Human resource planning plays a very significant role in ensuring that the organisation achieves its overall strategic goals. As the workforce becomes more competitive and globalized, the role of strategic human resource planning is given even more importance. Understanding the current trends and prevailing conditions in the labour market is crucial because it will give human resource managers very valuable insights on forecasting recruitment needs and evaluating the appropriate level of compensation for employees.
Labour market analysis is an essential tool in Human Resource Planning. This helps ‘to identify skill shortages and enables a diagnosis of market failure to match labour supply with demand’ (Kumar, 2011, p.15). To conduct labour market analysis, it is important to have comprehensive and regularly updated information about the labour market.
The basic concept behind this is that of supply and demand. For example, if the labour market is experiencing mass layoffs and job cuts, then there is a large pool of employees waiting to be recruited. This abundance of labour supply consequently affects human resource forecasting, both in terms of the number and quality of employees that can be hired, as well as the compensation given to new employees (e.g. employers have more choices in recruiting the best employees for the job, lower starting salaries for new employees because there are many applicants willing to settle for a lower pay, etc.). Conversely, if the labour market is experiencing a boom in recruitment or a low unemployment rate, then there is higher demand for labour – which will directly impact recruitment planning and employee compensation. In this situation, employees have the upper hand because they have more options in terms of where to work and they can demand higher salaries because of the shortage in skilled employees.
With these in mind, this paper will analyse the subject matter by providing evidence on why knowledge about current conditions in the labour market is necessary to Human Resource Planning process and in understanding labour supply.
The Importance of Human Resource Planning
Human Resource Planning improves the utilisation of human resources by helping management to forecast the recruitment needs of the company, both in terms of the quantity of people to be hired and the types of skills required for the job (Banerjee, 2012). It involves the identification of the organisation’s human resource requirements and consequently, to guide human resource managers in coming up with plans to address these requirements (Armstrong, 2008). Human Resource Planning is crucial because it helps the organisation to estimate its demand for labour and to evaluate the size, nature, and sources of supply that will be needed to meet this demand.
Human Resource Planning may also be defined as ‘a strategy for the acquisition, utilisation, improvement and preservation of the human resources of an enterprise’ (Kumar, 2011, p.1). Based from this definition, the major activities of manpower planning can be enumerated as follows: (1) Forecasting future manpower requirements, (2) Inventorying present manpower resources and analysing the degree to which these resources are employed optimally, (3) Anticipating manpower problems by projecting present resources into the future and comparing them with the forecast requirements, and (4) Planning the necessary programmes of recruitment, selection, training, etc. for future manpower requirements (Kumar, 2011, p.1).
Human Resource Planning also helps managers to develop ways to avoid or correct problems related to human resource management before it becomes serious enough to disrupt the organisation’s operations. Additionally, it should make provisions for the replacement of staff, either from within or outside of the organisation, whether on a temporary or permanent basis, whenever the need arises (Banerjee, 2012).
The model below illustrates a basic Human Resource Planning process. In this model, Human Resource Planning can be defined as a process that helps an organisation to ensure that it has the right number of people, filling the right positions, at the right time. To ensure that this objective is met, the strategic future planning of staff is crucial. This involves putting in place plans and strategies for the ‘acquisition, utilization, improvement and retention of the human resources required by an organisation, in pursuit of its objectives’ (Kiran 2009, sec.1). Based on this model, human resource managers should come up with training plans, recruitment plans, and redundancy plans. The recruitment plan should consider gender, age, qualifications and experience, vis-a-vis the organisation’s goals and objectives. The time frame for the implementation of these plans depends on the organisation’s aims and other external influences (Kiran, 2009).
The organisation must know its overall targets and aims in order to forecast its future staffing requirements. One of the main tasks within the Human Resource Planning process involves the recruitment of employees, with a special focus on what are the most likely sources of labour supply. Thus, recruitment forecasting relies heavily on finding out where the right labour can be sourced. This will help to cut down the costs for hiring and training of personnel, as well as reducing costs due to hiring mistakes (Banerjee, 2012). As such, it is very important for human resource managers to have a keen understanding of the labour market.
Understanding the Labour Market in Human Resource Planning and Labour Supply
In recent years, there have been many major changes in the practice of Human Resource Planning. The rapid expansion of developing economies, the increasingly diverse and global nature of the labour market, and the emergence of new technologies have caused significant impacts on the ‘demand for and supply of skills, organisational structures and practices, and the prospects for employment, inequality, productivity and growth’ (Vaitilingam, 2006, p.1). As such, there is a need to have a better understanding of the changing characteristics and needs of today’s workforce, especially in terms of labour market and labour supply.
As mentioned earlier, Human Resource Planning involves forecasting of the organisation’s future human resource requirements and determining where these will be obtained. To achieve this goal, the following sets of forecasts are needed (Human Resource Planning, 2009):
A forecast of the demand for human resources
This refers to the number of employees and types of skills needed by the organisation.
A forecast of the supply of human resources available within the organisation (Internal Supply)
These are present employees who can be promoted, transferred, demoted, or developed to fill in the organisation’s employment needs.
A forecast of the supply of external human resources (External Supply)
These consist of people who do not work for the organisation but are potential candidates to fill the organisation’s job vacancies.
With these in mind, human resource managers must have knowledge about the current labour market conditions in order to effectively forecast the organisation’s needs. In order to supply the organisation’s workforce requirements, human resource managers must look at the overall labour market conditions (Human Resource Planning, 2009). Doing so will provide insights on the availability of external candidates, as well providing indications on the likelihood of internal employees seeking employment elsewhere. For example, when there is an abundant supply of labour, organisations tend to have an easier time of recruiting qualified candidates; while current employees are unlikely to leave their jobs because of the lack of opportunities in other organisations. On the other hand, when there is a shortage in the supply of labour, organisations are competing with each other to get the best candidates and internal employees may be tempted to look for opportunities in other firms because they can bargain for higher a position and better compensation.
Human resource managers must also be aware of demographic changes and other external factors within the labour market, which can affect not only its recruitment prospects but also its internal human resource conditions. These include the aging of the workforce, rising female participation in the workplace, rates of fresh graduates seeking employment, changes in education and skills, immigration rates, casualisation of the work force, outsourcing of employees, hiring of international candidates, etc. To illustrate, the growing role of women in the workforce may require improvements in childcare facilities, allowing flexible work schedules or work from home arrangements, assurance of job security in case of absence due to family issues, or granting of maternity leaves or special parental leaves. Another example concerns the ageing of the workforce. An ageing workforce may force organisations to employ or retain a larger number of older workers, or to outsource a younger workforce from overseas (Human Resource Planning, 2009).
Furthermore, because of the increasing globalisation of the workforce, human resource managers may need to recruit candidates either locally, regional, or internationally (Human Resource Planning, 2009). This requires considerable knowledge on the labour market, not only from a local perspective but on a global scale. The rising trend for the outsourcing of employees from developing countries have emphasized the need for knowledge in domestic and international labour markets. Organisations are turning to outsourcing because of the abundance of skilled employees at cheaper labour costs.
Over the years, it has been observed that there are changing patterns in employers’ demand for labour and workers’ supply of skilled and less-skilled labour. Since the labour market is an essential component of the economy, the government has always taken an active role in managing labour from a macro-level perspective. In this regard, human resource managers must also have knowledge of government policies regarding the labour market. Managers must have a good understanding of how governments ‘can affect levels of pay, distribution of pay, job matching, and the supply of skills through various labour market and education policies’ (Vaitilingam, 2006, p.24).
There are two main scenarios in the labour market which directly impact the Human Resources Planning process and labour supply: (1) when there is a deficiency of labour, and (2) when there is a surplus of labour. Human resource managers should have a good understanding of the labour market in order to address the different needs in these scenarios.
In the scenario where there is a deficiency of labour, the following strategies can be undertaken to optimise the organisation’s human resource capacity: (1) encourage internal transfers and promotions; (2) conduct training and development; (3) recruit new employees from outside the organisation and improve recruitment methods; (4) extend temporary contracts; (5) delay retirements; (6) reduce labour turnover by reviewing the reasons for resignations; (7) utilize freelance or agency staff; (8) develop more flexible working methods; encourage and provide adequate compensation for overtime work; (9) negotiate productivity deals; (10) increase productivity through capital investment, e.g. automation, use of new technologies, etc (Kiran 2009).
On the other hand, in a scenario where there is a surplus of labour, the following steps can be undertaken to improve the organisation’s efficiency: (1) limit the replacement of employees; (2) freeze new recruitment; (3) implement redundancies, either voluntary or compulsory; (4) provide early retirement incentives; (4) implement a tougher stance on discipline to increase dismissals; (5) encourage job sharing; (6) eliminate overtime; (7) redeploy employees to other units (Kiran 2009).
Human Resource Planning utilizes labour supply and demand forecasts in order to predict labour shortages and surpluses – with the goal of enhancing the organisation’s success (Ricio, 2011). Matching labour supply with labour demand is one of the primary tasks of human resource managers. Based from an economic perspective, the supply and demand between those who offer employment and those who offer their labour is determined by the economic aspects of the options that are available to each of the parties. This means that employees and employers weigh their choices by considering the economic advantages, which they can get out of the transaction.
Taking this into consideration, it is important for human resource managers to update their knowledge and broaden their understanding on the prevailing conditions and issues in the labour market. Having a keen understanding of the workings of demand and supply and being aware of demographic and social factors within the labour market will guide managers in reviewing and improving their human resource strategies in order to be flexible, adaptable, and responsive to change.
Armstrong, M (2008). Strategic Human Resource Management: A Guide to Action. 4th ed. London: Kogan Page Limited. p5-20.
Banerjee, A. (2012). What is the Importance of Human Resources Planning?. Available: http://www.preservearticles.com/2012051932504/what-is-the-importance-of-human-resources-planning.html. Last accessed 2nd Nov 2012.
Bulla, D N and Scott, P M., (1994). Manpower requirements forecasting: a case example, in (eds) D Ward, T P Bechet and R Tripp, Human Resource Forecasting and Modelling, The Human Resource Planning Society, New York.
Human Resource Planning. (2009). Chapter 2: Human Resource Planning. Available: http://www.scribd.com/doc/18002086/Human-Resource-Planning. Last accessed 2nd Nov 2012.
Kiran, K. (2009). Human Resource Planning & its Alternative Approaches. Available: http://www.indiastudychannel.com/resources/93604-Human-Resource-Planning.aspx. Last accessed 2nd Nov 2012.
Kumar, K. (2011). Macro Level Scenario of Human Resource Planning. Available: http://www.egyankosh.ac.in/bitstream/123456789/35832/1/MTM2-02.pdf. Last accessed 2nd Nov 2012.
Ricio, DE. (2011). Human Resource Planning and Recruitment. Available: http://www.slideshare.net/Riciomaru/human-resource-planning-and-recruitment. Last accessed 2nd Nov 2012.
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