Where Are All The Workers?

Companies worldwide are suddenly scrambling to manage a labor crunch

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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. (CAT ) 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. "We've got a global problem...and it's only going to continue to get worse," says Stephen Hitch, a human resources manager at Caterpillar.

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 (C ) 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."

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 (RDS ), EnCana (ECA ), and Halliburton (HAL ) 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. "Parents are trying to convince kids to stay in school," she says, but the lure of the gas fields is strong: "You can go to work on a drill rig with no training and make $30 an hour." Pittsburgh-based Consol Energy Inc. (CNX ) 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."

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. "There are certain professions where skills are in such demand that even average or below-average people can get hired," says Michael Alter, president of SurePayroll Inc., which keeps tabs on the labor market as it processes small-business payrolls.

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.

China, although far more youthful than Japan, could soon feel the same pinch. Sure, its biggest problem at the moment continues to be creating jobs for the millions of workers pouring into cities, and wages are barely rising overall. But that may be starting to change as the government boosts incentives for people to stay in rural areas and most factories remain concentrated in a few coastal regions. In an article published in early March in the China Daily, Beijing economist Cai Fang said China is approaching a "Lewisian Turning Point." That's a reference to the late Nobel laureate Sir Arthur Lewis, who said a developing nation's industrial wages begin to rise quickly at the point when the supply of surplus labor from the countryside tapers off.

Cost-conscious employers around the world are fighting to hold the line on labor. In Japan, the core rate of inflation in January was precisely zero, in part because corporations are keeping wage increases to a minimum. Instead, Japanese businesses are going with other gambits, such as hiring temps full-time, increasing mechanization, offshoring work, and rehiring retirees. Toyota Motor Corp. (TM ), for instance, is asking some workers over 60 to delay their retirement for a year or more. In Europe, Swiss staffing company Adecco (ADO ) 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.

The labor squeeze in India gets lots of attention. Oddly, though, Manpower's survey found that employers in India reported the least problems filling jobs: Just 9% said they had difficulty, vs. 41% in the U.S. and 82% in Mexico. The explanation? Manpower's staff thinks turnover is so rapid in India that employers figure if they really need to fill a job, they'll lure someone away from another company. But stealing scarce talent from rivals isn't a strategy for the long run. That's why employers are on an all-out campaign to increase training and raise education levels. While India produces 400,000 engineering graduates a year, few have the skills and language abilities to work in an advanced multinational corporation. Some 1.3 million people applied to tech-services giant Infosys Technologies Ltd. (INFY ) last year, for instance, but the company says only 2% of those were employable. For business, it seems, there's no shortage of work involved in easing worker shortages.

By Peter Coy and Jack Ewing, with Ian Rowley in Tokyo, Michael Arndt in Chicago, Dexter Roberts in Beijing, and Nandini Lakshman in Mumbai

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