The labour market is behaving very strangely. Every employer I speak to tells me that it’s getting tougher to find the people they need. That’s no surprise at a time when vacancies are at the highest levels on record.
So how do we make sense of the fact that unemployment is also rising?
It’s a question economists have theorised about for decades, and now that theory – the ‘natural rate of unemployment’ – is being tested.
The theory itself is actually pretty straightforward: when an economy reaches its natural rate of unemployment it isn’t a lack of demand that drives joblessness, it’s supply-side factors such as skills mismatches and labour force mobility.
What gets economists hot under the collar are the methods used to calculate what that rate might be – methods that lead to widely differing results. For example, the Office for Budget Responsibility believes the UK’s natural rate of unemployment to be around 5.4%. The OECD, however, estimates it at 6.9%. Who’s right is largely irrelevant from an HR perspective, because with UK unemployment at 5.5% we’ve almost certainly reached our natural rate of unemployment: where vacancies and unemployment can rise simultaneously, and the level of demand outstrips supply.
In this new reality – one where organisations can no longer rely on hiring additional staff to drive growth – productivity is king. And boosting productivity is about far more than investment in technology and working practices. It’s about everything we do in HR. To seize this opportunity, I believe that HR teams need to focus themselves in three key areas.
The first is supporting a transformation in cultures to ensure that customers are the focus of everything employees do. Enhancing the customer experience is a key driver of both performance and growth. Targeted investment in training and development has a vital role to play here.
The second is to create the robust, objective talent management processes needed to build a strong talent pipeline – one that extends through all levels of the organisation, and which ensures that individuals who exhibit the right customer-focused behaviours are recognised and have clear routes of progression.
Finally it’s about ensuring the organisation has leaders who have the capability to engage and motivate their teams in identifying and seizing future opportunities. And that these teams are lean, efficient, and designed to meet both current and future business needs.
In other words: by getting the fundamentals right HR practitioners can make a huge difference to an organisation’s performance and productivity. We have to keep challenging ourselves, be restless in our pursuit of continual improvement, and we must never be satisfied that ‘good’ is ‘good enough’.
We also need to keep sharing the insights and initiatives that can make us collectively stronger. People 1st is currently facilitating this across the hospitality and tourism sector – and I urge other sectors to do the same. George Bernard Shaw once commented: “If all the economists were laid end to end, they still would not reach a conclusion.” As we arrive at what appears to be the natural rate of unemployment perhaps for once they will.
For HR, however, the conclusion is already clear. With demand for workers outstripping supply we urgently need to come together to find ways to address the productivity issue.
David Fairhurst is executive vice president, chief people officer, at McDonald's