Government Now Has to Compete for Talent
The data make it clear: the U.S. has a worker shortage problem. Employers, public and private, have been unable to fill job vacancies. As the New York Times reported in late July, “nearly every public-sector employer across the country is in a hiring crunch.” Significantly, virtually every industry is reporting vacancy rates almost twice as high as a decade ago. U.S. News reported, “. . .some US industries [are] desperate to hire.”
To date, the reports from public agencies are sketchy; although the problems have been the subject of media reports, few public employers report summary data on job vacancies. The words “crisis” and “dangerous” are often used in the reports. When vacancies mount and jobs remain open for weeks and months, the costs are high – burnout, high turnover, deteriorating performance, and diminished public support.
Of the many problems vacancies create, the flight cancellations and delays have gotten the most media attention. Here both public and private employers are involved. There are not enough pilots, mechanics, and cabin crew as well as not enough Air Traffic Controllers. The FAA states the agency needs 3,000 more ATCs. CBS reports the delays “. . . could continue for a decade . . .”
The headlines make it clear – the shortages are a problem in every industry. One of the hardest hit sectors is healthcare. U.S. News reported “Staff Shortages Choking U.S. Health Care System”. “The construction industry is facing the highest level of open positions ever recorded, a shortage of roughly 650,000 workers.” The trucking industry is “headed for a shortage of 160,000 drivers by 2030”; U.S. manufacturing “Faces a 2-million Worker Shortage”; “In Retail: Labor Shortage Will Get Worse”; even in banking, “Labor shortage in banking will persist long after pandemic subsides”.
For public employers, the problems are most severe with jobs that involve stress and unpleasant or dangerous working conditions. Many of the high vacancy jobs require regular attendance at a work site and/or personal risk. Prisons, police, hospitals, road crews – all report record shortages. The most recent reports highlight vacancies in 911 call centers. Those jobs of course are vital to the public.
Additionally, the COVID crisis and working remotely have triggered important changes in the country’s labor markets. Employees now have different interests when they look for a better job. As a Forbes column argues, “Flexibility is top of candidates’ wish list . . . Working at home gave them “more time for themselves and their family, and they don’t want to give that up.” It’s now a “sellers’ market” and job seekers know that.
The Media Reports Overlook a Key Issue: Demographic Trends
Staffing problems got little attention prior to the COVID crisis but the trends started as far back as the 2009/10 recession. Five years ago, a business column discussed “12 Industries That Desperately Need Workers.” A CNN Business headline from 2018 read: “American businesses can’t find workers.”
The core issue is two demographic trends: Declining fertility rates and Baby Boomers ageing and retiring. In 2001 the entry-level talent pool (ages 20-24) was 14.6 million. In 2021 it was 14.7 million while the U.S. workforce increased by almost 20 million. Over that period the Baby Boomer workforce (ages 55 to 64) increased from 15.1 million to 27.1 million in 2021. The number deferring retirement and continuing to work after 65 increased from 4.4 million to 15.5 million.
In 2009 there were 6.5 unemployed workers for each job opening. Employers, including public agencies, could simply post job openings and wait for applicants. But the ratio began to decline, dropping to a low 0.8 in early 2020. It jumped dramatically when workers lost their jobs in the COVID crisis, climbing to 4.9 workers per job opening.
With end of the pandemic, when employers started hiring, the ratio fell to a new low 0.5 – one worker for every two job openings. That is a key to the current shortages. The U.S. does not have enough workers looking for work to fill the open jobs. Data posted by Moody’s and others show there will be shortages for years. Agencies cannot afford to ignore that in their planning.
Another Key Issue: The Model for Public Pay Was Not Planned to Compete for Talent
For government, a frequently voiced contention attributes staffing problems to salaries that are too low. That may be true as a generalization but when the basic salary management model was developed early in the 1920s, the idea was not a consideration. For the next half century, workers were hired soon after graduation and stayed with the same employer until they retired. Employers, public and private, could post job vacancy announcements, then sit back and wait for applications.
Of course workers want to be paid, as a union leader stated years ago, “more” but unions have resisted replacing pay systems. For a quarter of a century after World War II both public and private employers relied on rigid salary systems, with pay increases based on rising living costs. The goal was to maintain “internal equity”. Jobs were classified based on predefined grade descriptions. Market trends were not then an issue.
To focus on a prominent example, the administration of the federal GS system, the pay of white collar workers is never compared with the pay for similar jobs in the private sector. Starting salary data, the key to attracting applicants, are never considered. The Bureau of Labor Statistics pay surveys are not intended to report “market pay” information. Jobs classification is based on the same logic adopted in 1948. When engineers are classified and paid in the same grade as librarians, it’s obviously contrary to the way the jobs are paid in the labor market.
That continues as a common program model for state and local government pay systems. Many continue to rely on similar policies and methods (e.g., step increases, job classification).
The typical private sector pay system is very different. The changes started after the 1990 recession when “knowledge” jobs (e.g., IT specialists) became prominent. In other sectors employers now rely on surveys that provide starting salaries along with market averages for “benchmark” jobs to determine grades and make annual adjustments. Businesses, hospitals, and colleges all rely on similar practices. There are over a thousand surveys conducted in every industry and geographic area. It’s a simple and logical philosophy. Many surveys would be available to public agencies if they chose to become participants.
The key point — It’s rare to find a public employer at any level that tracks and tries to compete with named private sector employers (similar, that is, to the way hospitals compete with hospitals, and banks compete with banks). Very few public employers adjust salaries annually to match private sector salaries.
Government, however, has a far more complex problem than the typical company. The competition is not limited to other similar jurisdictions. The practical problem is that many occupations have their own defined block of competing organizations. Healthcare agencies compete with employers of healthcare specialists. Accounting departments compete with other local employers with similar accounting jobs. Technology departments compete with employers that compete for the same tech skills. Government needs to compete in those specialized markets but also offer attractive opportunities for workers in the fields unique to government (e.g., prisons, social services, parks and recreation, etc.)
Both state and local jurisdictions now need to compete in several, very different labor markets. The common program model was adopted before that was true. That creates more complex compensation problems than a typical private employer.
For government, a frequently voiced contention attributes staffing problems to salaries that are too low.
Government’s pay problems are further complicated by the role unions and employee associations play in the decision making. Their reticence to accede to change is understandable but it’s a prominent barrier to needed changes. A great example at the federal level is the creation of the Cybersecurity & Infrastructure Security Agency (CISA) in 2002 but still does not have a pay system that makes sense for these emerging, high demand occupations.
There are, however, jurisdictions and agencies where new pay policies and practices have been accepted. At the state level, Tennessee’s successful civil service reform stands out. The state benefited from the leadership of Governor Bill Haslam and several appointees with years of experience in large corporations. The federal Government Accountability Office (GAO) adopted a simple banded salary system with increases based in part on performance. The Federal Aviation Administration (FAA) has a similar system based on broad salary bands.
Realistically, there is no practical reason that precludes separate pay systems for different occupation groups. Police and fire departments have had separate pay systems for decades. Teachers of course have also had separate pay systems. Those systems are never questioned. Today, the rapidly changing market for tech skills warrants a separate pay system. Engineers and scientists also warrant a separate system. Healthcare jobs are another obvious group where a separate system is the practical answer.
The old, tenure-based wage and salary programs are not the answer for the future. States can adopt changes like eliminating degree requirements or dropping minimum age or experience requirements to open doors to larger cohorts of job seekers but that does not promise to make the jobs more attractive.
Important New Phrase – “Employee Value Proposition”
Government’s critics often oppose fully competitive salaries, focusing on payroll costs and ‘total compensation’. They are correct, when salaries are combined with the dollar outlay for what used to be called ‘fringe benefits’, the total is much higher than in the average company.
But that generalized comparison is virtually meaningless. The critics’ argument assumes the hundreds of thousands of ‘mom-and-pop’ businesses are relevant to the comparisons. Many provide only the required FICA benefits and paid leave. Comparisons are also distorted because private employers can deduct the costs and reduce their tax obligation, and thus reduce the net costs of the benefits.
More importantly, government’s true competitors — larger private employers — are far more likely to provide comparable benefits. Additionally, larger businesses have bonuses, cash incentives and stock ownership plans that can add significant amounts, but those plans are ignored in the ‘total comp’ analyses.
Yes, government fringe benefits are generally better. However, the “value” of benefits to applicants depends on their age. Not surprisingly, retirement plans are not the key to attracting applicants.
For young workers, pay is important but they also look for a healthy work-life balance, flexible hours, training opportunities, good managers, respect, and a positive workplace culture. As workers mature, fair pay and job security are important along with work that involves what they do best. All of that is referred to now as the Employee Value Proposition (EVP) – that is the financial and non-financial benefits of a job.
According to Gallup, employers “must ultimately sell their employee value proposition (EVP) to potential job candidates. The art of talent attraction requires the creation of a total promise to potential hires . .” That is something few public employers have tried but with highly competitive labor markets employers, public and private, need to convince job seekers they offer attractive career opportunities.
Looking back, government retirement policies have contributed to the vacancy problem. Air Traffic Controllers, for example, can retire at any time if they have 20 years of service and are at least age 50. Their mandatory retirement age is 56. Policies that encourage or require workers to retire in their fifties add to the vacancy problem. The cost for public employers of funding retirement benefits paid over what could be 25 or more years is an added problem.
Building Support for New Practices Requires Leadership
Today US labor markets as well as the world’s are undergoing a rapid evolution in the way work and workers are managed. The understanding of retirement is also evolving. The COVID crisis accelerated changes in management practices that started in the private sector two decades or more earlier. Now all employers have to rethink their practices to compete for scarce talent.
One of those proven changes, relying on Employee Resource Groups (ERGs) to identify needed change, may be the quickest and easiest way to learn about problems affecting work groups. McKinsey argues, “When managed well . . . ERGs will become powerful enablers of an organization’s—and its employees’—success.” The level of trust that emerges from the meetings can be invaluable. They know what’s needed to improve government’s EVP.
The newest idea — eliminating degree requirements — shifts the focus to another emerging practice, skill-based hiring. The technical or “hard” job skills can be confirmed through pre-employment testing, certification, and employment histories, but job candidates who possess good social or “soft” skills — the ability to work in groups, communicate effectively or to prioritize tasks – have the best chance for success. The key point is skill-based hiring is great in concept but requires an investment to understand the skills jobs require.
Another proven idea, the use of salary bands, first surfaced more than two decades ago. It mirrors the pay framework used with college faculties (e.g., salary bands for Lecturer, Assistant Professor, etc.). The concept ‘fits’ jobs like those in engineering and technology where career ladders do not have clearly defined levels and the focus is on individual skills. At the federal level, both the GAO and FAA pay systems are based on salary bands. It’s much easier to make the transition to a banded structure than one based on a multiple grade and step structure.
Another option of course is pay for performance. Despite the history, it can gain acceptance in government. The pay increases in both the GAO and FAA programs consider individual performance. The Tennessee pay system also relies on performance pay. But it’s important to understand that performance management is the key and if Tennessee’s strategy is meaningful, two or more years of manager training and ‘practice’ are required. It’s always true — better performers want their value to be recognized.
There are options to enable government to compete. Prominently, the common thread in the success stories is the role of leadership. It’s doubtful that Tennessee could have realized the same level of success if Governor Haslam had not been elected. Also prominent is the pledge – the changes will be fair and contribute to improved government performance. When the goals are realistic and important to the public, employees will get on board. The recent story of the I-95 bridge collapse and surprisingly fast rebuilding in eastern Pennsylvania and Governor Shapiro’s leadership make it clear great things can be accomplished.
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