A New Dimension to Workforce Planning: Costly Worker Shortages
The recent Barrett & Greene column, “With the rise of AI, workforce planning is critical” is a good overview of current practice but the COVID crisis has added new dimensions to the problem. In the 1970s when workforce planning started, it was an in-house numbers exercise that involved tracking incumbents to anticipate job openings. It was decades before the “new world of work”. The column highlighted the point that workforce planning now needs to consider emerging digital technology and how it’s changing jobs and generating the need for new skills.
Coincidentally, McKinsey posted a related column the same week that summarized a related study, “A new future of work: The race to deploy AI and raise skills in Europe and beyond.” McKinsey’s focus is business but their conclusions are relevant to all employers. A key point is:
“[Our] modeling of the future of work finds that demand for workers in STEM-related, healthcare, and other high-skill professions would rise while demand for occupations such as office workers and [other low skill jobs] would decline.”
They also argue, “Skill shortages are perceived to be getting more acute: our survey shows that the skills projected to experience the most demand growth by 2030 are those currently in shortest supply.”
The column highlights a key point – skilled job seekers are inadequate to meet demand. For jobs requiring scarce skills, the competition will increase over the coming years.
Job vacancies are normal but when the numbers increase, it causes burnout and increased worker ‘quits’. At some point, performance begins to deteriorate – along with public support.
A New Dimension – Worker Shortages
McKinsey’s argument is related to four issues that build on the Barrett & Greene column:
- The current emphasis on eliminating degree requirements and shifting the focus to skills will become more important in the future. Adding essential skills to job postings is recommended.
- Workforce planning needs a broader focus to consider the availability of talent to fill vacancies. Both the demand and supply of workers with requisite skills are relevant to the planning.
- The focus on demand has significant implications for wages and salaries. With shortages in key occupations, the competition for talent will affect markets and pay increases going forward.
- When workers with essential skills are scarce, and established recruiting practices are no longer effective, employers need to develop new strategies to fill vacancies.
This is not a new problem for public employers. There were similar reports through the last decade of shortages in public health, law enforcement and public education. COVID may no longer be a public health issue, but it exacerbated the problem.
In 2022, the PBS News Hour focused on the problem, “American cities, states can’t find enough workers despite an influx of federal funding.” In 2023, a study was reported, “U.S. governmental public health workforce shrank by half in five years.” A column a few days ago highlighted the “Critical Shortage: Direct Care Workforce Looms.” A Google search on “worker shortages in government” found over 360,000 hits.
Now, post-COVID, the shortages reflect the conjunction of several trends — the aging population, lower birth rates, new technology, declining college enrollments, retirements triggered by COVID, childcare problems, and changing worker expectations. Those factors come together to reduce the supply of talent. Shortages have been reported in a long list of occupations, from physicians to truck drivers
The U.S. economy is clearly better today than two or three years ago. The stock market is significantly higher. The unemployment rate is lower than at any time in the last half century.
However, job vacancies have gotten worse. The data for April shows 7.2 million job vacancies in the private sector. That total was 5.7 million at the end of 2019. The total rose steadily through the decade. The total in state and local government increased from 604,000 in 2019 to 746,000 today. At the end of the Great Recession, December 2010, the total was 300,000. Agencies with older workers are likely to experience a rapid increase in vacancies.
All of that together – the focus on job skills, the impact of new technology, the worker shortages, and government’s aging workforce, reinforces the need for workforce planning. It also argues for focusing on what’s happening in labor markets in an employer’s region along with the steps to attract applicants.
This Is Best Understood as An Agency Problem
It’s common to expect HR to address workforce problems. But the shortages combined with the impact of AI makes each agency’s problems unique. A list of the agencies in the Pennsylvania government highlights the problem – the first three departments are Aging, Agriculture, and Banking & Securities. These departments and others that follow have different missions and rely on different occupations.
Workers in an agency understand the workforce problems and want to see them solved far more than a central HR office. They understand the essential skills and training needs better than HR. They also are in the best position to define the experience and education important to evaluating applicants. They want their department to be a success. Their memberships in professional groups and unions provide a unique insight into workforce issues affecting their work experience and their occupation.
For agencies with employees working across a state, the local shortages depend on employee ages and the job seekers in the immediate area. Declining local population adds to staffing problems.
That makes teams of experienced workers the best answer to tackle the problems. Relying on employee teams is common in higher education to address a variety of issues, including updating pay programs. It’s a practice in healthcare as well. With guidance, they can solve many workplace problems. It works because the team members are trusted by their colleagues and keep them up to date.
Increased Competition Drives Pay Increases
Pay is universally a core issue in staffing although columnists often downplay its importance. That’s true in the private sector as well but for different reasons. An HR Council created by Forbes drafted “Effective Strategies for Long-Term Workforce Planning” where the first recommendation was not salary level; it was “Boost Pay Transparency and Performance-Based Awards.” Their view of workforce planning focused on creating a work environment that attracted workers.
A recent survey reported “a high starting salary” is not the top priority for new college grads – more important are job stability, location, and employer reputation – but the difference in the rankings is only two or three percentage. It would be interesting to learn how graduates respond if they learn starting salaries are 20% or more below market.
It’s certainly not a secret that government salaries are often low. The explanation is simple – government’s pay schedules have been administered virtually independent of trends in other sectors. General or across-the-board increases have been controlled by politics, not economics. Internal job rankings, based on job classification, have been unchanged for years. Pay compression limits the pay for high demand jobs.
All of that runs counter to the dynamics of today’s labor markets. Rigid pay schedules make it very difficult to compete for talent. The list of occupations employed by government is longer and more diverse than any employer in other sectors. That means government agencies are competing for workers in many labor markets, each involves employers in different sectors.
Job vacancies are normal but when the numbers increase, it causes burnout and increased worker ‘quits’.
The federal General Schedule (GS) system highlights the gaps between public and private pay levels. Currently, in relatively low pay areas like Omaha, federal white collar salaries are 35% or more behind private sector pay levels. In high pay cities like Boston or Los Angeles BLS survey data show the gap is greater than 70%. Comparable data for state and local public employees are not available.
But workplaces and labor markets are continually changing. The layoffs in the COVID crisis were followed by reports of workers changing employers to secure pay increases. The firm ADP has conducted surveys to compare the increases for workers who changed jobs with those who stayed. Their data confirm it pays off – the pay increases from 2021 to 2024 for job changers were roughly twice as high. In mid-2022 it was 16% vs 8%. In March it was 10% vs 5%.
Similar data by occupation confirm workers in high demand fields have an advantage. The Bureau of Labor Statistics report, Occupational Employment and Wage Statistics, provides employment and wage data for over 800 occupations. Comparative data for the four years 2019 to 2023 confirm high demand jobs had higher increases.
Not surprisingly, IT jobs saw the largest increases, 20% or higher. Network Architects, Web Designers and Computer and Information Research Scientists saw the largest increases, 51%, 32% and 23% respectively Specialists working to understand COVID or develop treatments also benefited from larger increases, in the 20% range. Patient care jobs in health care also benefited from higher increases (although employment levels dropped).
Surprisingly, while COVID prompted significant job losses for low skill occupations – waiters, janitors, retail sales, hair stylists, etc., employers trying to rebuild their staffs increased salaries in the 20% range.
The occupations with the lowest increases were typically unique to government, teachers at 10 to 12%, police 13%, firefighters at 10%. Worker shortages were reported for these occupations before COVID and employment either declined or stayed roughly the same in the four years. Over the four years, the data show public compensation levels fell further behind pay in the private sector.
But now it’s the shortages in the headlines. Hiring shifts the focus to competing pay levels. Within a state, cities and towns often have significantly different market pay levels. A good example is Registered Nurse, a job defined essentially the same in every location. In my home state, Pennsylvania, BLS data shows the average RN salary in Harrisburg is $86,480; in Philadelphia the average is $94,850, in Erie it’s $79,070, and in the rural areas between Erie and Pittsburgh the average is $75,640.
Significant differences in pay exist across every state. The pattern is consistent – workers in cities are paid higher salaries than in suburbs, and they in turn are paid more than their counterparts in rural areas. The data make it clear – when employers fail to monitor market ay levels, pay programs can both overpay and underpay employees. The differentials are generally not reflected in public pay programs.
The “We’ve Always Done It This Way” Is No Longer Working
The mounting vacancies confirm the traditional practice — posting vacancies and waiting for applicants – is not working. For decades ‘want ads’ attracted more applicants than needed but that ended with COVID.
There are variations in the schedules, but there are four common problems: (1) when schedules are adjusted, all jobs get the same increase, (2) they cover very diverse jobs from the lowest to the highest levels, (3) they ignore individual credentials, and (4) with state pay systems, the ranges are often used state-wide.
The latter point is a clear problem where cities are larger than the state capital. State capitals rarely have the highest pay levels and the differences can be significant. In New York state, for example, BLS data show Nurses earn $90,630 in Albany and $111,210 in New York City. The current labor contract adds only $3,400 for nurses working in NYC.
The federal government recognized the urban/rural patterns in 1990 when locality pay was introduced. (I managed the project for OPM that led to the law.) Today 54 cities have separate GS salary schedules. In several states two or more cities have separate schedules. Hawaii and Alaska, with their declining populations, have state-wide systems.
Earlier in 1972, the federal government switched to locality pay for hourly workers when the Federal Wage System (FWS) was created. The program model, based on local pay levels, is universal in the private sector. Today 248 federal locations, typically military bases and VA hospitals, have separate hourly pay schedules, based on local surveys. The program is run by joint union-management committees.
Several federal agencies have been authorized to create their own pay systems. GAO and SEC are on that list. The Senior Executive Service (SES) also has a separate pay system, with year-end bonuses tied to performance. Additionally, agencies can request “special rates” when low salaries are a barrier to hiring.
The point is there are proven program models that fit today’s work environment better than rigid schedules. Federal staffing problems still exist of course. But when agencies are able to control their pay programs, the problems are minimized. That could explain why several of the agencies are close to the top of the lists of the “Best Places to Work in the Federal Government.” GAO is the best of the mid-size agencies.
Suggested Next Steps
A year ago Bob Lavigna published a column, “A Road Map for Dealing With Government’s Workforce Crisis.” His first recommendation of several was, “Fix pay problems. . . if pay is too low, increase it to be competitive.” He’s right, of course, pay increases could diminish the shortages.
The first step should be to learn how salaries compare with market pay levels and where gaps are believed to contribute to vacancy problems. Monitoring market pay levels is universal in all but the smallest employers. It’s straightforward, matching jobs with the brief descriptions of benchmark jobs in surveys. Participating in surveys makes the data available at no or reduced cost.
Hundreds of surveys are conducted every year, by consultants, industry groups, professional associations, and local HR groups. Pay data are also posted on a number of websites – LinkedIn, Glassdoor, Indeed, and others. (Data from sources other than professional surveys needs to be verified.) Salaries used to be highly confidential but the DEI initiative has prompted greater transparency.
Survey reports rely on descriptive statistics, making the data easy to understand. Following the practice in colleges, HR could work with teams in each agency selected from key job families to compile benchmark job data. That builds credibility and acceptance of the findings.
The data will set the stage for addressing the core questions: Are across-the-board increases still the best answer? Would the cost of market adjustments be acceptable within current budgets? What resistance would surface if broad changes were proposed? Where are vacancies creating problems?
It would be advantageous to replace older pay programs but where that’s not feasible, the federal approach, creating pay systems for specific agencies or occupations, is a practical answer. It’s sometimes ignored but law enforcement and education have had separate pay systems for more than a century.
Healthcare stands out as needing new and fully competitive pay systems. They could be developed to mirror the pay programs in hospitals. Tech jobs are another group where rigid pay systems are a barrier to staffing. To compete for craft and maintenance workers, government should consider adopting the FWS model with locality pay. Transit systems and airports also have worker shortages. The shortages in prisons have made headlines. The problems needs to be addressed agency by agency.
Assembling the market data would be an inexpensive first step to identify the jobs where pay is a problem. The costs of adjusting pay levels needs to be considered in light of problems caused by vacancies. The problems include burnout and increased resignations, declining performance over time, service cutbacks, and at some point loss of public support. Defensible data are needed to support the need for change.
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