“Eye of the Tiger”
The KKR Global Institute has published a report on international labor trends titled “Eye of the Tiger.” 1 After reading this report, which looks at labor issues in the U. S., Europe, Japan, and occasionally China, I realize to economists and investment bankers the issue of people management in healthcare, which I have previously considered from numerous
perspectives, is seen as a labor issue, as opposed to a capital issue. Of course, this is a bit of an oversimplification, as there is overlap. But I found the report got me considering the
issue from their perspective.
So, what are the main data points? “COVID catalyzed a shift away from ‘too many workers’ to a world of ‘too many jobs’…we strongly believe that COVID merely exposed
long-dormant structural fault lines in the structure of the global labor market, which will continue to be active for some time to come.” They examine three factors underlying this
thesis: demographics, labor force participation, and immigration/off-shoring.
“Over the last three years in the U. S., about as many people aged out of their working years, (16-64), as entered them. The geographic headwinds are actually worse in
markets like Japan or Europe…the flow of new urban workers, a key economic ingredient to China’s GDP growth, has slowed sharply as the country’s population has contracted.” One
conclusion they draw from the relative dearth of young people entering the workforce: “we think margin pressures will be most severe in industries that typically depend on a large
number of junior workers…like healthcare, professional services…”
“In the past many major economies have been able to offset slowing demographic growth by raising participation rates.” The report presents data focusing on two issues:
labor force participation by women, and by people over age 65, and concludes there are opportunities in both demographics. The data show labor force participation for women has been stable in the U. S. over the past 20 years, at about 76%. However, due to family care issues for which the U. S. does not provide much assistance, they estimate this
accounts for up to 9 million “missing” workers.
As the point out, though, “another big issue is that people still tend to retire at the same age they did in past decades, despite the fact that they are living much longer lives.”
The data show a 6.4% increase in labor force participation over the past 20 years in persons 65 and older. It is not clear how much more that can be increased, though, given
the burden of chronic diseases. Also consider the protests roiling France today over a proposal to raise retirement from age 62 to 64.
Lastly, they point out the geopolitical issues around global immigration and the trend toward “on-shoring,” which both augment demand for labor and limit supply. They
also point out that manufacturing arbitrage due to wage differentials is less, and probably makes it easier for companies to repatriate manufacturing jobs. Their forecast for wages, given these forces? “We think wage growth could increase by 4.3% per year over the next
five years, or fully 150 basis points [1.5%] above average CPI [consumer price index] of
All of these trends forecast a difficult future for health care organizations. Failure to look at these trends “with the eye of the tiger” is likely to result in being eaten by the tiger.
1 KKR Global Institute. Eye of the Tiger. Insights 13.1, February 2023. Downloaded 14 February 2023 at
The report does make some predictions, but how they can be applied in health care is not obvious to me.
“On balance, we think that a shortage of skilled labor has become a critical chokepoint for global economic growth…a rethinking of approach may be warranted and
include: (1) shifting job requirements from a credentials first model to a skills first model; (2) reliance on certificates to confirm training of people in areas of specific need and
employment relevance…” They note some of these steps have occurred during the pandemic, but in health care organization, the credentials first requirements are embedded
in law, and changing that would be nearly impossible and is probably undesirable.
“Companies will need to implement strategies for increasing worker tenure.” But in health care companies, the first response to the collapse in demand induced by the
pandemic was to reduce “head-count.” National worker turnover has been increasing steadily and in the third quarter of 2022 was at 6.5% PER MONTH. In complex health care
settings, credentialled employees may need a full year to settle into the system and be productive. Even if key employees are retained, there is a constant churn of other staff
placing frictional cost on everyone. Data suggest patient safety degrades when turnover in all positions exceeds 12% per year.
“Corporations will need to focus on automation and productivity gains.” Clearly, some of the “hotel” functions of a hospital, like food and janitorial services, can be
automated, but the cost of doing that has to be taken out of the clinical services budget.
Further, the people displaced may not be easily retrained for other positions, so the resistance to such moves will be significant. And it is obvious to any clinician with
experience that automation in the form of the electronic medical record has degraded productivity; there is no guarantee the next step will be better.
So what can health care organizations do to deal with the decreasing availability and increased cost of staffing? First, an organization that is able to establish and maintain the
reputation (and the reality) of being a great place to work will be at an advantage compared to those where people are there just to get experience and then go somewhere
else. (Think the all-volunteer armed services model.)
Second, organizations need to recognize they will not be able to grow their way out of the jam. Volume growth will only exacerbate the staffing problem. Third, and a
derivative of the second point, organizations will have to stop trying to be all things to all people. Some procedures and diseases need to be done in specialized centers where
expertise can be acquired and maintained. Referral may be good not only for patients, but also for the sending organization. Consider organ transplants. One city in my state has three kidney transplant programs, but how many do we really need statewide?
Lastly, some care, such as ICU care, cannot be provided profitably. For the past 30 years we have been testing the notion that “the market” will make things more efficient and
better. It hasn’t, so maybe we need to recognize ICU care as an example of a social need and fund it the same way we do fire departments, rather than having to cross-subsidize care
from internal sources. Many hospitals are organized as “non-profit,” which used to mean they didn’t pay taxes and could spend money anyway they wanted. But what if that gravy
train has parked? Radical, yes, but this may be the way to not be eaten by the tiger.
A Good Place To Work
Is your organization a just one? How do you know?
A Physician View of Human Capital in Healthcare
Addressing Health Care Culture
A contrary view of the culture changes needed in healthcare.
When there is no room at the inn due to staff shortages, the standard of practice will have to change. We need to think about what this might mean.
Turnover From the Perspective of the Departing