Diversity and inclusion could be the key to providing an organization with real-world benefits, while also managing the acute labor shortage.
US Federal Reserve Chair Jerome Powell said recently at a conference that the US economy will not realize its potential if “entrenched inequities” continue to prevent some citizens from “participating fully in our labor markets.”
The US unemployment rate has gradually recovered to 4.2% in November 2021 from the March 2020 peak, but it is still substantially above the pre-pandemic level of 3.5%. In comparison, the unemployment rate for African Americans is significantly higher at 7.9%.
While the unemployment rate is expected to continue improving, reaching pre-COVID-19 levels of employment numbers will be difficult because of a strong drop in the workforce participation rate, which is the percentage of population that is actively seeking work.
The participation rate has dropped 1.7 percentage points since February 2020, and has stabilized around the 61.5% mark over the past several months. This means more competition among businesses for fewer workers. Additionally, the scarcity of workers in some areas, including IT, is expected to last longer.
The Great Resignation
There is another concern.
While the unemployment rate is falling, the quit rate, which measures voluntary separations initiated by the employee, has been steadily rising, according to data from Bureau of Labor Statistics (BLS). A record estimated 3% of US workers quit in September 2021.
Dubbed as the Great Resignation by Anthony Klotz, an organizational psychologist at Texas A&M University, the phenomenon has been linked to a variety of reasons, from worker burnout to seeking better opportunities.
The US is currently experiencing high demand for products and services, partly due to the reopening of the economy and partly because of the injection of excess cash through the government stimulus.
This has, in turn, increased the demand for workers, especially those laid off during the peak of pandemic restrictions.
Workforce Diversity is not Negotiable in a Digital Economy
The Great Rehiring
According to BLS data, while the job openings rate stabilized to 6.6% in September 2021 from the peak of 7% in July 2021, it was still more than 2 percentage points above the pre-pandemic job opening rate.
But hiring and rehiring of talent has not been easy.
Despite record demand for talent, millions are staying away from the job market.
Most businesses looking to rehire former employees reported they were experiencing difficulties, according to data from a 451 Alliance study.
“Employees hired elsewhere,” an indicator for high competition for talent, was the biggest reason for organizations experiencing difficulty in rehiring former employees, followed by health concerns and unemployment benefits.
Rehiring difficulties were consistently high across all industries, business sizes and levels of technological adoption.
One group is the exception: businesses that have a formal commitment to an ESG program.
Ingenuity in Diversity
Businesses with a formal commitment to an ESG (environmental, social and governance) program, including a focus on diversity and racial justice, outperformed their peers on not only recruitment, but also sales outlook and customer willingness to buy their products.
The 451 Alliance survey showed that businesses with formal ESG commitment were 2.5x more likely to spend on racial justice and 2x more likely to spend on workplace diversity.
These businesses were 45% more likely to report better-than-expected sales, and they were significantly more likely to report stronger demand among customers for their products than their peers.
These businesses also hired more aggressively (2x) and found rehiring employees they laid off during the pandemic significantly less difficult (by one-third) compared to the average business.
These findings were echoed in a separate research study published by the US Chamber of Commerce in September. “[B]usinesses with robust diversity, equity, and inclusion practices perform better than their peers,” the think-tank said.
It said that the American economy stands to gain $8 trillion by 2050 by closing the racial equity gap.
If you needed a reason to embrace ESG, combating the Great Resignation is one of them.
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