Changing demographics, workforce readiness and global competition will create obstacles and opportunities for HR.
December 13, 2005
by Diana Furchtgott-Roth
America's dynamic workforce has always faced changes, and the next decade will be no exception. Americans once worked primarily in agriculture, then in manufacturing and now in services. Transition from declining to growing industries has been relatively easily achieved because of the flexibility of the U.S. economy and U.S. labor markets. As a result, the United States has one of the lowest unemployment rates and one of the highest rates of job creation in the industrialized world. It is home to millions of small businesses, which generate the largest share of new jobs.
Over the next decade, staffing challenges will come from many fronts. Three specific issues are the aging of our workforce, the diminishing state of education and increased global competitiveness. These phenomena will not disappear, and we need to consider the best strategies for promoting the flexibility of our labor markets to allow employers to deal with them.
As the large baby boom generation of Americans ages, the demographic structure of the economy will shift and the proportion of Americans over age 55 will increase significantly. In addition to the aging of the baby boomers, increases in longevity will raise the proportion of older Americans.
Fortunately for the United States, the labor force participation rate of older workers is increasing. We also see more older employees working full-time weekly schedules. Increased labor force participation of older workers is a positive sign that America's open and flexible labor markets are providing opportunities for older Americans who choose to remain economically active.
But HR can do more to meet the needs of older workers. To assuage the labor shortage in the next 10 years, HR professionals will need to spearhead programs at their organizations that retain this experienced, valuable portion of the labor force. Phased retirement programs, flexible schedules, mentoring arrangements and consulting positions all appeal to this generation that wants to stay employed during their golden years but also needs the freedom to pursue other interests. These workers have substantial experience and can be integrated easily into positions in the workforce with the aid of increased part-time, comp time and telecommuting policies.
At the same time, staffing is expected to increase in the sectors that cater to the older generation as those industries grow on demand. The Bureau of Labor Statistics of the U.S. Department of Labor has developed projections of the 10 fastest-growing industries over the period 2002 to 2012. These include residential care facilities, home health services, community care facilities for the elderly, employment services, and vocational rehabilitation services.
The five remaining industries projected to grow over the next decade all relate to technology and require a well-educated workforce: software publishers; Internet service providers; management, scientific and technical consulting services; computer systems design; and wireless telecommunications carriers. Even traditional manufacturing is evolving into an industry where workers wield computer chips instead of hammers.
People now change jobs frequently, finding the best match and continually seeking new opportunities. In 2004, out of the U.S. labor force of 147 million, there were 51 million separations and 54 million new hires. A technical basic education is needed to be able to learn skills specific to new jobs.
The employment data reveal the importance of education. The more education you have, the less likely you are to be unemployed. In September 2005, the overall unemployment rate was 5.1 percent. But this masked a range of rates, rates that declined with education. The unemployment rate for those with a bachelor's degree was 2.4 percent; for those with a two-year degree, it was 3.6 percent; for those with a high school diploma, it was 5 percent; and for those without a high school diploma, it was 8.2 percent.
Education helps us compete globally. Increased global competitiveness is here to stay, and we need to face it head-on rather than hiding from discussions of outsourcing. Yes, it is estimated that U.S. firms outsource about 300,000 jobs a year, but foreign companies directly employ more than 5 million workers in the United States, according to the U.S. Department of Commerce, and indirectly provide an equal number of jobs for millions of others. We want to make the United States an increasingly attractive place for foreigners to do business.
We must meet the challenges of the next decade by expanding the flexibility of our labor markets. First, we need to make the workforce more attractive to senior citizens by allowing employers to offer part-time work without tax penalties and fixed costs. We need to increase the mobility of our workforce by providing defined contribution rather than defined benefit plans. This helps pension portability for employees who can take plans with them when they move and eases the financial burden on employers dealing with the rising costs of company-sponsored pensions. And it frees up money to be spent on necessary training initiatives to keep the U.S. workforce competitive.
This article appeared in the December 2005 HR Magazine.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, was a Senior Fellow at Hudson Institute from 2005 to 2011.
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