Talent Shortage

Three different kinds of shortage

When a hiring manager says there is a talent shortage, it is worth asking which kind.

• Labor shortage: there are simply not enough people available for a type of work in a location, often because of demographics, low unemployment or geography. Rural healthcare and some skilled trades are common examples.
• Skills shortage: people are available but lack a specific skill or credential, such as a nursing license or experience with a particular system.
• Employer-created shortage: qualified people exist but do not apply or accept, because pay is below market, the schedule is unattractive, requirements are inflated or the hiring process is slow.

The fixes are very different. Raising pay does little for a true credential shortage. Building a training academy does little if the real problem is a wage $2 an hour below the employer across the road.

How to tell which one you have

Look at your own funnel before blaming the market.

• Plenty of applicants but few qualify: likely a skills shortage, or requirements set too high.
• Qualified applicants who drop out or decline offers: likely pay, schedule or process. Check decline reasons and time from application to offer.
• Few applicants of any kind, and competitors report the same: likely a real labor shortage in that market.

Then compare with external data. Talent intelligence on local supply, competing postings and market pay usually settles the debate in one meeting. A contact center paying $16 an hour in a market where retail and warehouses pay $18 does not have a labor shortage. It has a pay problem.

What employers can do

• Fix the offer. Benchmark pay, shift differentials and schedule flexibility. Small changes, such as fixed schedules or a weekend premium, can matter more than base pay.
• Remove unnecessary requirements. Drop degree requirements and years-of-experience filters that the job does not need.
• Speed up hiring. In hourly hiring, candidates often accept the first offer they get. Same-day interviews and offers within 48 hours recover a large share of candidates who would otherwise drop out.
• Build the skills. Hire for aptitude and train, through academies, apprenticeships or upskilling of current staff.
• Widen the pool. Remote or hybrid roles, second-chance hiring, returners, veterans, older workers and people with disabilities.
• Retain who you have. Lowering attrition by a few points often removes more hiring demand than any sourcing campaign.
• Change the work. Automation and process redesign can reduce how many people a task needs.

A worked example

A home health agency has 60 open aide positions and calls it a talent shortage. Funnel data shows 900 applications last quarter, but 70% dropped out between application and interview, which took an average of nine days to schedule. Of those who reached an offer, a third declined because shifts were assigned at random each week.

The agency moves to text-based scheduling with interviews within 48 hours and offers fixed weekly schedules to new hires. Within two quarters, open positions fall by more than half. A real shortage of licensed aides still exists in two rural counties, and the agency addresses that one with a paid certification program.

Talent shortage vs skills gap

A talent shortage is about the external market: you cannot hire enough qualified people. A skills gap is usually internal: the difference between the skills your current workforce has and the skills it needs. A skills gap analysis often reveals that part of an apparent shortage can be closed by developing existing employees rather than hiring.