How to tackle the labour market

Almost every survey or indicator of business confidence highlights the impact of a persistently tight labour market on an organisation’s ability to successfully implement its strategy. For example, the recent Mercer Marsh Benefits survey recognised what it called a “seismic shift” in the perception of people risks in New Zealand.

With a global pandemic, challenging economic conditions and international conflict, the start of this decade has added new layers of complexity and volatility to 21st century trends in economic life.

As executive teams respond to the challenges this brings, including finding the talent their businesses rely on, it’s more important than ever that boards stay attuned to global and domestic trends and the full array of risks associated with them.

Executive teams worrying about attracting the right talent is one thing – governing for it requires a different focus and one that often needs to shift with shifts in the market. Helping clients respond to the current labour market has highlighted three key governance priorities:

1. Global conditions and their direct impact on your business

The market for talent continues to be uncertain and fragile. The pandemic weakened economic performance throughout the world, but the extent of the rebound has been different in different countries. Developed countries have experienced a stronger, more rapid turnaround – for example, with its lowest unemployment rate since 1974, Australia’s data looks much like ours, and the US is similar. But some countries continue to struggle with weak economic activity and bank economists have us on watch as we work to get inflation under control.

The November Monetary Policy Statement from the Reserve Bank highlighted that acute labour market shortages are limiting business service and output across many industries, regions and skill types. In May, the Treasury anticipated that slowing domestic demand is expected to ease labour market tightness, resulting in the unemployment rate rising to 4.8% at the end of 2025.

Labour markets are all about push and pull factors. The changes to immigration policy settings and the impacts should be watched. Even if organisations can access skilled workers through the new immigration settings, employers need to keep their pencils sharp and their offerings current so they can compete with other countries and companies seeking workers.

For smaller organisations, this means working with industry associations to leverage your appeal. Most businesses have realised they need a more competitive offering than they had before Covid-19.

Key questions boards should be asking:

• Does your organisation have a strategic view of its likely workforce needs up to a 12-month, a two-year, and a five-year horizon?
• Is your executive team monitoring the global trends that are relevant for your workforce (aggressive Australian recruitment campaigns, for example), including for your workforce’s particular composition and demographics (such as visa type and language) so your organisation’s risk assessments are better informed?

2. Working with your partners and supply chain 

If the pandemic has taught us one thing, it’s that a successful business strategy requires analysing risks along your entire supply chain. Yet my work with boards, executive teams and sector groups continues to show that not enough agenda time is being given to strategic workforce risks, including dependency on other employers in the supply chain.

Now more than ever it’s important to encourage your managers to understand this. The government has recently consulted on draft plans to impose new duties on organisations that have control over, or a significant interest in, another business, making them more responsible for the welfare of workers in their supply chains.

This stems from the global movement to address modern slavery. Some New Zealand companies are already caught by the Australian or UK rules, but the proposals in Aotearoa are far more ambitious. If the proposals are passed into law, the new rules will create both legal risks and brand risks for employers that don’t comply.

The Employment Court is also getting a little more bullish in its decisions about whether a worker is an employee or is in some other form of arrangement. The recent high-profile decision around Uber drivers highlights that the court is focusing its efforts on whether someone is an employee in substance and how the relationship operates in practice, rather than the label attached to the relationship in the written agreement.

Key questions boards should be asking:

• Do you understand your wider workforce structure and rationale?
• Which partners and suppliers are critical for your core business? Are any of them dependent on you as their only client, or a significant concentration of their business?
• Do you have strong and active contract management in place? Are you satisfied your contracting model would meet the tests of a genuine subcontracting arrangement?
• Do you have appropriate compliance systems in place, and can you demonstrate that your organisation and those you work with can give your migrant workers a positive experience of working life in New Zealand?

3. Talent and your employee experience

In a tight labour market, the best workforce strategy is to keep the employees you have and be attractive to others. This includes avoiding costly restructures if you are not fully confident you can fill any new roles. Across the board we are seeing high turnover, pressure on wages, and a blow-out of advertising and recruitment costs, so it’s important to keep your employee proposition current and fresh.

Generational expectations of work are different. Some employers from the post-boomer Generation X are concerned that hybrid working reduces productivity among younger people, but the narratives about “the great resignation” and the perils of hybrid working need to be scrutinised. Ensure you challenge your management teams to use evidence rather than anecdotes or projecting their (or your) own experience of work on to employees.

Pressure on wages is likely to continue as the cost of living increases, and the new Fair Pay Agreement legislation may mean you face sector-wide changes in wage expectations.

Key questions boards should be asking:

• What is your strategy for retaining and attracting staff? Has it been refreshed for the current conditions?
• How many of the workers employed in your supply chain can work in hybrid arrangements (it’s estimated to be about 30% nationally)? Do you understand the impact of hybrid working on productivity, retention (push and pull), attraction and work culture?
• Are your functional leaders listening to your people and culture experts? What market feedback do you have about how your organisation is seen? What do your executives know about your competitors’ strategies? 

About the author

Sarah Baddeley leads a team of labour-market experts, advising organisations on how the labour market is affecting their operations.