Managing HR Surplus and Shortages

08/12/2020 0 By indiafreenotes

During times of economic hardship or when a company adopts more efficient processes, a business can find itself with workers who do not have enough work to do. Called a labor surplus, this circumstance of having too many available worker hours is not ideal. It is costly when a business has idle employees to whom they must pay salaries and benefits. Handling a labor surplus is tricky, but some solutions can help in the short and long term.

Labor Surplus Basics

While a labor shortage is a challenging problem, a labor surplus can be equally difficult to manage. Perhaps your business recently implemented new policies or processes that made work more efficient, and now your company employs too many workers for the jobs you need to have done. In this situation, laying off your skilled workers is not your only option. Available alternatives are worth considering, particularly if your business plans to branch out and accelerate growth in other areas.

Perhaps business has dried up due to an economic downturn or changing trends that affect your industry. In this situation, where the prospects of profitability for your company are dim, you might choose to handle your labor surplus differently from the first scenario. If it doesn’t seem like work is coming back anytime soon, it isn’t prudent to keep on employees who don’t have enough work to do and can’t drive profits.

Ways to Handle a Labor Surplus

The path your business chooses to handle a labor surplus depends on your current financial situation and corporate goals. If you have succeeded in implementing efficient processes or production techniques and no longer need all your factory staff, you can shift the responsibilities of some workers to a similar area to help your company grow vertically or horizontally. Layoffs are not your only option.

However, if you are struggling to make payroll and there is no sign that business is going to pick up in the near future, it is probably best to let some of your staff go. This way, your workers can collect unemployment benefits and search for new jobs to further their careers, while you maintain some profitability for the business.

In any situation involving a labor surplus, don’t hire new workers. A hiring freeze is a necessary step while your company’s management team determines the best path forward. In addition, you should end contracts with outsourced talent and transfer those tasks to internal labor instead.

Additional Labor Surplus Techniques

Other ways to deal with a labor surplus include pay cuts and reduced working hours for your staff. It’s better to avoid these strategies when possible because they can lead to problems with employee morale or reduced effort by disenchanted staff.

You might also consider encouraging older employees to take early retirement. Older employees are often the highest-paid workers in a company. If early retirement is handled properly, this strategy can free up a great deal of money for your company while reducing the excess labor capabilities you have.


Labour Market Shortages in the Domestic Context

While the above examples refer to labour shortages in the international context, there are instances where there such shortages have been met from the domestic labour pool. For instance, India has long suffered a chronic shortage in the jobs related to IT and other services sector despite having a sizeable graduate population which is among the world’s largest labour pool. The reasons for the shortage of skilled workers in IT and other allied sectors was because many of the professionals were emigrating to the West and in addition, the domestic labour pool was unemployable in the sense that though the Technical institutions such as the Engineering colleges were churning out graduates in large numbers, many of them were simply unemployable meaning that despite having a degree, they did not have the skills necessary to work in the IT firms.

Labour Market Shortages in the International Context

Labour market shortages are created whenever there is a gap between demand and supply for a particular skills, job, role, or occupation. For instance, in the 1980s, there was a shortage of skilled workers in the Persian Gulf countries because of which the governments in those countries took steps to address the shortage by opening their doors to immigrants from other countries. Similarly, there was a shortage of IT (Information Technology) professionals in the United States in the 1990s and the last decade. The answer again was to pursue to an immigrant friendly policy and to encourage the large-scale migration of IT workers from India and other countries to the United States and other Western countries.

Strategies to Overcome Labour Market Shortages

The answer to this labours shortage in India was to expand the recruitment base by including non-Computer Science and IT graduates in the eligible pool of workers. For instance, many Indian IT firms resorted to recruiting graduates from all branches and then training them so that they have the required skills for the jobs. While this is a far from ideal situation and the solution was stopgap, it went a long way in addressing the chronic shortage of workers in the IT sector. Indeed, the numbers of graduates from other disciplines who were recruited into the IT firms was so huge that the joke, Trespassers will be recruited began to be identified with the Indian IT sector. The point to note here is that this is a simple demand and supply equation wherein whenever there is excess demand, companies tend to look for all available alternatives to address the demand.

Temporary and Permanent Labour Market Shortages

Labour market shortages can be temporary or permanent. An example of a temporary shortage is the kind that was discussed about the Gulf region earlier wherein a shortage of skilled and semiskilled workers was addressed by bringing in guest workers for the shorter term. After the jobs were done, most of these workers had to return home or be replaced by other workers since those countries did not really want to have workers for the longer terms in the occupations that were hired for. Further, this model was extended to the whole world wherein temporary shortages for workers were met by simply bringing in workers from high population countries such as India, Philippines, and other Asian countries. The rationale for the continuous replacement of workers was that in sectors such as construction and heavy industry, there was always a demand and a churn which meant that workers were needed for shorter term durations.

On the other hand, longer term labour market shortages such as the ones experienced by the West and the United States in particular meant that their strategy was to create and nourish a pool of professionals in high skill and high value jobs such as IT for the longer term since these jobs created value as the professionals progressed. The economics of addressing labour shortages are indeed driven by purely commercial considerations as whenever there were a need for low skill and low value jobs, workers were brought in for the shorter term, and whenever there was a need to invest in social capital and build a workforce that added value with time, such professionals were accorded permanent residency and were paid handsomely so that all parties benefit.

Criticism of the Present Strategies

However, there has been much criticism about these strategies and especially the ones such as the Indian IT firms hiring non-IT graduates to tide over the labour market shortage. For instance, the common refrain that is heard is that if all engineers work in IT, who will build the bridges and who will work in the manufacturing sector that is so crucial to the success of these countries. In addition, such strategies have also been criticized because they introduce distortions in the labour market wherein policies put in place by the governments to train engineers to work in industry fail because these engineers have been employed in the IT sector. In other words, addressing supply shortages in one sector can lead to problems for other sectors.


Therefore, the clear insight that we gain from the discussion so far is that unless all stakeholders come together and create longer term strategies to address labour market shortages, the end result would be that the labour market is going to be skewed in favour of one sector or the other. Moreover, the strategies discussed in this article would result in the semi-skilled and unskilled workers losing out in the longer term once the need for them is over. In conclusion, addressing labour market shortages is a vast topic and this article touched upon some salient aspects of the topic.