The New War for Talent

We may be in the midst of a recession with increasing unemployment and fewer jobs, but that’s not likely to have much long-term effect on shortages of talent.

We’ve all read about the aging of the population and other demographic factors. The likely effect of these on availability of talent has been extensively written about. But the problems are likely to be worse than we realize because of three factors: liberalization of immigration policies in other countries; more restrictive immigration policies in the U.S.; and supply of talent.

Pick a Card, Any Card

The European Union has just green-lighted the Blue Card. Modeled on the Green Card, the Blue Card (the color of the EU’s flag) will allow skilled foreign workers to work and live, along with their families, anywhere in the EU’s 27 member states.

Singapore, Japan, and Hong Kong have implemented similar programs, following the lead of Australia and New Zealand. The goals of all these programs are the same: to attract skilled talent and divert some of the talent that flows to the United States.

Currently, 85% of global unskilled labor goes to the European Union and only 5% to the United States. In contrast, 55% of qualified immigrants head for the United States and only 5% to Europe. With the Blue Card, the EU hopes to reduce the imbalance.

The EU and other countries may well succeed because their criteria for handing out permanent residency permits and work visas are much more liberal than those in the U.S., and the procedures will be simpler. Some allow employers to hand out residency permits along with offer letters.

In the EU, for jobs where a citizen is not available, an immigrant would only need to show a degree and three years of experience. Recognizing the need to attract young talent to Europe, immigrants under age 30 would have even easier requirements in qualifying for Blue Card status.

Setting Out the Unwelcome Mat

Our system of providing work visas and residency permits leaves much to be desired. It can take five to 10 years to get a Green Card and the system heavily favors family ties instead of skills. The process is byzantine, involving multiple government agencies and arcane procedures. The number of annual work visas is still only 85,000 despite clear evidence of a shortage of skilled workers. For example, the unemployment rate in computer- and mathematical-related occupations is about 2.1%, or full employment when allowing for people in transition between jobs. Incredibly, the number of visas was actually lowered from 195,000 in 2004, to a level that existed 15 years ago.

In testimony before Congress, Bill Gates had argued for elimination of the cap on H-1B visas. But in pandering to groups like FAIR (Federation for American Immigration Reform) and other isolationists, the solons in Congress, in their infinite wisdom, have chosen to do little about the problem.

The problem is mostly political. Anti-immigrant groups are opposed to any loosening of immigration standards, though immigrant workers make up barely 3% of the skilled labor force and disproportionately contribute to the economy. A quarter of all Nobel prizes won by Americans have gone to immigrants, and a similar proportion of IT firms were started by Indians and Chinese.

A study by the National Foundation for American Policy found that the average S&P 500 company creates five new domestic jobs for each highly skilled H-1B visa employee it hires. By raising the H-1B cap, Congress would insource jobs, allowing companies to fill vital positions and expand their operations at home instead of moving overseas.

Reductions in Supply

Even if the number of work visas is increased, the supply of talent is already getting diverted from the United States. From 2001 to 2003, applications from foreign students to American universities dropped by 26% while they increased in the United Kingdom (36%), France (30%), and Australia (13%).

A 2005 study by the Pew Hispanic Center revealed that temporary legal visitors (the vast majority are skilled workers and university students) dropped to 185,000 in 2004 from 268,000 in 2000.

There’s also a major increase in departures among skilled workers returning to their homelands. A survey by Duke University found that one in three new immigrants holding high-tech jobs in the U.S. plan to leave. Between 10% to 50% of the R&D staff of Indian and Chinese high-tech firms are returnees. The reasons are not hard to discern; with comparable jobs available at home, workers have lesser incentives to tolerate the long waits and uncertainty in the United States.

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What compounds the problem is that the supply of talent is simply not adequate to keep up with demand, here or anywhere. The U.S. produces the highest number of engineers per million residents of any country in the world, but that’s only about 137,000 engineers with bachelors’ degrees every year.

Supply from elsewhere is not sufficient to meet all the demand. In 2005, Fortune magazine estimated that China was producing some 600,000 engineers and India 350,000 annually.

These numbers have turned out to be a fantasy. A report by the McKinsey Global Institute said more than half of those “engineers” would be no more than technicians in the United States.

The actual numbers are more like 351,000 for China and 112,000 for India. And that’s not likely to increase much, as it takes decades for a top-flight academic institution to get established and start producing quality talent. The Indian Institutes of Technology, considered among the best in the world, can only produce 5,500 graduates every year, more than 50 years after its inception.

The Future

There are some glimmers of hope. Representatives Gabrielle Giffords (D?AZ) and Lamar Smith (R?TX) have introduced bills raising the cap for H-1B visas. These are the Strengthen United States Technology and Innovation Now (SUSTAIN) Act and the Innovation Employment Act.

The SUSTAIN Act would temporarily raise the cap to 195,000 for FY 2008 and FY 2009, while the Innovation Employment Act would initially raise the cap to 130,000 and allow the cap to increase the following year if it is reached.

Raising the cap is necessary, but more should be done to make H-1B visas flexible. Their number should reflect the economy’s need for high-tech workers, not arbitrary limits set by Congress.

In general, Congress’ record on improving the situation is not encouraging. The last attempt to reform immigration, the Security Through Regularized Immigration and a Vibrant Economy (STRIVE) America Act, adopted the worst features of other countries’ immigration programs. It would have been better called the Stop Companies Recruiting Effective Workers (you can figure out the acronym for yourself) America Act. Thankfully, it did not pass.

But prospects for recruiting are not good. The EU hopes to attract 20 million skilled workers over the next two decades as a result of the Blue Card program. That may be overly optimistic but it will undoubtedly impact the flow of talent to the United States. How much is anyone’s guess.

Without drastic action, the gap between demand and supply will continue to widen. Recruiting will only get much, much harder. If there’s a bright side to this, it’s job security for recruiters.

Raghav Singh, director of analytics at Korn Ferry Futurestep, has developed and launched multiple software products and held leadership positions at several major recruiting technology vendors. His career has included work as a consultant on enterprise HR systems and as a recruiting and HRIT leader at several Fortune 500 companies. Opinions expressed here are his own.

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8 Comments on “The New War for Talent

  1. With the possibly 2 billion unskilled (incl. unemployed & underemployed) around the world, I am assuming the 55% of those migrating to Europe is a % of those who migrate?

    If 1 million unskilled workers come to the US (5%), could it possibly be 11 million a year going to Europe?

    As usual, great article! Jon

  2. It was inevitable that Europe implement a plan to maintain their talent pool within the borders. We in the US do not realize how fortunate we are that we attract the talent that we need from across the waters. We will have to review the success of the Blue Card as it applies to our talent pool from our neighbors from our contiguous borders. An open mind to change always helps, i.e., looking at pros and cons re tactical and strategic plans.

  3. As a recruiter I receive daily email lists of H1B and L1 bench personnel from many offshore firms that have offices in the USA. The daily list usually numbers into the 1000’s of engineers sitting on the bench. There doesn’t seem to be any lack of USA consulting bench personnel. These skilled workers are here in the USA and ready to go to work and many of these candidates will consider full time positions after 6 months on contract. These are really skilled workers with SAP, Oracle Application, JAVA, and .Net skills.

    What I find hard to believe is that this great shortage of personnel is coming and we all need to be ready. I don’t see this shortage I only see the current surplus situtation with the USA Fortune 1000 companies moving work of all kinds offshore. The fortune 1000 is not creating NET NEW JOBS in the USA.

    There is no new Y2K event that will require thousands of new IT workers. In fact in the USA we have not created any net new IT jobs in years with IT employment holding steay since 2003.

    For example,if you need a petroleum engineer I see a shortage but again that is because the Large US Oil Companies for years were outsourcing a lot of its jobs and most new investment was offshore so many students stopped going into petroleum engineering because they saw what happened to their fathers USA JOBS in petroleum engineering since 1983.

    Maybe Europe’s new blue card will open up their labor markets but I don’t think the workers in Europe will welcome the competition and the effect it will have on lowering wages.

    Globalization is just starting to hit the speed bumps as the promised reality has not materialized for the middle class of industrialized nations.

  4. Good point Norm and I agree, right now there doesn’t seem to be any job creation so where’s the personnel shortage coming from. But there are two sides to this coin. One side as you mentioned is job creation which currently is very low and that relates to the low US GNP growth rate. But we won’t stay low forever. I’m not staying we’re going to have the phenomenal hiring of the 90’s but going over 2% GNP growth should return and with that job creation.

    The other side of the coin is job replacement. I can’t find the article, and I believe it was from ERE, that talked about the deluge of retirements about to come from the baby boomers. I used the facts given in one of my Toastmaster speeches so I remember that it stated, ‘Starting in 2011, 70 million baby boomers will retire over the next 7 years.’ So on average 10 million replacement jobs per year for seven years.

    Now I know what you said in your message and you’re right. Not all these jobs are going to stay in the US. So let’s say that out of 70 million jobs only 30 million stay in the US. That’s still a lot more (almost double) the jobs produced in the boon of the 90’s. So I think the war on talent, while I agree with you that it’s not here yet, is a very real problem looming in the near future. Keeping that in mind, what should we be doing now to best capitalize on this upcoming opportunity?

    Cheers,

  5. The question is how many of the baby boomers that will retire will actually exit the workforce? Yes they will retire but its likely many will still be working and want work.

    For example, many government employees retire and come back to similar government jobs as consultants because they have the job experience. Just look at retired politicians becoming lobyists or commentators. How do you count this? Is this actually a new job created in the country or just a transfer of experienced services?

    I am 63 and I don’t believe the boomers will not exit the work force in any great numbers. As we live longer we find that we need to work longer. Some will actually retire and exit the workplace but many won’t or won’t be able to exit or will stay because they enjoy working and being productive.

    I see these experienced very productive boomers as a rich source of experienced talent that will be ready, available and want good paying jobs not just a jobs at a big box mart.

    Statistics can be spun a lot of ways but my experience tells me we won’t have an employment shortage and we probably will have an excess of available highly mobile talent that will want work in america. 9 of 10 workers are now trained educated service based workers that are in good health and not ready to exit the workforce.

    What I see will happen is companies will figure how to use this talent because this talent base isn’t looking for healthcare or retirement benefits. Many will work as independent consultants in direct competition with offshore personnel.

  6. IMHO, the often-used term ‘War for Talent’ is misleading if not completely incorrect. I believe there will be such a ‘war’ when you start seeing compensation increases for many types of positions (including recruiters) and levels of employees similar to those of the Dot.com Boom of the late ’90s. As a character in a movie of the ’90s said: ‘Show me the money!’

    Cheers,

  7. The question is how do you define ?Talent?? If talent is anyone who can work, then you are right. The retiring of the baby boomers won?t have any effect. When I look for talent I look for someone with a Masters degree or better with at least five years of experience and who can code embedded Linux device drivers. Actually I?m already in a war for this talent because it?s very hard to find someone with this talent in the US. Most of my hires are via work visas.

    You?re example of government employees doesn?t apply. I know many people who have retired from their job only to take a government job and you know why. They wanted the retirement benefits. I?m sure you know that government employees have their own pension and they can still get social security. 60 Minutes did an expos? on it some years ago and let?s not even discuss politicians.

    The next ten years is going to be interesting and I agree with you that some baby boomers will still be in the workforce either by choice or necessity. For me, if I can retire at 60, I?m out. I mean recruiting is fun and I like helping people with their careers, but I?d rather be traveling or doing special interest projects at home. I don?t mind working five or maybe ten hours a week helping the community or consulting with a company but not 40 hours.

    With advances in modern medicine I think most of us will make it to the ripe old age of 100. I hope none of us has to work that long. There?s a lot of money in recruiting and with the right planning and investments I hope that most of us can retire early and tell stories of how we landed that perfect candidate.

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