While there are jobs to fill, the likelihood of a labor shortage is a matter of debate
Cindy Fernandez-Nixon’s story is one that those concerned about the future health of the southwestern Pennylvania labor force should find heartening. She moved to Pittsburgh for an engineering job at Westinghouse seven years ago, but wasn’t sure how long she’d stay. In Pittsburgh, she found a Hispanic community that is only a fraction of the size of the one in New Jersey in which she grew up.
“It was a big culture shock. After a while, I had a little withdrawal from the music, the people, the language, the food,” says Ms. Fernandez-Nixon, who is 29. “Going to the supermarket, I couldn’t get the food I’d be able to get back home. There weren’t the same amount of restaurants. Beauty products were hard to find.”
But she stayed, anchored by her job and the opportunities she found in the city’s growing Hispanic community, including hosting a Latin music and culture radio show on WRCT. “The same reason that made me think of leaving motivated me to stay and use my passion as a way of opening the door to the people here.”
Business leaders and labor market experts agree that the Pittsburgh region needs to attract more people like Ms. Fernandez-Nixon in order to stay economically viable in the future. Where there is sharp debate, however, is whether a labor shortage crisis is looming as more workers of the baby boomer generation reach retirement age.
Population concerns
The Allegheny Conference on Community Development has for several years voiced concern that a labor shortage is on the horizon, based largely on demographic trends suggested in U.S. Census Bureau population data. An internal analysis of the data, for example, reports that the region’s working age population is composed of 144,000 more people aged 45-65 than 25-44, which the Conference suggests is an indicator of a worker gap in the coming years. In other words, when the region’s cohort of workers aged 45-65 retires, the smaller, younger cohort will be too small to fill the gap.
“For employers, it’s worrisome,” says Bill Flanagan, chief corporate relations officer at the Allegheny Conference. “When you look at how the demographics are playing out you see that the trends are not accelerating fast enough to close the gap that we face over the next five to 10 years.”
Flanagan points out that the anticipated gap is front-loaded because of the impact of the baby boomer generation. He anticipates a “slide” of baby boomers retiring and exiting the workforce, a trend that has already begun. “I think what this means for employers is that it’s not a challenge that we have to deal with over the next 20 years. What happens over the next five to 10 years is going to be critically important, because we are right in the midst of losing the baby boomer cohort in the regional population.”
The Allegheny Conference is not alone in its thinking. In recent years, several reports by research organizations such as the Hudson Institute and McKinsey and Company suggest the U.S. economy will face a labor shortage due to the smaller size of the cohort of workers from the generations following the baby boomers.
But labor scholars such as Peter Cappelli, professor of management and director of the Center for Human Resources at the Wharton School of the University of Pennsylvania, argue that a widespread labor shortage during which jobs would go unfilled even at competitive wages would be unprecedented in modern U.S. history.
“Employers may well face new and more difficult challenges in recruiting and hiring than previous generations faced,” writes Cappelli in a paper published in the journal Human Resource Management. “But the challenges have to do with changes in the employment relationship that increase retention problems, not a shortfall of workers caused by demographic changes.”
Labor force dynamics
Baby boomers aging out of the workforce is not unique to the Pittsburgh region. Every region has to deal with a similar demographic shift. But local scholars who study labor and population migration, say such a shift alone is not a threat to the region’s economic stability.
“The population gap doesn’t matter. It’s the labor force,” says Sabina Deitrick, co-director of the Urban and Regional Analysis Center at the University of Pittsburgh University Center for Social and Urban Research (UCSUR). Labor force participation, she says, is the key indicator when assessing the future vitality of a region’s workforce. “You don’t want to have low rates of labor force participation with the prime workforce age groups.”
Fernandez-Nixon is evidence that good jobs attract workers. Christopher Briem, a regional economist at UCSUR, argues that the American labor force is one of the most mobile in the world and that Pittsburgh has not had a problem bringing people into the region when there’s job growth. Year after year, U.S. Census surveys show that employment is the main reason working-age people move to another place.
The workers who are retiring are also very different from the workers needed to fill new labor demand, and this impacts the future of the labor market in the region.
“Labor force participation trends are changing pretty drastically and if we’re talking about changes over the next quarter century, labor force participation is going to look very different in 25 years than it does today and it will impact all of these forecasts,” says Briem.
Among younger workers, for example, women have higher labor force participation rates than men. “The retiring people are part of a much more male workforce than the 25-44 workforce,” says Deitrick. “The supply of labor in the area has seen a shift in gender from when the first of these workers came in.”
And not all boomers are expected to retire soon. The recession less than a decade ago and other factors may be contributing to a trend that finds more older Americans working longer. Large increases in labor force participation are expected to occur among those aged 55 and older between 2008 and 2018 based on U.S. Census Bureau projections. In Allegheny County, more than 42 percent of residents aged 55 years or older expect to work until they are 66 or older. And 55 percent of workers say they now expect to retire at an older age than they had previously hoped, according to a 2014 UCSUR/Pittsburgh Today report on aging drawn from the most comprehensive survey ever done of seniors in any U.S. county.
A competitive future
Both economists and business leaders see the need for employers to rethink their recruiting and other practices regarding attracting and retaining workers as the competition for talent intensifies.
Pittsburgh’s labor market has changed recently, Briem and Detrick point out. The last 25 years was a period of minimal job growth, during which local employers were able to fill most jobs locally, which makes it easier to recruit and retain talent at lower wages.
“I think the future of Pittsburgh’s labor force will look like all the regions we compete with, where employers will have to compete for workers nationally or internationally,” says Briem. “If Pittsburgh is going to be successful, it’s going to have to bring workers here. That starts with offering the right wages and the right jobs going forward.”