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CEOs Face Big Workforce Decisions In Coming Years

By News Creatives Authors , in Business , at November 3, 2021

Always an important part of a CEO’s job, workforce-related decisions will be especially weighty in the coming years because of two historically significant and unusual macro-trends: the shift to remote work and the severe and long-lasting labor shortage. Here are three key workforce-related decisions CEOs will have to make in the coming years:

What Will the New Work Equilibrium Be?

How flexible will CEOs make their remote work policies? All indications are that a very large share of office workers will either work partly or mostly from home going forward.

Too much remote work flexibility may threaten office culture and long-term innovation. But too little may lead to lower retention rates and recruiting difficulties: Many workers have come to view remote work as an important determinant of choosing a job. What we still do not know is how these workers weigh other factors such as passion for work, innovation, drive, and collaboration. How will the choice of remote work policy impact the type of workers in one company versus a competitor with a very different approach?

The jury remains out regarding the impact of remote work on company performance. We will know much more after evaluating competitors with very different remote work policies going head-to-head in the coming years.  

To make better decisions regarding remote work policies, companies will need to improve their in-house workforce analytics capabilities, including performance measures such as work quantity, quality, client and co-workers’ feedback, and the determinants of recruitment and retention.

What Should Be Done To Alleviate The Labor Shortage?

The US is experiencing the most severe labor shortage in its history. Part of it is due to temporary, pandemic-related factors, but it will not truly go away in the foreseeable future – even after the pandemic subsides. Meeting a reopening US economy’s demand for 3-4 million more workers in 2022 will be a major challenge. And by early 2023, the unemployment rate is likely to dip below 3.5 percent, reaching its lowest rate in 70 years. The labor market will be historically tight until the next recession, which is likely to occur five to 10 years from now.

This will have major implications for businesses forcing important business decisions regarding their approach to salaries, recruiting, and retention. In particular, more than in any other time in recent decades, companies are likely to aggressively raise wages and prices. The job market will dictate that wages for new hires continues to grow rapidly, at a time when the cost of living is already rising at the fastest pace in almost 40 years. The question for CEOs will be: How much should they raise the salaries of current employees, either through across-the-board higher annual raises or special, one-time adjustments? The implicit labor cost would actually be much larger than wages and benefits, because retention rates are historically low, forcing employers to spend more on recruiting and training new workers.

At the same time, business leaders will have to decide how much of the additional labor cost to pass to consumers through price increases. That decision, relative to competitors’ moves, could impact the company’s market share. 

Raising wages and prices are not the only actions available to business leaders to deal with tight labor supply. 2021’s severe labor shortage and accelerating wages are incentivizing employers to use technology to either replace workers entirely through automation or make them more productive through process improvement. In addition, business and consumer activities accelerated digital transformation, making it easier to eliminate routine jobs, such as telemarketing bureaus, information clerks, cashiers, and restaurant servers.

Changing Locations Of Workers And Operations

The intersection of labor shortages and increasing remote work will prompt massive location changes for both workers and employers.

Millions of Americans will relocate within the next decade, thanks to the shift to remote work, many leaving expensive housing markets in large metro city centers for cheaper living elsewhere. On top of that, those urban areas will suffer from a sizable reduction in the number of daily commuters spending money near their office. The result will be stagnation or even a drop in economic activity in some city centers and rising activity in other residential areas such as smaller cities, suburbs, and rural areas. The large variation in economic growth across locations will require an adjustment to the geographical footprint of many companies’ workforces.

Business leaders will also have to revisit their geographical footprint as the remote workforce is more dispersed and hiring can happen anywhere for some roles. Some, especially in expensive locations, may open or expand operations in cheaper areas. This trend may already be occurring: The share of Silicon Valley tech companies’ online job-ads for positions located in other metro areas has significantly increased, for example. This trend began in 2019 and accelerated in 2020 because of the pandemic and the resulting increase in remote-work opportunities. Beyond opening or expending operations in other cities, employers are likely to hire more employees to work entirely from home, across the entire country.

While the shift to remote work opens new location-opportunities for one’s own company, it will also bring new competition for talent from companies headquartered in other metro areas. And challengers from expensive locations may have the means to pay higher wages.

How CEOs tackle these three sets of decisions will dramatically affect their companies’ courses over the next several years.


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