The Labor Crunch & The Global Commute

Stephen DeAngelis

April 18, 2007

I have occasionally written about the importance of the global commute as one of the resource flows necessary to keep globalization moving forward. In some quarters, the term “global commute” is equated with immigration (often illegal immigration). In other quarters, the term conjures issues of outsourcing and lost jobs. Both pictures of the global commute revolve around the search for cheap labor, which there would seem to be an abundance of. It comes as some surprise, then, that BusinessWeek reports that “companies worldwide are suddenly scrambling to manage a labor crunch.” [“Where are All the Workers?” by Peter Coy and Jack Ewing, 9 April 2007]. Coy and Ewing write:

“Employers in some unlikely places say they’re having trouble filling jobs. Factory managers in Ho Chi Minh City report many of their $62-a-month workers went home for the Tet holiday in February and never came back. In Bulgaria, computer experts are in such demand they can’t be bothered to answer the want ads of a Los Angeles movie studio. And in Peoria, Caterpillar Inc. ( ) is struggling to train enough service technicians. The problem in each case: not enough people who are both able and willing to do the work for the posted pay.”

In an era where service jobs are replacing manufacturing jobs and technological activity is replacing human activity, this seems incongruous. At a time when technology makes remote (often 24/7 virtual) offices possible and profitable, a labor crunch is probably one of last things that someone would predict looms over the horizon. Coy and Ewing, however, report that the crunch has not only started, it is going to get worse.

“A global labor crunch, already being felt by some employers, appears to have intensified in recent months. That’s in spite of widely publicized layoffs, including Citigroup’s plans to shed as many as 15,000 staffers. In fact, U.S. unemployment remains low–just 4.5% in February–and even companies in countries with higher jobless rates are feeling pinched. ‘It’s not just a U.S. phenomenon,’ says Jeffrey A. Joerres, CEO of Manpower Inc., the staffing agency. On Mar. 29, Manpower was to release the results of a survey of nearly 37,000 employers in 27 countries. The study found that 41% of them are having trouble hiring the people they need. What’s going on here? With global growth running at a strong 5% a year since 2004, the strategies that companies developed to hold down labor costs–including offshoring work to low-wage countries–are running out of gas far sooner than many expected. The seemingly inexhaustible pools of cheap labor from China, India, and elsewhere are drying up as demand outstrips the supply of people with the needed skills. ‘Companies were hoping they wouldn’t have to worry about human resources at all,’ says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School. ‘Now they do.'”

My own company is growing rapidly and I know that finding the right kind of people with the right kind of skills is difficult and competitive. I’m in an upscale business, however, that requires highly educated and well-trained employees — not exactly those found in the “cheap labor” category. The current crunch contains two broad implications, both of them favorable to employees. First, it is going to be in the best interests of developed countries and transnational businesses to help educate people in parts of the world they have too long ignored. This includes both boys and girls who will form the future global work force. Second, companies (who have long chanted the mantra that their people are their most important asset) are really going to have to mean what they say. In fact, Coy and Ewing report that is already starting to happen.

“Corporations are determined to keep labor costs under control, so they’re reaching deeper into their bag of tricks. Some are doing more in-house training so they don’t have to recruit pricey talent on the open market. Some are lowering their standards for new hires or moving operations to virgin territories other outsourcers haven’t discovered, such as the Belarusian capital, Minsk, or smaller cities in Bulgaria and Romania. For now, though, workers with skills that are in short supply are enjoying the ride. If you’re a petroleum engineer in Colorado, where energy companies such as Shell, EnCana, and Halliburton are hiring like mad, you can write your own ticket. Even unskilled workers are being snapped up, says Sue Tuffin, director of the Mesa County Workforce Center in Grand Junction, Colo.”

The downside of offering good wages to unskilled workers, reports Coy and Ewing, is that some young people are leaving school to take them — not a good long-term strategy for resilience. The kinds of jobs that are going unfilled are often those involving the hardest conditions or most difficult challenges.

“Pittsburgh-based Consol Energy Inc. is so desperate for coal miners that it’s staging a media campaign that includes billboards, the Internet, and its first-ever television commercials. In agriculture, the crackdown on illegal immigration has dried up farm labor so much that crops were left rotting in the fields last year. Even Michigan, which has the nation’s highest unemployment rate, is reaching out to migrant farmworkers from Texas and, soon, Florida. Its slogan is ‘Venga a Michigan’–Spanish for ‘Come to Michigan.'”

As I noted in a recent post [The Age of Entrepreneurs], Michigan is also currently running an aggressive public relations campaign to attract businesses. The fact that Michigan has a labor pool represented by high unemployment could, paradoxically, be a selling point. Unfortunately, many unemployed people are unskilled and, according to Coy and Ewing, they are not the laborers for which there is the greatest demand.

“The job U.S. employers say is hardest to fill is sales representative. The trouble is, companies can’t find people with the technical expertise and business savvy to explain complex products to customers, Manpower says. Right behind them on U.S. employers’ wish lists are teachers, mechanics, and technicians.”

Sales representatives are often compensated by commission, which can be highly rewarding but it is also a highly unstable source of income. Mechanics and technicians are more likely to come out of technical colleges, but the U.S. “dream” is for its young people to attend a “real institution of higher learning” like Harvard. And we all know how poorly teachers are compensated for what they are asked to do. The tension there, of course, is that they are tax supported and the same people who appreciate teachers decry taxes. This all underscores the truth of the fact that the labor crunch is not about body counts (there are plenty of unemployed people), but about people with the right skills or offering enough money to perform certain tasks. Coy and Ewing put it this way:

“Economists, of course, will tell you there’s no such thing as a labor shortage. From a worker’s viewpoint, many so-called shortages could quickly be solved if employers were to offer more money. And worldwide, millions of people still can’t find jobs. The strongest evidence that there’s no general shortage today is that overall worker pay has barely outpaced inflation. In the U.S., the share of national income going to corporate profit, rather than, say, labor, is hovering around a 50-year high. With so many people newly available for work in China, India, and the former Soviet Union, the only thing that could cause a real shortage would be ‘a global pandemic that kills millions of people,’ Harvard University economist Richard B. Freeman wrote in a research paper in September. But try telling that to employers whose workforce strategies, developed for a period of surplus labor, don’t fit the new realities. The challenge is finding people who can do the jobs on offer. Manufacturers in Japan are suffering a lack of skilled workers because of the country’s aging population as well as downsizing during the 1990s. ‘Now they’re paying the price for not developing human resources,’ says Hisashi Yamada, an economist at the Japanese Research Institute in Tokyo.

As I noted above, companies are starting to stress investments in human capital as part of a good resilient strategy:

“In Europe, Swiss staffing company Adecco is teaching Polish carpenters to speak Norwegian so they can fill construction jobs in Oslo. Caterpillar, meanwhile, is redoubling training. A network of vocational schools in six countries teaches a Caterpillar-approved curriculum, and students enter it with a dealership already committed to hiring them. They will spend up to half their time in apprenticeships at Cat dealers, learning on the job. … Employers are on an all-out campaign to increase training and raise education levels.”

We often hear about “old Europe,” with its aging population, and imagine that the future belongs to Asian tigers or other countries with a growing and youthful work force. But in another interesting tidbit, BusinessWeek says if you are looking for which countries are “wired for growth,” you might be surprised to find that European countries top the list. The top ten countries, according to the World Economic Forum’s sixth annual Networked Readiness Index, are: 1) Denmark; 2) Sweden; 3) Singapore; 4) Finland; 5) Switzerland; 6) Netherlands; 7) U.S.; 8) Iceland; 9) Britain; and 10) Norway. Globalization’s most resilient economies are likely to be found in those countries that invest in both their infrastructure and their people. Companies won’t stop their searches for cheap labor, but they will eventually realize that in the service sector quality trumps cheap every time. Europe’s problem, of course, is a shrinking domestic work force, which is a trend that is not resilient no matter how educated or connected it may be. When (and if) Europe finds a satisfactory solution to its work force challenge, it won’t be referred to as “old” Europe very long.