5 ways to navigate the labor shortage and mitigate risk

In 2021, businesses in the U.S. added more than 4 million open jobs — and many of them won’t be filled. According to the Chamber of Commerce, there were currently 2.2 million more open jobs than unemployed workers in the economy in July. This nationwide labor shortage, which is the result of accelerated retirement for baby boomers and shifting expectations around work due to the COVID-19 pandemic, is impacting virtually every industry. Restaurants are closing and changing their hours due to a lack of help. Cargo ships are waiting weeks to offload as ports operating at 60 percent capacity struggle to keep up with high demand.

In a landscape where one in every four workers is considering quitting their job, business leaders are under pressure to maintain their workforce to ensure business continuity. “Whatever the reason [behind the labor shortage], the simple fact of the matter is that workers are not joining the workforce at levels sufficient enough to meet the needs of many industries out there,” says David Perez, chief underwriting officer, Global Risk Solutions for Liberty Mutual. “And that’s a problem.”

This worker shortage raises a range of risks for companies, from workplace injuries when workers are untrained or overworked, to liability risks if they make more mistakes on the job. There are also accompanying property and auto exposures that can result from untrained workers misusing equipment or causing accidents. Mitigating these impacts starts with understanding how they can affect your business.

Risk managers need to understand that while the labor shortage is a large trend affecting the entire economy, it is straining different industries in different ways. Understanding what your workforce needs to retain them and keep business moving is critically important. For example, in:

Beyond reduced productivity, worker shortages can also lead to burnout, poor retention, unplanned absences, and even injury — which is why it’s critical for business leaders to address this risk area head-on.

Here are five strategies businesses can use to help attract and maintain talent in a tight market and mitigate the risks associated with a prolonged labor shortage.

“Every industry needs a sustainable pipeline of talent to thrive,” notes Perez. A key part of building that pipeline is offering workers the pay and benefits they need to thrive. Predictably, the labor shortage has caused an increase in wages — a 4.6 percent increase year over year as of October 2021 — and workers expect higher compensation than they did before the pandemic. COVID-19 has also prompted many workers, particularly parents, to seek out flexible work options and more comprehensive health and retirement benefits. If employers can offer these benefits, they will be less likely to experience the strain of the labor shortage.

Companies struggling to find talent can also consider expanding their talent pool by exploring previously untapped labor sources. For example, industry training programs and apprenticeship programs can connect businesses to young, skilled talent. Companies can opt to work with existing apprenticeship programs, or start their own programs, depending on their resources. Companies might also consider nontraditional sources, like hiring formerly incarcerated workers and people in rehabilitation programs who may typically experience barriers to entering the workforce.

Along with exploring nontraditional talent sources, business leaders can broaden their talent pool by loosening hiring criteria. Lowering the requirements for education or experience, for example, may increase the number of applicants for a given position. Employers might also consider hiring non-native English speakers, or workers with past convictions, if they don’t already. Taking steps such as increasing onboarding time, pairing new employees with experienced workers, or offering employee incentives for additional education can help prepare employees for their new roles and responsibilities. Providing additional training is another key piece of risk mitigation.

Similar to a deconditioned workforce, hiring workers with less experience can bring additional risk. Business leaders can help mitigate risk by ensuring that new recruits receive adequate training and understand safety processes and procedures. Additionally, companies may want to consider investing in diversity, equity, and inclusion (DEI) training if they diversify their hiring as a result of the worker shortage. Employees at every level should be prepared to address language and cultural issues that may arise as new employees are onboarded.

Finally, employers should view this challenge as an opportunity to emphasize and revisit their strategic risk-management programs. Business leaders will likely need to re-evaluate these programs, whether they’re hiring new employees or experiencing staffing shortages that impact business performance. Insurance providers can work with companies to identify new risk areas and recommend strategies to help protect workers and overall operations.

While some businesses are more affected than others by the labor shortage, it will likely be impossible for any company to totally avoid the risks associated with the phenomenon. Even if they aren’t short-staffed, they may experience supply chain issues and shipping delays, for example, among other challenges. “The majority of the population is experiencing at least some level of disruption, frustration, or financial impact due to this labor shortage,” says Perez, “and it could be something that’s with us for quite a while.”

The best way for companies to navigate a tight labor market, Perez suggests, is to keep the workers they already have, through retention and training programs. “Companies need to start doing their best to retain their existing talent,” Perez says, “and onboarding and training will be more important than ever in just about any industry.” By giving workers the knowledge and support they need to be successful in new and existing roles, companies can avoid unfilled positions — and the risks associated with an unprepared or uninformed workforce.