the
next four to five years.
"As it becomes known that technicians are in short supply, which means
they command high salaries and good jobs, more mothers and fathers will
send their kids to engineering school," he said. "In the past, we've
had this difficulty, and sooner or later we catch up."
More than two-thirds of the managers polled said the government's help
isn't needed to loosen things up.
But if the government were to play a role, a third of respondents said
it should support training programs keyed to needed skills. Forty percent
blame the tight market on a poor fit between available and needed skills.
"I think employers have the responsibility of retraining, as do local
communities and colleges - not the federal government," said James Dalton,
CEO of Quorum Health Group in Brentwood, Tenn. Three- fourths of those
polled said their companies have training programs.
Only 17% said the government should fiddle with immigration policies
to help ease certain labor shortages.
"It took us a year-and-a-quarter to get a visa for a doctorate in physics
to come work for us," Horwitz said.
Most managers - 72% - anticipated the labor shortage and developed
strategies to cope with it. Some were effective, some not.
More than half have done things such as improve in-house training and
education; increase use of freelance, temporary or contract workers;
pay higher wages to lure good prospects; and go out of state to interview
and recruit.
Few companies - just 7% - have moved operations abroad to find more
plentiful labor.
But all this effort takes time, especially in the search for good managers.
Almost half of respondents said it takes longer to fill managerial positions
than it did three years ago. And 15% said it takes much longer.
Executives are finding that the most effective way to recruit good
people is to tap their current employees. A whopping 96% use employee
referrals, and 41% said this strategy works best.
Some economists have raised concerns that the tight labor market will
force employers to raise wages, cutting into corporate profits and fanning
inflation.
Indeed, 79% of those polled say they offer above-average pay to recruit
good workers. But of those who do, only 32% said it was the most effective
strategy.
If higher salaries are offered, they're most likely to be 10% to 19%
above average, said 28% of respondents. And 26% said they'll sweeten
average pay 1% to 9%.
"There's no question that our costs are rising, because we have to
pay premiums to engineers to get them and occasionally to keep them,"
Horwitz said. But he thinks the problem is restricted to a few fields,
and should not affect the economy.
Top executives realize it pays to keep good workers once they find
them. Many are shifting their focus to retention, and it seems to be
working. Two-thirds said they're able to hang on to managers today about
as well as three years ago.
"We're focusing on retaining the good workers we have," said Alan Shugart,
CEO of Seagate Technology, the big disk-drive manufacturer based in
Scotts Valley, Calif. "The first thing we did was reorganize salary
structures and make them more productive."
Almost all respondents said they use stock options to keep employees,
and 76% said this strategy is the most effective. They also said revamping
salary structures to reward for performance is effective. Nearly all
- 98% -said they promote workers to help retain them. But only 41% said
that strategy worked best.
Programs such as flextime, child care and paid maternity leave have
proved least effective, the survey found.
Still, top managers are trying to provide a good work environment so
workers aren't tempted to leave. It seems more companies are raiding
others for qualified staff. More than half said this problem is more
common now than three years ago. Many see fewer cases of workers shopping
around today.
