Author: Alexander Schwall, Chief Science Officer
On Friday, February 3rd 2023 the Bureau of Labor Statistics released two stunning numbers: First, the unemployment rate in the US fell to 3.9%, a low that was last seen in 1969. Second, 517,000 new jobs were added just in January, far exceeding the estimate of 187,000 jobs. What may seem like great news has serious implications for anyone working in HR and anyone involved in recruiting, hiring, and retaining employees: The Great Resignation – a term coined at the tail end of the pandemic – is not over, and it is not over by a long shot.
At the root of this situation is a shortage of labor and this shortage has complex reasons. And, because this shortage cannot easily be fixed, companies and HR professionals are well advised to think about what they can do to retain their talent.
How big is the labor shortage and what is driving it?
Let’s have a look at happier times, before the pandemic. In a nutshell, the US experienced the perfect labor market conditions for rapid economic growth. The high birth-rate Baby Boomer generation fueled growth by providing a massive population of college-educated, hard-working, andmoney-focused workers. In 1996, the labor force participation of women alone was 60%. In contrast, this number was 31% in the late 1940s. In addition, the workforce became more educated. While between 1950 and 1970, 21.7 million Americans were enrolled in college, between 1970 and 1990 over 42 millionAmericans completed a college education. Americans were motivated, educated,and there were many of them.
Fast forward to 2000. In 2000 the first Boomers started retiring, and today we are at the tail-end of this enormous peak in population leaving the labor force. With boomers leaving, labor force participation rates have dropped.
As the graphic suggests, the pandemic merely accelerated a steady decline in the participation rate to 62.4% today. Before the pandemic,we had a participation of 63.3%. This gap doesn’t seem too bad, right? However,since the beginning of 2021, the overall population has grown, so the actual gap is about 3 million workers. These 3 million workers are missing from the labor market.
On top of that, Americans (working or not) have spent their pandemic stimulus checks not just on baking bread and other new hobbies, but have invested in many durable goods like housing and have fueled the economy leading to even higher demand for labor (and an increase in inflation).
As a result, the number of 3 million is dwarfed by the number of job openings which was 11 million in December. So, even if we could convince these 3 million people to come back to work, there would still be a shortage of 8 million people to just fill all available jobs.
Why the shortage is hard to fix, and what we can do.
There are many structural issues that are hard to fix. First and foremost, population growth rates of about 20% during the boomer years have fallen to under 7%. So the missing workers are not coming from within the US.Second, birth rates worldwide are dropping too, which will make immigration to the US hard to predict and it is unlikely that in the current political environment immigration will play a large role as a source of labor.
So, what can we do? What is under our control? The biggest and most critical step companies need to take is to make sure that their talented workers are not leaving. Keep in mind there are 11 million job openings. You may not be able to increase wages, add benefits, or magically cuta commute time in half. However, a big driver of turnover is how people are treated – particularly by their managers. The adage, “People quit bosses, not companies” largely holds up.
At Rhabit we wanted to know in detail what is driving turnover. We used our own data from our clients. In Rhabit, employees get brief, weekly surveys in which we asked them to go give feedback to the managers about their leadership style. We Also ask about their intention to quit their job. This entire survey is anonymous and takes about one minute to complete.
In our definition of leadership,two main categories of behavior make leaders effective. Don’t get me wrong, I Am the first one to agree that leaders have to master a lot of behaviors to be effective. However, these behaviors can be lumped into two broad categories: Getting Along and Getting Things Done. Getting along is composed of all the things leaders need to do to build a relationship with others. For example, leaders need to be fair, admit their own mistakes to be credible, and keep the promises they made. In the Getting Things Done category are behaviors like giving directions, setting priorities, setting goals, and holding people accountable.
What we predicted
We expected that – especially in pandemic times – the getting along behaviors would be the best predictors of intent to stay with a company. We assumed that having a relatable and respectful boss would lower workers’ intentions to leave and look for greener pastures elsewhere. And guess what, we were right.
Overall, leaders who were “getting along” were more than twice as likely to have employees that were willing to stay with the organization. The biggest driver was the behavior of “Listens and cares about what I have to say” and “Does not take credit for the work of others”. Not surprisingly people tend to not leave a caring and fair boss. So, I could end this story right here: How managers treat their employees matter.
What surprised us
However, these results are not surprising because they are expected, right? The big surprise was waiting for us in the set of Getting Things Done section of leader behavior. We expected a demanding manager who holds people accountable would drive employees away. Why? A high-accountability manager who does not let me phone it in is hard to please and I may look for a place where the bar is a bit lower.
Surprise! The behavior “Holds Members of my team accountable” was one of the biggest drivers of intent to stay. In other words, people tend not to leave a manager or supervisor who ensures that team members are being held accountable. We were skeptical at first, but we found similar results across 5 separate studies with over 4000 employees in total.
We also tried to understand what's behind these unexpected results. We found out that high-accountability leadership was particularly important for high performers. That means if high performers had a high-accountability manager they tended to stay with the organization while low performers were not affected. Put differently, for high-performing employees having a demanding manager was a plus while low-performers did not care too much about it. And this makes a lot of sense. If I am a high performer I want my performance to be recognized and I don’t want my lower-performing peers to scoot by on their half-hearted performance. If hard work does not payoff and anyone gets the same outcomes, I am on my way out.
What does this mean for Human Resources?
We are not arguing that our findings can fix the labor shortage. However, knowing what keeps employees will be increasingly critical. We talked to clients who had qualified technicians walk out for warehouse jobs that opened across the street with slightly better pay. These employees may have stayed if their managers had created a work environment in which top performers thrive (high accountability) and are recognized and where they can expect a caring and respectful relationship with the boss.
We recommend rethinking the role that leadership plays in your company. Often our focus is on top-level leaders, the GMs and C-suite executives that set the strategic direction of a company. Instead, we recommend thinking more of your first and second-level leaders who are the ones that truly shape the employee experience. We argue that any Dollar invested in their leadership skills will pay dividends in prevented turnover. The days where turnover could be compensated by an increase in recruiting are over and from what we can tell, they are not coming back.
Would you like to learn more about how Rhabit reinforces the behaviors that lead to higher employee retention? Discover more insights and data, or book a customized demo of Rhabit by following this link.