Understanding Our Disrupted Talent Supply Chain

For our inaugural insight, I’ll start with the labor market and frame what we’ve known for decades and how it’s heavily impacting what we’re experiencing today. No company should have been flat footed on these realities.

Let’s start from a supply chain standpoint. Once a misunderstood term and an ignored concept in the human capital world, the supply chain narrative is in the limelight due to the pandemic, geopolitical realities, and the media. How many times have people heard recently about supply chains being disrupted?

During the pandemic, it was personal protective equipment (PPE), toilet paper, and pharmaceuticals. In the economic recovery, it was microchips, lumber, and baby formula. Now we have a historical labor shortage. Didn’t we see this coming? Why aren’t we talking about labor as a broken talent supply chain? 

Let me share three data points using U.S. data:

Data Point 1: Baby boomer retirement

The fun thing about labor market data is that you know when somebody is born and when they’ll roughly reach an age to join the employment market. It’s simple math. So, we’ve known for almost two decades approximately how many workers we’d have today, right? If only we could hold a few things constant like retirement rates, death rates, and immigration, maybe. Since we can’t, we have to look deeper and see what’s happening underneath. 

Once referred to by former United States Secretary of Labor Robert Reich as “a pig in a python”, the birth of baby boomers created a future labor market tsunami. Born between 1946-1964, this post WWII population flooded the labor market starting around the mid-’60s up until recently. This group already had its largest impact on the labor market and now must cede its position to other generations. But are those generations large enough to replace those retiring?

This chart shows the rising share of baby boomers in the U.S. population.

Data Point 2: Birth rate

Looking deeper, let’s see what’s happening with the generations that follow the baby boomers. Why can’t we keep that labor market python fat and happy? One has to look at the historical birth rate to tell the story. Consistently declining for the past six decades, people are simply having less children. Isn’t this the supply we need in the talent supply chain equation? If a country can’t produce enough of its own talent, what does it do? Does it look to immigration? Does it get more productive? Does it automate? 

Let’s focus on birth rate for now. This chart shows the birth rate per women since 1910. Shouldn’t this too be talked about as a broken talent supply chain?

Data Point 3: Employment participation rate

This is the most political and most debated data point of my three data points. Let’s stick to the facts. 

First, the participation rate of those of employment age is never 100%. This measure counts those of working age (who are working or actively working over the age of 16 until death). It’s the sum of the employed population and the unemployed population (where a person is out of a job but has looked for work in the past month). This rate has decreased steadily during the last two to three decades. 

When you have that pig in the python reaching retirement age, it not only impacts the labor market from a pure volume perspective, but also from a participation rate perspective. An aging workforce reaching retirement age is still counted in the working age population, but is disproportionately not looking for work. Thus, the baby boomers are experiencing a lower participation rate and are the biggest contributor to overall lower employment participation in recent years.

When looking at supply chains, if supply is dwindling (baby boomers as % of population), less supply is on the horizon (birth rate), and the supply we have is reaching its full utilization (baby boomer participation), then we have what’s often termed a resource scarcity, or in this case, a labor shortage. 

At a macro level, this shortage should not have been a surprise. At a micro level, there are many other dynamics going on we’ll talk about in future insights. 

-Teresa