Impending Labor Shortage: Myth or Fiction?

Note: this article was written in 2006.

With the baby boomer generation quickly nearing retirement, many have proclaimed an imminent labor shortage. Yet others decry those warnings, leaving the rest of us with no clear understanding of how to prepare, if we even should.

Two hundred and thirty years after Paul Revere exclaimed “The British are coming, the British are coming” during his famous midnight ride, there is another fervent cry and warning heard far and wide throughout the land; “The Boomers are leaving, the Boomers are leaving.” Is anyone really listening and taking heed? Is there any real need to?

Headlines abound with conflicting messages: “The Worst Labor Shortage of our Lifetimes, The Labor-Shortage Myth, The Great Labor Shortage, What Labor Shortage? Preparing for a Future Labor Shortage.” Where does the real truth lie?

A few facts
In case you haven’t heard, the oldest of the 76-million baby boomer generation are set to reach their 65th year — traditional retirement age — in the year 2011. Already, the first of the boomers reached age 59-1/2 on July 1 of 2005; this age allowing them and all who follow to start withdrawing retirement funds from tax-deferred accounts without suffering early withdrawal penalties. The following generation — the “baby bust generation (or ‘Generation X’)” is not as plentiful; about 47 million born from 1965 to 1975. The “echo boom (or ‘Generation Y’),” born 1976 to the mid-90’s, number more than 60 million (No established consensus exists on exact Generation Y birth years).

Consequently, the Bureau of Labor Statistics (BLS) has reported that the percentage of older workers in the workforce is presently increasing at the same time younger worker percentages are decreasing. BLS states that “As the age of the labor force increases, a greater number of people will leave the labor force due to death, disability, or retirement.” And it is this “greater number of people leaving the labor force” that has caused pandemonium and panic in the street — or for some — little cause for alarm.

The “Labor Shortage” Debate
In its simplest form, a labor shortage exists where there are not enough people to fill needed jobs. Techniques for measuring the existence and level of labor shortages are actually quite complex and often controversial.

Ian Wyatt, Economist at the Office of Occupation Statistics and Employment Projections, Bureau of Labor Statistics (BLS), recently had this to say about BLS: “We can know supply. We can figure out demand. But we’re uncomfortable with the term ‘labor shortage.'” A simplistic and misunderstood view of their data is all too common, says Wyatt.

When BLS issued projections four years ago for the year 2010 — for a labor force number (supply) of about 157 million and an employment number (demand) of 167 million — many individuals simply subtracted the two numbers, came up with a shortfall of 10 million and shouted “labor shortage” without realizing the errors of their ways. Projections just released December 2005 for the year 2014 show a total civilian labor force at 162 million and total employment at 164.5 million; a difference of a lesser 2.5 million. To subtract one from the other though, according to BLS, is totally invalid and misleading; like comparing apples with oranges.

In a February 2004 Monthly Labor Review publication entitled “Employment Projections to 2012: concepts and context,” BLS tried to set the statistics-spinners straight. In part, it reads, “For example, the Bureau projects a labor force of 162.3 million individuals in 2012. At the same time, the Bureau expects that the 2012 economy will require that 165.3 million jobs be filled. Does this difference imply a shortage of 3.0 million workers come 2012? Absolutely not … .” It goes on to explain why: ” because individuals can and do hold more than one job, the count of workers will most certainly be less than the number of jobs,” and a great many other factors including; “the use of technology in the production process,” and “the hiring of offshore labor in foreign countries.” To read this illuminating document in full, go to

Factors That May Lessen a Potential Labor Shortage

Tapping Into Unused Workforce Populations
World War II brought with it a tremendous shortage of labor in some industries in the United States. The 8 million Americans who had been unemployed in 1940 at the start of the war soon acquired jobs and unemployment became almost nil. One solution to labor shortages came from a resource of workers that had not been fully tapped before: women. At the end of the war in 1945, women comprised 36% of the total workforce; up from 25% at its start.

Surveys of today’s baby boomers have already shown that the majority of boomers desire to remain in the workforce in some capacity well into their seventies. A desire for continued work fulfillment, needed monies, social interaction and benefits are often cited as reasons boomers may not be leaving the workforce as soon or as readily as some fear. Federal Reserve Board Chairman Alan Greenspan has commented that postponed boomer retirements could help ease predicted labor shortages.

In addition, many of the millions of adults now considered outside the “official” labor force — those individuals not actively looking for work — may choose to work part or full-time in the future if given a good opportunity; i.e., those with disabilities, retirees, and stay-at-home moms. As a BLS representative pointed out, “People go in and out of the labor force.” Many of these previously untapped sources of labor might be just the salve needed for a hurting and needy labor market.

Immigrant Labor
Reserve Chairman Greenspan has also repeatedly recommended and supported expanded immigration as a way to help solve past and future worker shortages. Greenspan has specifically recommended an increase in immigration as a way to ease anticipated labor shortages caused by baby boomer retirements. Expected significant levels of immigration into the U.S. in the coming years, along with changes to immigration policy that could result in lowering barriers to immigration, may very well help mitigate a shortage of workers.

Recent years have seen an increase in offshoring in this country; namely, outsourcing jobs overseas. American companies seeking to increase efficiency and significantly lower costs have gone to countries such as India and China to meet these needs. 2004 alone saw a 400% increase in offshoring by financial institutions in North America and Europe, according to a survey by Deloitt Research. And by 2008, a predicted 4.1 million service jobs worldwide will be offshored, according to a June 2005 McKinsey Global Institute study.

The number of jobs that could potentially be offshored is significantly greater, and all signs point to the continuation of this offshoring trend in our global labor market. This could equate to a lesser-than-expected labor shortage.

Increased Productivity
Advances in technology and techniques often result in growth in productivity; hence less individuals required to achieve work goals. As companies continue to explore and seek out new areas suitable for automation, resultant increases in productivity could aide in the war against the reduction in labor force.

Shortages Projected for Particular Industries and Occupations
We have already witnessed in recent years shortages of skilled workers in fields such as nursing, teaching and IT. When baby boomer retire, 10 occupations have been cited by BLS as those most likely to be affected: secretaries; heavy truck drivers; elementary school teachers; janitors and cleaners; secondary school teachers; registered nurses; bookkeeping, accounting, and auditing clerks; college and university teachers; educational and other administrators; and farmers.

Industries most likely to be affected by baby boomer retirements include educational services, public administration, transportation, and health services.

What Individuals, Employers and Educational Institutions Can be Doing Now
Now is the time for individuals to build skills that will be marketable in the workplace of tomorrow. They should pay careful attention to data and trends projecting which jobs will be in demand.

Human Resource managers and business owners may want to focus on company policies and procedures now that will increase employee retention in the future; things such as flexible work arrangements, training and career development opportunities, decent and consistent wages and rewards, better benefits plans, and matching the right person to the right job in the first place. Retraining and reeducation of employees may prove valuable in raising skill levels to meet the needs of business.

Employers might also consider setting up tailored programs for older workers in order to retain these experienced and skilled individuals; i.e., phased retirement and alternative work schedules, such as job sharing, part-time or consulting work.

Companies may do well to concentrate more keenly on increasing productivity by developing and investing in the right technologies and equipment, and in their own employees, in order to stay even more productive in the future.

A closer collaboration between the educational system and business can help ensure a greater number of skilled individuals will be directed toward industries and occupations with the greatest demands. Schools must make efforts to bring students up to par with their international contemporaries. Postsecondary education graduation rates at less than 50 percent must be improved, and graduates need to be able to meet challenges they will face in the global market.

“The greater the knowledge, the greater the doubt”

Johann Wolfgang Von Goethe

In the June 2003 Older Workers Survey publication by the Society for Human Resource Management (SHRM), they perhaps said it best repeatedly in both their table of contents and body of their Older Workers Survey: “Possibility of Worker Shortage Due to Retiring Baby Boom Generation.” Note the word “Possibility.”

Only time will truly tell just what impact baby boomers’ retirements will have on this country’s workforce and economy. Steps can, and should, be taken now to soften whatever workplace blow is likely to fall. As in World War II, our country has a history of adapting to and overcoming workforce change and challenges. Since history often repeats itself, Americans can be fairly certain that any future workforce shortages will be met with the same conviction and resolve.

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