Talent Management Column

The Fork in the Road for European HR

Our intrepid columnist reports from the European front of the war for talent, where HR leaders are facing a fork in the road when it comes to developing their talent pipelines. Should HR leaders there embrace an "employability doctrine" -- or should they create a whole new doctrine?

Monday, May 23, 2011
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I've spent this past week at The Hay Group's International Conference 2011 in Vienna, where participants from 39 countries were kicking around issues of concern to them. Most of the participants were from Europe, and despite the fact that the economic circumstances across these countries vary a lot, there was something of a common theme to the discussion. 

That theme had to do with the fact that most of the companies represented have endured the worst business downturn in modern times. A great many have laid off employees, even with the substantial regulatory costs associated with doing so in the European context. A lot of employee expectations, especially about job security and advancement, have had to be revised. Employees have taken on more work in the process and more stress associated with the uncertainty of business prospects. Morale is bad even as the economies are starting to improve. Much of the talk is about the need to rebuild trust with employees in order to get businesses going again.

The U.S. faced the same situation in 1983. We had gone through what was then the worst recession since the Great Depression, and the economy had just begun to improve. For the first time, white-collar jobs had fallen under the axe, and there was a clear sense that the layoffs, which in the past had always been temporary, would this time be permanent.

HR executives were looking at the dismal scores on employee-morale surveys, and the talk was about the need to reestablish the stability of the pre-recession arrangements. But layoffs continued, now as part of restructuring, and many companies simply gave up doing morale surveys because they knew the results would be bad.

Instead of rebuilding the old arrangement, what we eventually got was a moment of candor where HR departments in leading companies were frank about the fact that the old model wasn't coming back. They created what became known as the "employability doctrine:" We can't guarantee you job security, and you've got to look after your own career. The best we can offer is opportunities to keep your skills up to date so that you can find a new job if you need to.

European HR operations are facing the same choice point now, and I'm wondering how things will work out for them, whether they will rebuild the pre-recession arrangements, go the U.S. route or try something completely different.

The U.S. employability doctrine turned around to bite companies a few years later in the late 1990s when the economy took off, and employees started to look after their own careers by hopping from job to job, chasing higher pay in the process. This concern about employee retention associated with going down the U.S. path is very much on the minds of the European HR executives. 

Another cost to breaking the old lifetime employment model that has taken a long time to play out is now in full swing, and that is the concern with skill shortages.

A recently released study of 39,000+ employers around the world by Manpower reports on the extent to which employers say they can't find people with the skills they need to fill their vacancies. Fifty-two percent of the U.S. respondents report a skill shortage for some jobs, a figure that has actually risen since last year, despite an unemployment rate of 9 percent, as well as a dismal job market for recent grads. How could that be?

Well, some of the responses are just mistakes. Ten percent of the employers say they can't find applicants because they won't accept the wage the employer wants to pay. That's like saying there is a Mercedes Benz shortage because they cost more than my budget. 

But the real answer comes from two additional facts in the survey results. First, the jobs that appear to be in scarce supply and have been in previous years of this survey are skill trades, sales and technicians. What do these jobs have in common? You can't learn them in a classroom. They have to be learned on the job.


Second, the tightness of the labor market, which should be the factor that explains how scarce skills are, in fact has little to do with the reported results across countries. The country with the lowest unemployment rate in the world and over the period of prior surveys is Norway, yet it has about the lowest reported skill shortages. Other countries with very low unemployment rates, such as Sweden and the Netherlands, also have very low skill shortages. 

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These countries that have little or no skill shortages despite very tight job markets also have practices of growing talent from within, through apprentice programs and other forms of work-based learning. The U.S., on the other hand, has among the highest reported skill shortage despite having among the highest excess supply of labor in the form of unemployment. The reason appears to be that we've largely given up growing talent from within.

Apprenticeship programs have almost disappeared as have management training programs. Instead, employers expect to hire workers who can step right into jobs, even those that require a lot of work-based skills, in many cases a mix of skills that are quite specific to that employer, and to do so without any training. 

To reinforce this conclusion, the biggest shortfall in applicants reported across all employers in the survey was a lack of work experience where these skills can be learned. Only one in five employers reported using training to address their skill shortfalls. 

Maybe there was no alternative for the U.S. employers at the time the old model broke. The expenses of lifetime employment were considerable as were the short-term savings from going in a different direction.

But as our European colleagues decide what to do next, they should face the choice with their eyes open.

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School. His latest book, with Bill Novelli, is Managing the Older Worker: How to Prepare for the New Organizational Order.


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