A shrinking labor force is the number one challenge facing the global hospitality industry, according to the International Society of Hospitality Consultants, which recently convened to brainstorm world issues and rank them according to importance.
Employers are beginning to feel the effects of a shrinking labor force in the service industries, but few of us understand the causes of a smaller workforce. Some major countries are in real trouble in the decades ahead. This report explores effects, causes and offers a solution for certain countries to better compete in the world marketplace.
Immigration, both legal and illegal, is a hot topic currently in the United States Congress, not because migration is a means of easing labor shortages, but because the USA wants to better control its borders --- to screen infiltration by terrorists. A new report by the Center for Immigration Studies found that 7.9 million people moved to the United States in the past five years, the highest five-year period of immigration since the peak of the last great wave of immigration in 1910. Of the nation's 35.2 million immigrants, the new report estimates as many as 13 million of them entered the USA illegally.
For years, the US and state governments turned a blind eye on the millions of low-skilled undocumented workers that entered the US illegally from Mexico, East Asia, Europe, the Caribbean, Central America and South America. Now, what to do with those illegal immigrants is the subject of fierce debate on Capital Hill.
Traditionally, the US has been a country of moderately high immigration. About 12.1 percent of the current US population was born in another country. Some estimates put the immigrant worker population in entry-level positions at US hotels and restaurants as high as 80 percent.
In the 21st century, the world economy is a service-economy. Services require people. Therefore, any worker shortages have a greater impact on the service industries, such as hospitality, leisure, recreation, childcare, healthcare, assisted living, long term care and other personal services. The number of available jobs in the USA is projected to increase by 22 million by 2010. Yet the labor force is projected to increase by only 17 million, according to the Bureau of Labor Statistics. The US hospitality and leisure industry is expected to grow by 2.1 million jobs between 2002 and 2012 (17.8 percent) which represents a faster increase than the 14.8 percent job growth for all industries.
Effects of a Shrinking Labor Force
Employees are going to be hopping from one job to another and from one industry to another as never before. They will not be as efficient and effective as their predecessors were. As consumers, we are going to feel like we're not enjoying the same standard of living that we once had.
Neal Learner, reporter for the Christian Science Monitor, explains it this way: "You buy groceries at your friendly local food store and you have come to depend on the person behind the fish counter. You show up one day to buy your fish, and that person is no longer there because he's changed jobs. The person who is there doesn't seem to know what he or she is doing, and furthermore, doesn't really care much about you. And you're not the only one who feels this way. Other customers feel the same deterioration in service, and they choose not to go there anymore. Now that store is in trouble. Because it cannot find good people to serve its customers, its sales drop. You go back again and this time there is nobody behind the counter, and you have to call for somebody to help you."
We can all feel the impact of a shrinking labor force at the corner grocery store, but the same feelings and impacts apply to hotels, tourist attractions and whole countries as they compete in the worldwide market.
Impact on Lodging
"In Nashville, a new general manager of major chain hotel sent a truck to a competitor's property. On the side of the truck was a sign offering cash bonuses to employees willing to come to work for him. On the inside of the truck was a man handing out applications. At the Broadmoor Hotel in Colorado Springs, the average housekeeper accumulated almost 500 hours of overtime last year. When Disney Hotels was recruiting workers for its hotels and restaurants in Orlando, company representatives traveled to Pittsburgh, Rochester NY and San Juan, Puerto Rico offering $1500 relocation bonuses and a $100 airline ticket to anyone who would work for Disney for at least one year," according to Valerie Ferguson, former chairman of AH&LA, the trade association of the nation's $93 billion dollar lodging industry in her testimony to US House Committee on Education and the Workforce.
Impact on Tourist Attractions
Paramount's Kings Island amusement park in Cincinnati, struggling to cope with a tri-state labor shortage, hired up to 300 European college students to staff its peak summer months. Another 200 workers were imported from other US cities. To accommodate its new recruits, the amusement park leased a University of Cincinnati dormitory and signed a $150,000 contract with Metro to provide expanded bus service to the park. Park officials say, "We're going to have to be more creative in finding workers." Importing foreign workers may seem novel in Cincinnati but it is a common practice in the amusement park industry.
"I'm aware of a half-dozen or so facilities across the United States that have brought in foreign employees and put them up in a dorm room or hotel rooms," said Joel Cliff, a spokesman for the International Association of Amusement Parks & Attractions. The biggest problem facing the amusement industry in the next decade is the shrinking labor force among high school and college-age students.
Cedar Point amusement park in Sandusky OH has on-site dormitories that can accommodate up to 3000 workers. Casino Pier and Water Park in Seaside Heights NJ has hired students from Ireland since the 1980s. And Paramount's King's Dominion, a sister park to Kings Island, housed 250 Europeans in dorms at Virginia Commonwealth University. Not only is this a problem in the United States, it's a problem in England and France; they are hiring employees from other countries too.
Visionland, a themed waterpark attraction in Birmingham, Alabama USA has broadened its recruiting range way beyond its normal 10 mile radius. "We are now using international recruiting companies to find employees from other countries," declared Kent Lemasters of AmusementAquatic Management Group (AMG), the firm that manages the park. "We are assisting these employees with housing and transportation. We are also recruiting more senior citizens because of their high work ethic and dependability. One senior is 79 years old. We have commissioned some of our top senior employees to recruit fellow seniors they know at church or social circles."
Geyser Falls, an outdoor waterpark owned by the Choctaw Indians in rural Mississippi, USA had to fill 300 jobs from a small town population of 6,000. "We didn't have to import workers but we did recruit aggressively through other employees and at local job fairs," according to Steve Mayer of Reno NV-based Cross Country Management, who spent the last four years as a consultant to the waterpark owners. "We spent a lot of time and money teaching our recruits necessary skills --- like learning how to swim before they could be life guards. Another problem is the school schedule as many high school and college-age employees leave their jobs early, before the season ends. We created a bonus (up to $1.00 per accumulated hours worked) for employees who stayed with us to the end of the season."
Impact on World's Most Visited Countries
France, Spain, USA, China and Italy are the world's most visited countries by international travelers. The tourism product-service offered by these countries will be significantly affected by a shrinking labor force over the next several decades. Of the top five most visited countries, the quality of the tourism product-service in Spain and Italy will be the most severely impacted due to fewer people in the workforce.
In the USA, the tourism product-service is the country's top export. Tourism and hospitality services consist of a heterogeneous collection of firms and employees that provide a memorable and pleasurable experience for both domestic and international visitors. When labor shortages impact the transportation, lodging, food service and attraction companies, there are fewer employees left to deliver the high-quality service or experience. Therefore, the quality of the service suffers. Poor service results in negative experiences and visitors decide not to return.
Here's the bottom-line impact of a shrinking labor force:
- A decline in personal service. There's nobody to help you.
- A rise in self-help. Do it yourself.
- Less convenience, more hassles, longer wait times.
- More self-service.
- Lower quality of life.
- Less productive per person as a country.
- Less competitive as a country in the world market.
- More international migration of workers.
- More companies will relocate offshore.
- A possible brain drain from some countries.
- Capital investment will flow to countries with abundant labor
Think of the adjustments we've already made: Online education courses eliminate the need for instructors, Microsoft Office eliminates the need for secretaries, ATM machines eliminate the need for bank tellers, self-check-out at Wal-Mart and Home Depot eliminates the need for store clerks. Self-check-in kiosks at hotels eliminate the need for front desk clerks. Credit card readers at parking lots and movie theaters eliminate the need for clerks and ticket-takers. Are these adjustments real advances? Perhaps. Is automation doing the boring jobs that nobody wants? Maybe. Are we preparing for a life of no service, except self service? Yes. Are we effectively training our smaller workforce for higher-skilled technical jobs? Not really.
While the effects of a shrinking labor force can be felt by almost everyone, the causes of a shrinking labor force are less well understood.
Causes of a Shrinking Labor Force
When you first delve into the Shrinking Labor Force issue, you quickly realize it is not the problem of just one occupation or one industry or even one country. It is not the problem of just the advanced nations, but rather it is a global problem that affects almost all of the major countries of the world. Why is this? What are the causes of a shrinking labor supply in so many countries?
- Fewer babies born
- People living longer
- Slowing population growth rate
- Aging of the population
- Fewer persons in the working-age group
- Fewer working-age persons participating in the labor force
- Geographical separation of jobs and workers
- Net immigration
Every country has a profile regarding these factors which places it in either mild or extreme jeopardy of losing much of its labor supply in the next few decades. The Workforce 2020 Report by the Hudson Institute concluded that the United States will face a tight labor market in the coming decades. However, the future labor supply in the United States is more favorable and exhibits greater growth potential than in almost any other advanced country and is much more favorable than most.
Predicting Future Labor Supply in 16 Developed Countries, 2000-2050
Does the absolute size of the labor force really matter, or do we need to be concerned only about its relative size to the number dependent people? No one knows. There's no prior experience with falling labor supply over the long term.
For the past 30 years, most advance countries have been gradually or rapidly increasing the size of their labor force as the baby boomers entered the labor force and as women were integrated into the workforce.
During this period, growth was highest in the Asian "tiger" countries (Singapore, Thailand, South Korea), where the labor forces more than doubled. They were followed closely by the traditional countries of immigration (Canada, Australia, New Zealand and United States). The lowest growth was in the large European countries (France, Italy, Germany and Great Britain) and Japan, but even these countries expanded by their labor forces by 14% to 28% or several million additional workers in each case.
During this period of labor force expansion, the standard policy approach to tight labor markets has been to slow the rate of economic growth using monetary policy --- managing the right mix of economic growth, unemployment, inflation and interest rates.
However, if a future tight labor market results not from "too rapid" economic growth but from a stagnation or sustained fall in the labor supply, what policy approach should be used? This is a question posed by demographers Peter McDonald and Rebecca Kippen in an article, Labor Supply Prospects in 16 Developed Countries 2000-2050, they wrote for Population and Development Review.
McDonald and Kippen grouped these 16 developed countries into categories according to their similarity in current levels of fertility, net immigration and labor force participation.
Recommended Actions for Countries
Analysts see the United States, the primary engine driving world economic growth, facing a tight labor market in the next 30 years despite the fact that the future labor supply situation is more favorable in the United States than in most other countries considered in this study. While a slowdown in economic activity is often praised, the more likely outcome is that countries with falling labor supplies will not fare well, while the US economy will continue its growth. Capital, in turn, will follow such growth.
For countries of immigration (United States, New Zealand, Australia, Canada and Singapore), a drop in labor supply can be avoided through a continuation of their present fertility, immigration and labor force participation rates. Incentives for increased labor force participation of women and older men would lead to substantial growth in labor supply in all these countries. These incentives, for example, could reverse the early retirement trend in the 55-64 age group.
France, Great Britain, Germany and the Netherlands can prevent future declines in their labor supply if more working-age people joined the labor force combined with modest increases in immigration. However, to significantly grow their labor supply, these countries will have to allow immigration well above their current levels.
Sweden will have to double its net immigration each year to offset its decline in the labor supply in the next 25 years.
Italy, Spain and Greece could maintain their labor supply if they increased labor force participation rates for women and older men combined with modest increases in immigration. Both of these changes would require considerable cultural adjustments.
Japan faces the least favorable situation of all the advanced countries examined here. Nevertheless, the "optimistic" projection for Japan produces relative stability in its labor supply for the next 50 years. This optimistic projection requires a considerable increase in the labor force participation of women over the next 30 years, net immigration of 200,000 persons annually, and an increase in fertility from 1.4 to 1.8 births per woman over the next 15 years.
Implementing the best combination of polices to maintain or grow future labor supplies will prove difficult for some countries. For example, some "crowded" countries will resist fertility increases. Countries that lack a history of large scale immigration and have "homogeneous" populations will resist the immigration approach or face social and political instability. Countries with low labor force participation will have to make cultural adjustments regarding women and older workers.
All of these considerations concern the re-positioning of countries in the world market for the long term. This long term approach does not mesh well with the short-term monetary framework of economic policy in most countries.
The shrinking labor force is a universal problem for many countries that impacts service quality, economic prosperity and the ability to compete worldwide. The service industries --- including healthcare, travel, hospitality, food service, leisure and recreation --- are more affected. Service delivery systems are more people-intensive than traditional manufacturing systems. Almost all major countries face the threat --- from mild to extreme --- of a shrinking labor supply. For some countries, stopping the decline in labor force size will require minor changes. For other countries, it will require major changes over the next few decades.