How to prevent your business falling off the 'workforce cliff'

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David Fairhurst, chief people officer for Europe at McDonald's, explains how HR can deal with the decline of the working age population.

Economists look at the health of nations in the same way Goldilocks looks at porridge. Annual GDP growth of less than 2% is “too cold” to maintain welfare standards, while growth of over 4% is “too hot” to sustain for long periods.

Between 2% and 4% is “just right” – which is great news, because most economists believe around half of the member states of the EU will cross the 2% threshold by the end of 2015. However, a recent working paper from the European Commission (EC) suggests growth sustainability may be jeopardised by a rapid reduction in the size of the working age population: the ‘workforce cliff’.

To understand why, we need to scratch the economic surface a little deeper. The EC research shows that pre-recession GDP growth across the EU averaged around 2.25%, the result of annual productivity gains coupled with employment growth. But with the working age population declining, how long can we rely on employment growth as a driver of economic health? 

The paper’s conclusion is disturbing: at today’s levels of workforce economic activity, the EU can sustain employment growth of 1% “no longer than 2019, despite its current high
levels of unused labour reserve
s”. This will place the entire burden of economic growth on productivity, which has largely stagnated in recent years. 

However, HR can buy some time before reaching the edge of the 'workforce cliff'. The EC calculates that if companies employ more of the working age population the edge of the 'workforce cliff' can be pushed back by as much as a decade. To achieve this,
we need to make urgent 
progress on four fronts.

  • First, we need to ensure that more young people gain the skills they need to enter the world of work. A recent survey by the UK Commission for Employment and Skills (UKCES) found that where levels of preparation were poor the overriding issue was a lack of work experience.
  • Second, employers need to make their jobs compelling for older workers. Across the EU less than half of 55- to 64-year-olds are currently in employment. 
  • Third, we need to provide support for women to be as active as possible in the workforce.
  • Finally, employers need to invest in training and education. Worryingly, the UKCES survey found total investment in training decreased by around 5% between 2011 and 2013.

As the economic recovery continues across Europe, we find ourselves with two significant new challenges. To push back the edge of the workforce cliff by helping as many of the working age population as possible into employment… and then to ensure that each of them is equipped to deliver the levels of productivity needed to maintain our economic health in the long-term.

Successfully rise to these challenges, and I believe that in the years ahead economists will be able to tell us that, despite their gloomiest predications, HR played a pivotal role in ensuring that things turned out “just right” in the end.

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