What caused the talent crisis – and how can HR solve it?

In some sectors, the labour market is far from buoyant – but HR can play a key role in ensuring the worker shortages seen this year are a thing of the past as we move into 2022

What caused the talent crisis – and how can HR solve it?

When it came to tackling the toughest recruitment and retention crisis she’s experienced, home care business founder Camille Leavold decided to steal an idea from the world of customer service. “We got the idea from Sky,” she laughs. “If you call them up telling them you’re going to leave, they won’t let you. So if our staff are unhappy, we try to find out what the problem is, and tell them what we can offer. Perhaps they don’t like their rota or they feel like they’re doing a bad job because they’re having to travel all over the place. These things can be easily resolved.” Her company Abbots Care, which employs around 550 home carers, now has a dedicated team whose sole job is to look after the care workers’ welfare. “This team talks to the care workers, ensures they have the right PPE, and makes sure they’re OK,” she says. 

On top of this, a wellbeing app helps staff to let the company know if they’re feeling overwhelmed and includes a function where managers can offer rewards such as vouchers and share positive feedback. Retention has improved, says Leavold, but she still needs a six-strong team of recruiters to meet the 2,000 target hours a month they have agreed with clients. Workers who switched to care roles during pandemic lockdowns left once things opened up this summer, leaving Abbots with a hole in its recruitment pipeline. Her response has been multi-faceted: “We recruit based on values, take people and train them up on a full salary and offer as many types of contracts as people might want. We only take contracts where we know we can pay carers the same as NHS employees at the same level. But recruitment is the most difficult in the 26 years I’ve known it.” 

Leavold is not alone in finding it tough. In September, the Office for National Statistics reported there were 1.2 million job vacancies in the UK, while the average unemployment rate fell to 4.5 per cent, meaning the UK faces its tightest labour market in decades. The latest Labour Market Outlook from the CIPD shows that one in four organisations expect the number of ‘hard to fill’ vacancies to increase over the next six months. On top of this, more than 200,000 EU citizens left the UK during 2020, prompted by new Brexit immigration rules or the pandemic, leaving sectors such as hospitality and social care struggling to fill the gaps. Thousands of workers placed on furlough at the height of the virus also switched sectors and never returned. Speaking at the CIPD’s annual conference in November, chief executive Peter Cheese said the crisis was prompting HR professionals to think more strategically about how they build skills and talent for the future. “Do we buy, build, borrow or ‘bot’? Do we reinvent learning? How do we shape jobs in the best way?” he asked. 

Because the causes of the current labour shortages are so layered, it’s impossible to give a simple answer to any of those questions. Tony Wilson, director of the Institute for Employment Studies, warns against oversimplifying the situation, attributing the “missing million” workers to a combination of lower population, migration, and increased levels of economic inactivity. “Yes, this has been driven by Brexit and migration, but around a quarter of the decline is down to participation,” he explains. “We’ve seen people withdrawing from the labour market altogether – young people going into education and older people withdrawing altogether, especially women.” The government’s response has been to bill this as a skills issue, with policies focused on ‘building back better’ and more money pumped into vocational education and training incentives. “We need to see more measures around increasing participation, especially for older people,” he adds. “People might be out of work due to long-term health issues or looking after families, but at the moment our public employment service focuses on the claimant unemployed. We need to reform occupational health services so people who are out of work can access good quality support, stay close to their employers and get back in.” 

A recent survey from insurance company Legal & General with the Centre for Economics and Business Research echoes his point; among the 177,000 over-50s who have been made redundant in the past five years, 20,000 are estimated to have left the workforce altogether. The Road Haulage Association, which represents HGV drivers, found that in almost 60 per cent of cases of workers leaving the industry, this was down to retirement. And these demographic trends are happening at both ends of the labour market, according to recruiter Paul Farrer, founder of Aspire. “In 2020 we saw fewer trainees and graduates taken on because employers were reluctant to induct people virtually, so we’ve lost a year’s worth of people,” he says. “We’re now facing this ‘leaky bucket’ scenario where candidates are moving so we can fill some roles, but they’re also leaving. And there’s a layer of people who aren’t there to move up into those second jobs.” 

Wellbeing sits at the heart of some of these demographic issues, argues Anthony Rafferty, managing director of the Work and Equalities Institute at Alliance Manchester Business School. “This will be a central issue in our recovery, and it’s not just about supporting people with children. What about bringing people back into the labour market who are on the edge of retirement through better work-life balance options?” he says. “We’ll also see the potential for work intensification as wages go up, and employers want to do more with fewer people. This could lead to issues of wellbeing at work.” 

There is also no ‘one size fits all’ response to recruitment challenges because they are hitting different sectors in a variety of ways. For tech companies, it’s the compound effect of the pandemic on already growing skills gaps (three-quarters of IT decision-makers worldwide cannot keep up with skills demand, according to Skillsoft); in others, spiking sickness rates might be exacerbating an existing shortage (logistics employers saw a 139 per cent rise in sickness absence compared to the global average this summer, according to absence management company eDays). 

Even Christmas celebrations are at risk: ‘urgent’ advertisements for Father Christmases and elves are showing hourly rates three times the usual wage for these roles, according to job site Indeed. “It’s not even just about industries, it’s about specific roles within them,” adds Rafferty. “People who were in customer-facing roles during Covid may have found alternative work for the same company doing warehousing or delivery. In logistics there’s a skills entry barrier to becoming an HGV driver because you have to have a commercial driving licence, but drivers who deliver to your door don’t.” 

External factors such as consumer behaviour, particularly during Covid, have also driven shifts in the labour market, according to Andrew Hunter, co-founder of job search engine Adzuna. Veterinary nurses are in high demand after families rushed to adopt dogs while working from home, for example. “After a year of sitting tight and saving, the last few months have seen a surge in the UK public spending on consumer goods, meals out, and home improvements. Companies haven’t been able to keep pace by hiring enough workers,” he says. “In some cases, it may take several years to train new workers.” 

Donna Catley, chief people officer at catering giant Compass Group, had been working on long-term workforce planning before the pandemic. Something she hopes will protect the company from the worst effects of skills shortages is the launch of an industry academy to reskill existing staff and train up new entrants to the sector. But she also hopes to reach out to potential new sources of talent: the West Midlands location of the academy was deliberately chosen because it’s in one of the government-identified social mobility ‘cold spots’, and a fifth of the academy’s activities will be dedicated to supporting employment and educational opportunities for the community. 

“Because of our size, we’re uniquely positioned to offer opportunities and effect change – we reach into all corners of the country, not just the affluent pockets,” she says. A key part of Compass Group’s approach to its talent pipeline is to offer a “first rung” – a precious first role that could lead to something else. “There are no dead end jobs in this business; we’ve done a lot of work on career paths so you can start as a barista, for example, move on to become a chef and then a manager. We’ve mapped the skills you’d need onto these paths and the academy will play a role in providing them,” she adds.

Similarly, Emma Rose, chief HR officer at Travis Perkins, is using the apprenticeship funding to grow digital skills that will be in demand in years to come as well as through the current hiring boom. The builders’ merchants recently launched a data apprenticeship available to staff across all functions to build their skills in interpreting and using data for decision making. But it has also innovated in its approach to attracting people into the business, ensuring it is not reliant on a narrow set of channels. In summer 2021, it used social media platform TikTok to target students for flexible contracts during the university holidays. The result was around 10,000 applicants, 18 per cent from ethnic minority backgrounds and 40 per cent female, in an industry traditionally dominated by men. “Some of those summer workers have become permanent employees, or prolonged their contract into the winter season working in other branches near where they study,” says Rose. If nothing else, thousands of young people have built their awareness of the sector and a potential career there, she adds. 

Moving into 2022, one of the factors HR teams will be unable to ignore is pay. Almost half  (47 per cent) of respondents to the CIPD’s Labour Market Outlook said they had increased salaries over the past six months to lure people into hard-to-fill roles. Next year, the combination of the National Insurance and minimum wage rises in April will put further pressure on wage budgets. But is simply raising pay sustainable?  

“We were already in a situation before the pandemic where salaries could not keep up with the cost of living,” says Steve Herbert, head of benefits strategy at Howden Employee Benefits and Wellbeing. “Employers are stuck in a hole where employees expect more, the government is forcing up costs, yet productivity is lower than it was 18 months ago.” That productivity issue will be a particular pain point in the coming months, predicts Xiaowei Xu, senior research economist at the Institute for Fiscal Studies. “Everything comes down to this,” she says. “We have to have an increase in productivity, so that increase in wages does not translate into an increase in prices.” 

Where businesses are unable or unwilling to incentivise candidates with higher pay rates, many are using training and career development as an attraction tool. Figures from ManpowerGroup show that 44 per cent are offering training, skills development or mentoring in a bid to attract staff, compared with 29 per cent who are hiking salaries. Gerwyn Davies, senior labour market adviser at the CIPD, says better support from the government on making apprenticeships and other training schemes more flexible would help. “A quick win would be to extend the apprenticeship levy so those sectors hit by shortages could use it as a training levy,” he says. “You could earmark the budget to cover driving qualification or an NVQ for a care worker.  Small businesses especially don’t have the resources to manage apprenticeships, so we’re playing catch-up at a time when we’re experiencing skills shortages.” This could also make the difference in terms of retention, he adds. “Younger workers are happy to tolerate a period of low pay if there are progression opportunities and training.” 

TIS, a company that integrates fire and security systems for retirement homes, has taken this ‘training for retention’ approach to create a pipeline of highly specialist engineers. Managing director James Twigg has partnered with apprenticeship provider Skills for Security to offer a three-year apprenticeship programme to around 20 people. “Because we want multi-systems experience, it can take a long time once you’ve recruited someone to train them,” he explains. “We’ve had private equity investment and around three-quarters of our revenue comes from just eight customers, so it’s crucial we nurture our own engineers to our standards.” 

Twigg wants to move away from using apprentices as “a second pair of hands” and the apprenticeship has been structured so they apply their classroom work on site and experience rewarding work. He adds: “The more we invest in employees, they know we care about them and this resonates with customers. They can see career progression here and that’s great for retention.” 

Herbert says for this approach to succeed, businesses need to support managers to nurture employees better. “If an employer is cash-strapped, bigger salaries are not an option, so make the case to managers that we need people to stay; that if this person leaves, recruitment will take months and we’ll end up with a productivity gap,” he advises. However, it’s important to tailor your retention strategy. A study for the Human Resource Management Journal by academics Xiangmin Liu and Sumita Raghuram earlier this year found that “generic employee retention programmes that focus on common turnover predictors are inadequate and costly” because employees have different reasons for leaving. They recommend building profiles of workforce groups on a spectrum between ‘enthusiastic leavers’ (who will just leave because they want to) and ‘enthusiastic stayers’. Organisations can then tailor their retention practices to the needs of the largest profile of the workforce: so reluctant stayers might value progression or mentoring opportunities, for example. 

In the longer term, dealing with such a volatile labour market will require sharper strategic workforce planning skills, argues Sally Hunter, managing director for EMEA for recruitment process outsourcing company Cielo. “There has been a talent gap for five or 10 years and we’ve been struggling for a mature and strategic way to forecast demand,” she says. “We might talk to finance about the budget or look at historical attrition, but not consider new product launches, so how do we get ahead?” The pandemic has caused many employees to consider whether they’re happy pursuing their current career, while remote working has opened up access to candidates for headhunters and vice versa (no more taking sneaky calls in a side office). “This is driving people into roles for which they’re not entirely qualified, access to jobs they might not have seen in a less buoyant market,” she adds. In response, organisations are trying to become more strengths- or values-based in their hiring practices, looking to teach technical skills once they have the right attitudes through the door. 

But moving forward, workforce planning has to become far more of a central business issue than an HR issue, Hunter insists. “It’s about making sure that HR business partners and resourcing teams have in-depth conversations about where the business expects to be, and building your workforce plan around that. It may be a longer game if you need to rely on early talent, or you may need to redesign roles or make learning more compact to get to market quicker. Make everyone co-own the workforce plan and how that translates into performance,” she says. With labour market experts predicting that hiring surges are likely to persist well into 2022, sharing the burden with colleagues across the business will be music to HR’s ears.