How Are Labor Demand Forecasts Made in Human Resources Planning?

Human resources planning can use qualitative and quantitative approaches to forecasting labor demand. Quantitative methods rely on statistical and mathematical assessment, such as workforce trend analysis or econometric calculation. Qualitative forecasts use managerial judgment on a more individual basis, spotting needs internally and then bidding for or training the requisite skills. Ultimately, many human resource departments can use the basic supply and demand signals generated in the labor market to estimate demand.

In the private sector, the type and quantity of demanded labor is a function of the total demand for products and services in the economy. In this sense, it is the consumer who controls labor and not the employer. It is up to producers to predict and deploy demanded labor in a profitable way. The primary source of labor information comes from prices – the wage rate set in the market, the prices of goods and services, and the cost of alternatives to manual labor.

Conceptually, forecasting labor demand is no different than forecasting the right combination of any capital inputs. Firms must successfully anticipate consumer demand and find cost-effective ways of bringing goods or services to the market. A manufacturing production manager might ask, "How many widgets should I bring to market next year?" Similarly, a human resources manager might ask, "How many employees will we need to produce those widgets next year? At what skill level?"

Contemporary literature on human resources planning identifies several common methods of estimating a business's human capital needs. These include managerial judgement, work-study techniques (also known as workload analysis), trend analysis, the Delphi Technique and model-based regression analysis.

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