The Labor Shortage’s Big Impact on Business: How to Mitigate Challenges by Implementing the Right Leadership

November 18, 2021  |  By Phoenix Management  |  3 Minute Read

The labor shortage is growing critical for businesses across the United States. As the COVID-19 pandemic continues, organizations are seeing more employees voluntarily leaving, and finding fewer candidates to fill important roles. The supply chain shortage and continued impact of COVID-19 are only making business decisions more difficult.

In the third quarter of 2021, the National Association of Business Economics has found that nearly half of respondents (47%) in its Business Conditions Survey reported a shortage of skilled workers. This number is up from 32% reporting shortages in Q2. And according to Forbes, the percent of small firms reporting open positions reached a 47 year high—at 48%—in the National Federation of Independent Business, Inc.’s Small Business Economic Trends survey in May 2021. More than 60% of business owners are now reporting a shortage of labor, and over 20% characterize the shortage as “critical” to business operations.

With these worrisome statistics, organizations must now shift their focus to building better leadership in order to combat the challenges of the labor shortage.

The Varied Reasons for Today’s Labor Shortage

The main reason for the shortage is the COVID-19 pandemic, as this lengthy and devastating virus is continuing to affect the economy, causing supply chain disruptions and labor shortages around the world. These “unprecedented times” remain an issue because job seeking and hiring during a pandemic is different than usual. For example, an in-person job brings increased health risks and can affect child care, commutes, and many other considerations that candidates need to contemplate.

Other factors are at play as well. Labor market shifts are becoming more pronounced, and many workers are voluntarily quitting their current roles while the demand for workers rises as economies reopen. The latest U.S. labor data reveals that more employees are willing to quit their jobs or switch companies in Q4 2021. There are also increased demands for better pay and more flexible working arrangements, which is affecting the job market.

Economists say that changing demographics like ageing and retiring workers are another factor behind the shortages, as well as border controls and immigration limits during the pandemic. All of these factors combined creates a shaky labor market outlook.

The Labor Shortage’s Impact on Business

The labor shortage has greatly impacted revenue for organizations around the globe. Forbes reports that over 80% of the NFIB’s survey respondents reported a loss of sales due to the labor shortage, with 19% experiencing serious losses.

The shortage has created product and service shortages for consumers and corporations, with impacts seen everywhere from the housing market, to building supplies, to electronics, to furniture, to food and beverage items. Higher labor costs will likely remain for some time, as the shortage of workers continues to drive rising costs. Reuters reports that U.S. labor costs surged in the third quarter, while productivity declined at its sharpest pace since 1981. Labor costs have advanced at a 4.8% rate compared to one year ago.

The supply of workers is both holding back output and increasing inflation pressures in the U.S. economy. Companies have had to raise pay to retain current staff, which is leading to more inflation pressures for the Fed to respond to with interest rates rising sooner and faster than currently priced by the financial market.

Ultimately, however, the full impact of the labor shortage on business has not been truly seen yet, as the emergence of the COVID-19 delta variant has delayed many reopenings. Organizations should keep an eye on developments in this area into 2022.

Mitigating the Shortage’s Effects by Finding the Right Leaders

Businesses are looking to navigate this shortage successfully. And having the right leadership team in place can mitigate many of the challenges that the labor shortage has created. Strong leadership is always crucial during difficult times, so companies must prioritize having the right leaders leading the way.

The business community should make the effort to be more imaginative and expansive in recruiting and developing the leadership needed to achieve organizational objectives. Business leaders can spearhead the effort to get people back to work by implementing tactics like:

• Incentivizing employees to train in their fields
• Changing hiring practices to remove the four-year degree requirement
• Pursuing public-private partnerships with community colleges to create a talent pipeline

Training methods like upskilling (the process of teaching workers new skills) and reskilling (the process of learning new skills to do a different job) are important during the labor shortage. Enhancing worker competencies is essential in improving the workforce that is already in place. These training techniques can also develop people into better leaders.

But overall, getting the ideal leadership into position can be a tricky task—especially as the talent shortage is working directly against this effort in the first place.

The Solution to Attaining Leadership: Consider Interim Management

If the right candidate for a permanent leadership role cannot be found, organizations should consider implementing interim management. This type of management solution fills critical vacancies or skill gaps, and provides companies with the leadership experience they need to get through challenging times.

Phoenix Management offers interim management services, as our professionals have extensive, hands-on operating expertise to provide both strategic and tactical support to clients’ specific management needs. Phoenix is able to introduce stability and decisiveness, and we are uniquely able to make difficult decisions while being unburdened by internal company factors. We bring our credibility to complex situations and are able to serve as a steadying force for teams as we build consensus, support business needs, and enhance enterprise value.

Continue Navigating the Labor Shortage with the Right Management Partner

Today’s labor shortage remains a major stressor on organizations, but with enough planning and the right strategy, companies will be able to designate leadership that can lead their teams out of this trying time.

Contact Phoenix Management to learn more about how to effectively navigate the labor shortage.

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