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Practice for Profit: Staff Shortages pose real threat

Article

Practices whose staff are so well treated that they feel like family may be harder to compete with.

Demography is the most powerful and most predictable determinant of what's going to happen, and unfortunately, demography is pointing toward wrenching changes that will redefine our basic assumptions about our staff and our clients.

Real problems loom on the horizon as we see our baby boomers age and the effects on our practices. More than 3,000 animal hospitals in this great country of ours have already found out that it is possible to use their local demographics to eliminate guesswork in their fee structures and increase their profits without significant client loss. Now, let's use demographics to look into the not-so-distant future.

The United States faces a labor shortage that threatens to bring our country's economic growth to a screeching halt. In the United States, this will cut GDP growth and likely lead to investment returns much lower than expected. Europe and Japan are going to get hit much worse.

Businesses, governments and even veterinary practices have consistently made decisions based on the assumption that populations will grow. It's been true for more than six centuries, but now it is beginning to taper. There will be fewer workers and fewer consumers worldwide.

Why is this happening? To maintain a stable population, a country must produce a birth rate of 2.1 children per family. It just ain't happening!

Our veterinary practices will face a shortage of job candidates because there were 14 percent fewer births per year during 1965-75 than there were during the baby boom years (U.S. Census Bureau). Worse, Europe's birth rate in now 1.8, and it is just 0.8 in Japan.

Economic performance depends on the size of the work force and its productivity. Even if we could increase birth rates today, it wouldn't pay off for the overall economy for roughly 20 years. During the next four decades, the share of the population age 19 and under will fall. Our staffs are made of that demographic. Not coincidentally, homes with teens also represent our clientele.

Fortunately, the growth of the U.S. population is a product of a birth rate just barely above the replacement level, coupled with positive net immigration. Europe and Japan both have birth rates below replacement and negligible net immigration.

Slow growin'

Based on U.N. population data and conservative projections for productivity increases, the U.S. economy will grow 2.4 percent per year through 2025, as compared to its 3.1 percent growth rate in the 1990s. Our annual labor force growth should slow from 1.2 percent to 0.6 percent. It will continue to decelerate to just 0.2 percent between 2015 and 2020 before recovering to 0.3 percent between 2020 and 2030. Can you hang on until 2020?

Longer-term labor force growth during the next 50 years is expected to average just 0.6 percent, only one-third of the 1.6 percent average annual pace of the past 50 years.

Drought conditions

Abundant labor has been pretty much taken for granted — rather like abundant water. We now have an urgent situation that demands our attention. If you are not feeling the labor shortage now, you are just lucky, and you will begin feeling the effects.

Worse yet, although growth in the overall number of workers will simply decelerate, growth in the population of young, well-educated, tech-savvy, top-quality labor may grind to a halt.

Some of the disastrous effects of the declining workforce have been softened by the number of women working, almost doubling from 1950 to 1990. We went from 30 percent of women working to 57 percent in that period. Now that has leveled off, and no reserve is out there. At best, 60 percent of women will be working outside the home in the next few decades.

Graying of America

The prime-age workforce, workers aged 25 to 54, is growing far more slowly than the total labor force. These are considered the greatest contributors to economic growth. By contrast, workers under age 25 are less experienced and less productive because they're still learning their jobs, while workers over age 54 tend to fall behind on technical skills.

Between 1980 and 2000, the prime-age labor force grew by 35 million, or 54 percent. From 2000 to 2020, their growth slows dramatically.

What this means is that the big gains in productivity that U.S. businesses have enjoyed due to increased education are likely to level off because today's workforce is only slightly smarter than yesterday's.

The ratio of workers to retirees will decline sharply between 2010 and 2030, reports the Urban Institute (Economic Consequences of an Aging Population).

The pain will not be spread evenly. Certain states can be expected to stagnate or even shrink along with their workforce. Practices in Alabama, Iowa, Nebraska, North Dakota, Ohio, South Dakota, West Virginia and Wyoming are expected to feel the most pain.

Working longer

Delayed retirement could help. Today, 20 percent of men aged 65 and over are still in the workforce. There are several reasons for this: Retirement plans were hurt by the stock market downturn a few years ago, and there's been a radical shift in attitudes toward age and work. Many people in their 60s do not consider themselves to be old, largely because they are more physically fit and mentally sharp than workers of previous generations who routinely retired at 65. In the case of veterinarians, they have managed to earn a living but do not show enough profit to make their practices worth buying, so it is likely that when the Angel of Death whispers in their 80-year-old ears, "Time to go!", they just might fall forward on top of their patients. This might elicit a new veterinary iatrogenic syndrome called "Death By Death!"

Should we bring still-active, older workers into our practices? We need to introduce more flexibility into pay and retirement systems to create more options as workers age. Designate them "senior leaders" and give them incentives such as flexible hours and opportunities for mentoring.

The second solution on a national level is selective immigration. In 2002, about 1 million legal immigrants and half a million undocumented immigrants entered the United States. Economists have found that most of these immigrants fill only the jobs that American-born workers do not want, or are unqualified for. We call that kennel duty.

Academia trends

American higher education is the envy of the world. At American colleges and universities, foreign students receive 40 percent of the advanced degrees in chemistry and biology, 50 percent of those in math and computer science, and 58 percent of those in engineering, according to figures from The National Science Foundation.

The U.S. government will need to revamp its immigration policy to encourage more of these highly skilled foreign workers to remain in our country and join the American workforce. I say just bar the exit doors.

Veterinary practices will face a more severe labor crunch because they are hurt by all three dimensions of the labor drought: slower labor force growth, the graying of the labor force and the skills gap.

The shrinking labor supply will call for increased costs for keeping staff. Health insurance and other common businesses benefits can no longer be ignored.

Over the next four decades, the share of the population aged 19 and under will fall from 29 percent to 23 percent, according to estimates by the Urban Institute.

One unexpected positive result of this labor shortage is that our schools will need to refocus their training programs so graduates learn skills that our practices actually need. Most likely, government will have to bear this burden because we, like most businesses are reluctant to invest in training employees who may go to a competing practice. The opposite has been proven beneficial. Educating our staff with video programs leads to higher retention and greater service to our clients.

One surprising benefit to those practices already in existence is that a major barrier to new practices will exist. Because there aren't enough pharmacists to go around, Walgreen's and CVS employ most of this scarce labor supply, which makes it almost impossible for new pharmacies to enter the market.

There are also not enough truck drivers, so big companies like JB Hunt and Heartland Express are able to increase salaries to attract the most-qualified drivers; then they pass the higher costs along to clients and increase their profits.

Similarly, the labor drought should also give our established practices a new competitive advantage. Practices whose staff are so well treated that they feel like family may be harder to compete with because they have a supply of capable and motivated workers.

This column is not typical of my usual submissions, but it may wake you up to the real world and help you take steps to make your practice a better place to work and retain the better staff members you might have.

Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity and is available for in-practice consultation. He can be reached at PO Box 189, Hebron, KY 41048-0189; (800) 292-7995; FAX (772) 220-4355; vetprod@bellsouth.net.

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