What Labor Shortage? Debunking a Popular Myth. The coming labor shortage. (page 1 of 3)

That is the conclusion of a study by Peter Cappelli, professor of management and director of Wharton's Center for Human Resources. The study, titled "Will There Really Be a Labor Shortage?" and published in the August issue of Organizational Dynamics, notes that employers may well face difficult challenges in recruiting and hiring people in the future. But those challenges will stem from fundamental changes in the nature of the employer-employee relationship that contribute to the difficulty of retaining employees, not from a shortfall in the number of workers caused by demographic shifts. Cappelli suggests that employers work to improve their inadequate human-resources capabilities rather than fret over a non-existent shortage of workers.

In an interview, Cappelli said the idea for the paper arose from what he saw as the need to stick a pin in an assumption that had ballooned to such proportions that it was never questioned.

"Once this drumbeat about a labor shortage took hold some years ago, it became automatically factored into the background of any discussion about human-resource topics," he says. "I'd go to a company workshop and the [presenter] would begin a slide presentation with a statement about the coming labor shortage. It's a statement that is now just built into the underpinnings of the way companies think. It's like a rumor you hear about on the Internet: People hear it so often, they believe it."

A Grain of Truth
Like many false beliefs, the forecast of a widespread labor shortage - the inability to fill jobs at prevailing wages - has its basis in truth. People who argue that a labor shortage will befall corporate America blame it on a demographic change that is quite real - the small size of the so-called "baby-bust" generation, the group of people that followed the baby-boom generation into the labor market. The number of people in the baby-bust cohort, who this year fall between the ages of 23 and 37, is about 16% smaller than the massive baby-boom generation, whose members were born between 1946 and 1962.

Cappelli's study lays out in detail why it is erroneous to assume that a smaller baby-bust cohort and the aging of the boomers - who will begin to retire soon - will lead to a labor shortage. For one thing, the fact that the baby-bust cohort is smaller overall than the baby-boom cohort does not mean that every sub-group within the baby-bust group has to be 16% smaller. Colleges, for example, did not cut back on the size of their graduating classes when the baby-busters came through school. The overall number of college graduates since the baby-busters left high school has actually gone up because more students who might not have gone to college are being pulled into the system of higher education. And it is college graduates who are most in demand by employers.

As for the fear that the retirement of baby boomers will contribute to a labor shortage, Cappelli says that this assumption is predicated on the unrealistic expectation that the boomers will quit work at age 65. Unlike their parents and grandparents, many boomers will continue to work past 65, even though they may change the kind of work they do.

What's more, not only will the general population continue to grow, so will the labor force, according to the study. The Bureau of Labor Statistics estimates that the labor force will rise from 153 million in 2000 to 159 million in 2010.