Labour shortage on everyone's lips

Daniel Rauhut is senior research fellow at the Nordic centre for regional research, Nordregio. He thinks the debate on labour shortages is generally doing itself a disservice. First, he says, you have to analyse what kind of shortage you're talking about, where it exists and in what time perspective.

In their invite to the seminar “Who will do the work?”, the Copenhagen Institute for Future Studies (CIFS) write that “the lack of manpower looks set to be one of the largest challenges for the Danish economy and for Danish companies in the coming years.”

Denmark has enjoyed an economic boom for longer than a country like Sweden, which means their labour shortage is all the more evident. Manpower is being imported from the south and from the north; 15,000 Swedes commute on a daily basis to Copenhagen for instance.

German civil engineers and mechanics too are welcome in a labour market under high pressure.

“We're facing a great challenge. There's a new dimension to the labour shortage, and that is the demographic aspect. During earlier economic booms, there was no shortage of labour, but that is no longer the case. Older workers are on their way out, and the groups entering the labour market are small in numbers”, says Niels Bøttger-Rasmussen, project manager at the Copenhagen Institute for Future Studies.

Three possible scenarios

So what will the lack of manpower mean for the country and its businesses? Niels Bøttger-Rasmussen says there are basically three possible future scenarios for the Danish labour market. The first scenario is the good one. The lack of labour is seen as a positive challenge which presents a chance to get those outside the labour market back in. The focus is on increased productivity and initiatives to avoid rejection and high levels of sick leave.

The other scenario is one in which lack of manpower leads to the economy overheating. The resulting economic crisis will stop growth. The third scenario has the private sector growing so much that it creates an imbalance between it and the public sector.

Private companies will expand so much that they become more attractive than the public sector, and as a result will tempt workers to move away from public companies.

“The public sector could be facing a really tough challenge, especially if there is an expansion of private health services. Private companies are often more flexible and better at adjusting. The public sector is facing a great challenge, and must develop in order to become more attractive. If not, it risks loosing the fight for the highly skilled labour force”, says Niels Bøttger-Rasmussen.

The government has also been paying attention to this, and a campaign is now running aimed at heightening the quality of the public sector. The campaign is focused on consumers, but the idea is also to create attractive jobs with good and stimulating working conditions.

An active senior policy

Niels Bøttger-Rasmussen thinks the lack of manpower can have a positive effect. The labour market could be improved to become more inclusive towards the unemployed, but also towards those who have jobs. Many immigrants are still unemployed - only half of them have jobs, compared to 80 per cent of the rest of Swedes of working age. Another great challenge is to get older workers to stay in their jobs for longer. We need an active senior policy, says Niels Bøttger-Rasmussen. Many want to enjoy their twilight years, and it is now common to retire around 60. More people might find it meaningful to work for longer if the work is being tailored to suit older people's needs for more flexible working hours and a less stressful and demanding job.

“It is, of course, important to educate more people to fill the jobs that are there, but getting older workers to stay on, as well as integrating immigrants, is what might give us an immediate effect”, says Niels Bøttger-Rasmussen.

All the Nordic countries are experiencing an economic boom, and while the economic wheels keep spinning around, the need for manpower is increasing. Meanwhile, a considerable number of people born in the 1940s are about to retire.

Record-hot labour market

Sweden's recent economic growth has not resulted in higher employment as quickly as it has done during previous times of economic boom. The labour market was slow to react, and worried experts started talking about “jobless growth”, i.e. economic growth without an increase in employment.

This has now changed.

During 2006, the increase in employment happened at a rate not seen for many years. The trend is set to continue. The first quarter of 2007 saw 60,000 people finding work, and unemployment was down to four per cent. At the same time, the number of jobs is increasing faster than in many decades. The increase was most pronounced in the IT and consultancy sector. The building industry usually acts as an economic thermometer, as is the case right now. Every second building firm say they lack manpower, and every fourth has told the Swedish Employment Service (AMS) that they cannot grow as planned because of this.

A national survey in the autumn of 2006 had 30 per cent out of 9,000 businesses saying they had experienced recruitment problems during the past six months.

As usual during boom times, a key question is whether the unemployed match the demand - do they have the skills that are needed? Should the shortage be solved with labour market training, or is labour immigration a quicker fix? And are we witnessing the same kind of shortage as during earlier booms, or is this a new phenomenon?

“We're witnessing a phenomenon which is both new and old”, says Roger Mörtvik, Public Policy Director at The Swedish Confederation for Professional Employees (TCO).

The old phenomenon is a labour shortage resulting from the economic boom. That problem is usually solved by speeding up labour market training, or by giving people incentives to move. But the economic wheels are now spinning so fast that these measures aren't enough to keep up.

“What's more, the Swedish Employment Service, responsible for labour market training, need more resources”,  says Roger Mörtvik.

The new phenomenon is structural changes of a new kind. In the past, whole trades suffered when crisis hit. Sweden has seen both ship building and textile industries disappear. In today's globalised economy, production is increasingly fragmented. That means changes in demand or production have different consequences than before. Any production normally depends on components from a large number of subcontractors.

One part made in Sweden might be cheaper to make abroad, and a job is lost. But apart from those actually loosing that job, few take notice. Structural changes happen in a more uneven way, and are getting harder to detect. Thus, the individuals involved become more vulnerable.

The right man in the  wrong place

“Each job has become traded goods, and it didn't use to be that way. We need to adjust faster, which makes finding the right person for the right place even more difficult. If we cannot understand the new dynamics and fail to back more labour market training and education, change will happen too slowly”, says Mr Mörtvik.

“The present political ambition is to get everyone into the labour market as quickly as possible. If people are forced to take any old job, rather than securing further training for themselves, their skills could gradually loose their value. That's what's happening in the USA.”

According to Mr Mörtvik, the important thing is not to get everybody a job as quickly as possible, but that you get the right person in the right job. That way everyone wins, he says.

Roger Mörtvik has also been studying how employers are demanding more. In his publication “The hunt for the superworker” he writes about how employers are raising the stakes for those they offer jobs to.

“Employers whish to tackle an unpredictable economy by employing super-workers. Since the mid-90s, employers have heightened their expectations when it comes to education, social skills and experience. The result is selected specialisation of labour, despite the lack of manpower. Unemployment and labour shortage go hand in hand. If you fail to understand this, you risk increasing the number of outsiders, and you make it more difficult for employers to find suitable people for the long term. You get 'the right man in the wrong place'”, says Roger Mörtvik.

To match the right people to the right jobs might be one way of fighting labour shortages. Another is labour immigration.

To open the door for labour immigrants is often considered the easiest and best way of solving the problem. The Swedish researcher Daniel Rauhut and the Stockholm-based Nordic centre for regional research, Nordregio, warns against viewing labour immigration as a simple and obvious solution. The problem is more complicated, he says.

“Right now the debate on labour shortages is doing itself a disservice. You have to start by analysing what kind of labour shortage we are dealing with, where it is and when it is manifesting itself - before you start suggesting political solutions”, says Daniel Rauhut.

The different faces of labour  shortage

Daniel Rauhut has spent many years researching labour shortage and labour immigration, and says the debate should be based on a better analysis of the nature of this shortage. He says it is simply irrelevant to talk in general terms about labour shortages. A lack of manpower can be partial, when there is a lack of people within a specific trade or occupation. This partial labour shortage is strongly linked to business cycles. There are also general labour shortages, but this is more rare.

“That's when you have a lack of people everywhere, across the entire economy. This was the case for instance in Germany after the Second World War, or when industrialisation gained speed in the USA towards the end of the 1800s. Many chose the free life in the West, over staying and working in the industry in the East”, says Daniel Rauhut.

There is also the third kind of labour shortage - the geographical kind - when there is a lack of manpower for instance in sparsely populated areas.

“We see this in inner Norrland, and you find the same phenomenon in all of the Nordic countries - but what kind of labour is needed here? And are we looking at the short or long term?”, asks Daniel Rauhut.

The answers from this analysis lay the foundation for understanding what kind of measures are needed. It is far from certain that labour immigration is the miracle cure to solve all problems. Firstly, there is not a lot of mobility in the labour force. At the last EU expansion, many worried there would be an influx of cheap labour, also to the Nordic countries. This fear was later put to shame. Relatively few have moved here from the new member states, and those who did, did not necessarily move to the places where they were needed the most.

Two thirds of the immigrants moved to big cities, while jobs were most often to be found outside. Immigrant labour is also often sought to fill the vacancies which the native work force hesitate to fill. These are low-status jobs that are often dirty, dangerous and degrading. Daniel Rauhut has been involved in a soon-to-be published survey from Norway, which shows that those who take these jobs rarely stay. The same pattern is found in the other Nordic countries.

“After five to ten years, they leave that type of job and start acting like the rest of the population. If you want to solve the labour shortage in these kind of jobs by labour immigration, you need a lot of immigrants”, says Daniel Rauhut.

Labour shortage fuels change

If the democratic development should lead to a general lack of manpower, the solution could be structural changes. According to Daniel Rauhut, history has shown that's what often happens. He talks about how labour shortage has been fuel for change and success. In the 1880s, 800,000 Swedes of working age emigrated to the USA. That was nearly one sixth of the total Swedish population.

“What happened was a structural change from labour intensive to technological intensive industry - a refining of production. Many large Swedish businesses were established back then, like Ericsson, Atlas Copco and Asea. The result was a marked increase in production. So what should we do today if we're faced with another demographically driven labour shortage? Should we keep the existing structures, or do we adapt?”, says Mr Rauhut.

“It might be contra-productive to call for labour immigration in the face of labour shortages, and it can work against necessary structural changes. That solution requires knowledge of what it is you are setting out to solve. It is also wrong to think people are queuing up to come to our Nordic countries to work.”

“In the 60s there were more 'pull the lever' jobs, which didn't require long educations. Today's society is different, with different expectations to which skills workers should possess. Where do we find that kind of manpower? Many employers and politicians view new EU member states as a pool of labour. But the demographic problems in those countries are worse than ours.

There's a surplus of workers in Western Asia and North Africa, but they lack the skills needed in today's labour market”, says Daniel Rauhut.