The Leader - September/October 2008 - (Page 8) messaGe from the ceo by prentice knight, iii analyzing trends: DemoGraphIcs, Work force aND corporate real estate We hear more and more companies around the world expressing concern about labor costs, labor shortages and the war for talent. Demographic and work force trends are increasing the importance of labor as a driver of corporate success and a location factor for business. This trend will continue and has significant implications for the corporate real estate professional. At the simplest level the supply of labor depends on two factors, (1) population size and (2) labor force participation rate (the fraction of the working age population that is employed or actively looking for work). Population growth has slowed worldwide, largely due to declining fertility rates. The UN reports that world fertility rates declined from 5.0 births per woman in 1965 to 2.7 in 2007. Death rates also dropped, so world population continued to grow, but at a declining rate (down from a 2.2 percent growth rate in 1963 to a 1.2 percent rate in 2007). Absolute population declines are now spreading to an increasing number of industrialized countries due to very low fertility rates and a leveling out of life expectancy and death rates. For example the Population Reference Bureau projects that the population of Europe will decline by 9 percent from 2007 to 2050 and that 25 European countries will have a smaller population in 2050 than in 2007. Labor participation rates can also change over time. In the U.S. for example, “for most of the postwar period, the U.S. labor force participation rate rose steadily, pushed up by baby boomers entering prime working age and women entering the work force. Then, broadly concurrent with the decline in the economy at the end of 2000, labor force participation rates began to fall.” (Mark Thoma, Economist’s View, 2007) These trends have slowed the growth of the labor force in most countries. The U.S. Bureau of Labor Statistics reports that the U.S. labor force grew at an average annual rate of 1.6 percent from 1950 to 2000 (including a 2.6 percent growth rate from 1970 to 1980). The Bureau projects that the average annual growth rate will fall to 1.0 percent from 2000 to 2015 and to 0.2 percent from 2015-2025. In many European countries the labor force will shrink. Population dynamics are also changing the composition of the labor force, particularly in regards to age, gender and ethnic status. For example, many industrialized countries have a large population bulge of baby boomers who are now beginning to reach the traditional retirement age. However, more and more boomers are choosing to postpone retirement, thereby increasing the group’s labor participation rate. This is particularly important because the boomers have a huge amount of experience and intellectual capital that will be lost when they do retire. Because these trends are powerful and long term, work force issues will continue to increase in importance to business and corporate real estate. The heart of the corporate real estate value proposition relates to place and space. The demand and supply of labor varies dramatically from place to place – at the global, national and local levels. Competency in labor force dynamics and the geography of labor is needed to contribute effectively to corporate location strategy and site selection. From the space perspective, corporate real estate is responsible for providing corporate work environments and workplace strategies that contribute to work force attraction, retention, productivity and satisfaction. Knowledge of demography and work force dynamics is essential for providing effective corporate space strategies and solutions. The trends discussed here are not new but are becoming of increasing importance to business. Some corporate real estate organizations already have strong competencies in demography and work force dynamics. Such competencies should be a priority for all corporate real estate organizations that want to play a strategic role in the corporation. 2 0 0 8 th e le aDe r 8 septemBer / octoBer
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