It is ironic that one positive outcome of the current economic slowdown will be a slight lessoning of the talent shortage for knowledge workers.

How is this possible you ask? Some large employers are slowing down their hiring plans or even reducing their workforces (e.g. the financial services industry’s reaction to the sub-prime mortgage crisis). But another dynamic which hasn’t gotten much press attention is that because of the current economic uncertainty, many of the leading edge Baby Boomers (those who are close to retirement age) are now contemplating whether they should stay in the workforce longer.

A recent study by AARP found that 27% of people aged 45 to 64 had already postponed their retirement plans because of the economic downturn. Industry leaders say they believe the market volatility and the uncertain economy have made Baby Boomers more nervous than they already were.

You can read the AARP study, “The Economic Slowdown’s Impact on Middle-Aged and Older Americans”, here: http://assets.aarp.org/rgcenter/econ/economy_survey.pdf

Many are concerned about their dwindling retirement savings and increasing cost-of-living expenses, most notably housing, healthcare, education, and energy. As a result they are either postponing their planned retirement date, or jumping back into the workforce.

Many of the most experienced knowledge workers will choose to extend their working life, or re-enter the workforce, as consultants. These seasoned experts will help to lesson the burden of talent recruitment and retention for corporate America.

In its second quarter report for 2008, the UCLA Anderson Forecast (http://www.uclaforecast.com) cautiously affirmed the “no recession” prognostication it has been advocating over the past several quarters but says the housing bust will continue to wreak havoc on the national economy.

At the same time the report also acknowledges that the most recent employment data — an increase in the unemployment rate from 5 to 5.5 percent — falls within “recession range.”

An interesting side note: UCLA Anderson Forecast director Edward Leamer said the rising unemployment rate is more of a “hiring freeze” than massive layoffs typically associated with a recession. This means that talent will continue to be scarce as the Baby Boomer retirements will continue to deplete the knowledge workforce.

“Although the economy will likely avoid falling into a formal recession, the economic outlook through the end of 2009 is decidedly subprime,” said senior economist David Shulman of the University of California at Los Angeles.

Recession or not, the Forecast says Gross Domestic Product could dip into the negative range over the next six to nine months. The Forecast says that real GDP growth from the third quarter of 2007 through the end of 2009 will average “a very tepid” 1.2 percent, adding that “we expect that the current quarter real GDP growth will come in at a minus 0.7 percent and the first quarter of 2009 could be negative as well.”

In California, the question is whether or not hard times in the real estate and ancillary sectors have had significant impact on other areas of the state’s economy.

The California report states, “There is no generalized spread of contraction to the rest of the economy, then when the [housing, construction and finance] sectors do hit bottom, California will be posed to take off once again.”

UCLA Anderson Forecast Economist Jerry Nickelsburg concludes that California’s service sectors, the state’s traditional economic engines of growth, are still sidestepping the turbulence in the financial, construction and real estate sectors, keeping California’s employment growth positive.

He also notes that exports and agriculture, which had not shown much growth recently, are now providing enough additional positive data to also offset the sharp declines in home construction and real estate.

The Forecast predicts a weak California economy throughout 2008. The strength in exports of both goods and services in the Bay Area and Los Angeles, along with the strength of agriculture in the Central and Salinas valleys, will keep California employment flat the first half of the year, with the unemployment rate topping out at about 6.1 percent by year end.

Residential construction will remain at a very low level throughout next year, while the now permanent job losses in the finance sector must be offset by growth in other areas.

The forecast report also says that the Federal Reserve Bank is beginning to shift its attention from the financial system, which has been negatively impacted by the housing bust, to its more traditional concern about inflation. As a result, the UCLA economists see possible rate increases in the middle of 2009.

I recently used a short video to great effect in a presentation. The clip I shared is actually a Swedish television commercial for a navigational equipment manufacturer, you can see it on YouTube here:

The message is clear: we must always challenge our assumptions, and sometimes we must be willing to change course!

In the context of the talent shortage and the evolving workforce, we must challenge our assumptions about knowledge work and how it gets done. We can’t always find, afford, or even justify having all the talent we need on our full-time staff. Oftentimes it makes more sense to bring in proven expertise to deliver specific results on a project or interim basis.

Despite the current economic slowdown in the U.S., I’m still hearing plenty of talk about the talent shortage and the “war for talent.” What is often not mentioned in these conversations is that this is not just a U.S. issue.

As is fitting for a global economy, the talent shortage is also global.

For example, Europe is facing a massive shortage of skilled labor. It is estimated that the EU will need 20 million skilled workers over the next 20 years in order to compete internationally.

There is currently an EU proposal (the so called “blue card” program) to loosen immigration policies in order to attract more foreign workers. The hope is to compete more effectively with the U.S. and Asia for scarce talent.

A growing number of European companies are also planning to combat the talent shortage by making plans to hire more workers over the age of 50. The recent Demographic Fitness Survey polled 2,506 companies in Germany, the U.K., France, Italy, and Spain and found a 16% increase in companies planning to hire more “older” employees in 2008. In addition, the share of companies that plan to hire fewer people over 50 has decreased from 42% in 2006 to 34% in 2007.

There is no doubt that the Flexible Knowledge Workforce (highly skilled workers, consultants, former executives who want to work on a project or interim basis) will grow in Europe as well as the United States to meet this demand for talent.

Is increased immigration the solution to the U.S. talent shortage?

In the war for talent the topic of immigration has become a political hot button. On the one hand it is offered up as a solution to the lack of talent, particularly in the high technology sector. On the other hand, it is chastised as a villain taking lucrative jobs away from U.S. workers.

The truth, as always, is likely somewhere in the middle.

CEOs of many companies, particularly those in high technology, see the same pattern year after year. They desperately need to recruit high-level, foreign knowledge workers since universities in the U.S. are simply not graduating enough software programmers and computer engineers. In recent years high level executives from such tech giants as Sun Microsystems, Microsoft, 3com and Motorola have lobbied for a more generous and rational policy that would allow skilled foreign workers into the U.S. through the H-1B and L1 visa programs. Yet these efforts have so far failed to result in any significant policy changes.

Nothing seems to happen in Congress to boost the number of H-1B visas (which are 3 year non-immigrant visas that allow U.S. employers to employ foreign guest workers skilled in specialty occupations) which companies can use to obtain the skilled tech workers they need.

This year, demand was so strong for skilled foreign tech workers (especially from India, Pakistan, and China) that the U.S. Department of Citizenship & Immigration Services staggered its allocation period over one week ending April 7. Over 163,000 applications were received for just 65,000 H-1B visas. They were all gone within the first 24 hours.

While there are new attempts to fix the H-1B visa system, most experts don’t predict any changes soon. For instance, U.S. Rep. Lamar Smith (a Texas Republican) has recently proposed laws raising the annual H-1B limits from 65,000 to 195,000 in 2008 and 2009. However, in a Presidential election year and with the resulting political posturing over “illegal” immigration taking jobs from U.S. citizens the likelihood of any new immigration policy changes are not good.

The other side of the issue is that with the talent shortage becoming a global issue and increasing wage “normalization” in developing countries, many foreign workers are choosing to stay home. When you look at the cost of living differential between the U.S. and that of many developing countries it is a perfectly rational decision.

So where does that leave us?

It would appear we’re stuck with the current, dysfunctional system for at least another year, if not longer. Talent seeking companies will have to consider solutions other than increased immigration in order to find the help they need.

In today’s business environment Chief Financial Officers have plenty to keep them up at night.

Duke University and CFO Magazine recently released their quarterly Global Business Outlook Survey. They asked CFO’s to rank their top three concerns. The average importance scores reflect the weighted average that resulted for each concern across 573 respondents in the U.S., 191 in Europe, and 203 in Asia.

The many related parts of the current economic downturn can be summarized with three major concerns for CFO’s: weakening consumer demand, increasing cost of labor, and a shortage of skilled-labor. Credit fears carried through the supply chain. CFO’s expressed concern about their customers’ creditworthiness and the financial health of their suppliers. Top finance executives are also concerned about their own companies’ access to capital and talent.

It is interesting to note that the War for Talent isn’t just a U.S. phenomenon.

United States

The top concerns in the United States: (with average importance score):

1. Consumer demand (0.82)
2. Cost of labor (wages, salaries, bonuses) (0.73)
3. Credit markets/interest rates (0.59)
4. Cost of fuel (0.58)
5. Cost of healthcare (0.56)
6. Housing-market fallout (0.50)
7. Skilled-labor shortage (0.48)
8. Regulation (0.39)
9. Cost of non-fuel commodities (0.30)
10. Currency values (0.27)

Europe

The top concerns in Europe:

1. Cost of labor (wages, salaries, bonuses) (1.01)
2. Skilled-labor shortage (0.93)
3. Consumer demand (0.87)
4. Cost of fuel (0.52)
5. Currency values (0.50)
6. Cost of non-fuel commodities (0.50)
7. Credit markets/interest rates (0.39)
8. Foreign competition (0.34)
9. Regulation (0.29)
10. Political stability (0.21)

Asia

The top concerns in Asia:

1. Cost of labor (wages, salaries, bonuses) (1.04)
2. Skilled-labor shortage (0.80)
3. Consumer demand (0.77)
4. Currency values (0.74)
5. Cost of fuel (0.59)
6. Regulation (0.54)
7. Credit markets/interest rates (0.46)
8. Cost of non-fuel commodities (0.37)
9. Political stability (0.30)
10. Health of U.S. economy (0.28)