The Labor Shortage Problem: Why It’s Bigger Than You Think and How to Address It

In a survey of our Indago supply chain research community conducted in October 2021, we asked, “Which parts of the physical supply chain are the most broken or need the most fixing?” Not surprising, ocean ports ranked first, but labor was a close second. Simply put, the demand for labor across all parts of the supply chain today is significantly greater than the supply of available workers. Is the COVID-19 pandemic the main reason for this problem or are there other factors at play? What are the implications for shippers, carriers, and logistics service providers? How can technology help alleviate this problem?

Those are some of the key questions I discussed with Chris Jones, Executive Vice President, Industry and Services, at Descartes Systems Group, in a recent episode of Talking Logistics.   

The Labor Shortage Problem: Decades in the Making

The COVID-19 pandemic has caused many significant disruptions to supply chain operations, but is it the main cause of the current labor shortages?

Chris damped down that notion by stating that he feels the pandemic actually masked problems that already existed. For example, Chris notes that the December 2021 unemployment rate was only slightly above the near record lows experienced just before the pandemic hit. And there are actually 3 million more job openings now than before the pandemic. The real problem is a shrinkage in the available labor pool.

Chris shared some statistics from a presentation by labor economist Ron Hetrick titled “The Demographic Drought.” Population growth, for example, has steadily declined since the 1970s across the world. In several leading economies, including the United States, Korea and Japan, growth is, in fact, negative. A sustainable replacement rate is 2.1, meaning every adult couple must raise an average of 2.1 children to maintain a steady population. In the United States, however, the replacement rate is only 1.7, and has been below the 2.1 rate (and declining) for over 50 years. Other Western economies are the same or worse. Even China and India have seen significant declines in their population growth rates.

When you add in the surge in Baby Boomer retirements in recent years, a group that has driven the U.S. labor force over the past 50 years, it becomes clear that the decline in labor availability is a much bigger problem over the long term than the temporary displacements from the pandemic.

How Should Companies Respond?

With the long-term trend line of decreased labor availability, how should companies react to ensure they have sufficient staff to maintain and grow their business?

Chris says, “Number one is companies need to rethink their approach to recruitment, hiring and retention for both blue- and white-collar workers. The biggest thing is reducing churn, which is very high with truck drivers and warehouse workers, for example. Keeping the people you have is very important.

“Second is flexibility in how you’re recruiting,” Chris continues. “In today’s world you have to be able to move people around to different positions, so you can’t just recruit for a single role. And you have to expand recruitment sources beyond the traditional ones. For example, recruit more female truck drivers, people with disabilities, and former prisoners. Longer term, you may want to consider where you make and distribute your products to potentially move jobs from areas with low labor availability to areas that are higher, especially if that aligns with where your growth is headed.

“The third area is training. So many companies abandoned training programs when labor was plentiful. Now it can be critical in a hire and retain environment. People want to be trained to advance their careers.

“The fourth area, which is really important, is evergreen productivity programs. You have to continue to get more productivity out of your people. This means getting rid of manual, repetitive activities so people can focus on value-added services. But this has to be done in a way that does not create more stress. Productivity improvement is also important in rethinking how to handle seasonal flexing of workforces.

“Finally, we have to rethink immigration. This has lots of political implications, but historically that is how we increased the workforce and it has slowed to a trickle now.”

Can Technology Help?

Technology has had a tremendous impact on supply chain operations, but can it help with the labor shortage? Besides the obvious replacement of manual labor with robots and automation, Chris provides many examples of how technology can help companies redeploy workers to more value-added, and more satisfying, tasks. He also shares how labor can become a competitive differentiator. Therefore, I encourage you to watch the full episode for all of Chris’s insights and advice. Then keep the conversation going by posting a comment and sharing your own perspective and experience on this topic.