This Labor Market is as Tight as a Wet Suit

Summer is a great time to get together with clients and without a pending deadline conversations tend to take a more global view of situations. In meetings with business owners over the last couple months we aren’t able to get more than 5 – 10 minutes into it without talking about labor issues, many lamenting they don’t have the people to do the work! Whatever your profession or trade, seasonal or year-round, salary or hourly… the labor market is tight… to say the least.

What’s causing this? Well let us play economist: identify problems and causes then propose theoretical solutions (that’s the difference in an Art’s degree like Economics vs. a hard-nosed bad-a** technical science degree like Accounting – just kidding, but serious a little bit. Actually, I kind of want to go back to school for economics, it will make me fascinating at dinner parties… do people still have those? And if so, my dance card is open).

Speaking of Dinner Parties – let’s set the table

The 2010’s (following the great recession – which was very hard on employees – remember that) gave us the gig and sharing economies, which were all the rage. With promises of flexibility, side hustle fortunes, and making money off existing assets (housing, cars, couches, etc.) combined with Obama era expansion of health insurance, provided the perfect recipe for an enormous generation coming of age – those millennials – that were not exactly following the traditional model of, well, anything; this seemed to be a unique confluence of events that eroded the traditional equal footing capitalist relationship between employer and employee. Next chapter, massive tax cuts and deregulation. All of this enabled the longest running recovery and bull market in US history.

Enter the roaring ‘20s… hit the pause button… pandemic instead – who saw that coming? Lock-downs, incredible job loss, shuttered businesses and industries, tremendous government “input” into market choices, re-opening and recovery… it’s enough to make your head spin. Stimulus checks, expanded unemployment, remote work, worker safety and benefits, a booming stock market, a housing market that is on fire and soaring inflation all enter into the psyche of the labor force.

Meat and Potatoes

There are now a record 9.3 million open jobs in America. The labor force stands at 161 million, about 3 million people fewer than it was pre-pandemic, and has seen no growth since August 2020. As the number of unfilled jobs continues to grow, as the size of the workforce is stagnating, the worker can flex their muscles in ways they have been unable to for the last decade (plus).

Insert conversations about birth rates and immigration here if you really want to play economist.

A Few Sides

In bullet fashion because nobody likes their food to touch

Expanded unemployment – this one gets a lot of play on the news and depending on which station you’re watching will determine the perspective. It can’t not be a contributing factor – but it is certainly not THE factor. In an idealistic view I would like to think that it allows for a more deliberate search – one that isn’t rushed and frenzied, one that has transferred some ‘power’ to the worker – ultimately finding the right job, not just a job, should benefit both employer and employee. Easy for me to say when I’m not trying to staff up a kitchen before the 4th of July. We should remember that it is unemployment “insurance” not “pay”… it is a social contract, by definition contracts must be honored by both sides.

The Bureau of Labor Statistics, at the end of June ’21, announced that a new record was set. 2.7% percent of all workers, a total of 4 million workers, quit their jobs in April! That is staggering. With this many jobs unfilled those switching jobs or looking for new ones can be ‘pickier’ about which jobs they accept – and be tougher negotiators. Further, a Bank of America study found that these “job switchers earned an extra 13% in wages from their new positions” – that’s an appealing statistic for workers.

The NY Fed Labor has some terrific Market Survey data sets and graphs that you can totally geek out on. A particular one of interest for entering the mind of the job hunter is the data set on “job offer wage expectations” from March of 2019 to March of 2021 the mean here increased by $8,200 or nearly 16% from $52,400 to $60,600 (the low and high ends of the range dispersion both increased by approximately 10%). That is not insignificant.

Anybody try to buy a house lately? Better come heavy and with bags of cash! Inflation – it’s here folks. Looking at year over year data isn’t particularly telling because last year at this time was a disaster – to bypass the impact of the pandemic, we can look to two years ago. As measured by CPI, history shows biannual inflation of 3.5% since 2010, for the two years ending April 2021, inflation is up 4.5% (and has picked up pace since). But you don’t need government economists to tell this to you… just go to the grocery store (who knew bacon was made of gold); go to the pump and fill up your car (up more than 50%); soon enough we’ll be doing back to school shopping and we’ll see that clothing and apparel is up 6%; and forget about going used car shopping – prices there are up 30% year over year! All of these factors are a hidden tax that directly impact the wallets and purses of the everyone and particularly the labor force – the drive for higher wages therefore isn’t greed, but basic need (in many cases).

Directly correlated to inflation is fed policy, which has been uniquely bullish and optimistic. There is some history here, Fed Chair Powell pushed to keep the economy from overheating in 2013, 2015, and 2018, which when viewed now with the benefit of hindsight, the Fed’s shifts in those years look like mistakes – so Powell, and the Fed are moving very cautiously so as not to risk choking off a full economic recovery. The Fed’s new “Job’s First” policy is using the metrics of employment to determine when to step off the gas – essentially the economy is being allowed to run ‘hot’ for an extended period with the goal of letting employment and wages reach their full potential. Faster than anticipated inflation and a slower than expected employment rebound is testing the Fed’s resolve.

All of these elements, and more certainly, work in concert to apply pressure on both sides of the equation – employee and employer – which ideally would be in balance.

Dessert

We did it, we went full economist – sighted causes and concerns all around the issue. Made a complete circle… government stimulus creates spending, spending creates inflation, inflation creates the need for higher wages, higher wages raise prices… supply and demand, etc.

No dessert for you economist!

Accountants, business owners, pragmatists, what should we do about it? Sit back and enjoy an after dinner drink and let’s get this sorted out.

Digestif

Before I invite you up for a night cap, as a business owner, we must come to the agreement that employees are the most critical part of our business. Richard Branson of hot air balloon and space flight fame said, “take care of your employees and they’ll take care of your business.” Sounds easy right but we’ll probably need to admit it’s a bit more complicated than that (all relationships are, right Melissa?). As a guiding principle however, it is not a bad one.

Most of the businesses we have the privilege of working with already recognize this and go out of the way to engage the employees as a critical component of their strategy – from pay scale and benefits to forced fun events, employers we know are making a full-faith effort at employee recruitment and retention, but it’s not black and white, and there is no silver bullet. So, besides prayer what tactics can an employer utilize? Gallup puts it this way:  “there’s another critical need in this “next normal” that leaders must invest in to protect their organization’s long-term survival: employees’ wellbeing.” Notice the word choice “invest”, not “cost”. “Invest” infers a long-term impact, invest also infers a return – investing in employee wellbeing, when done well, over-time, should return dividends. Wellbeing is about much more than physical wellness or happiness. Gallup research has established that high wellbeing equates to a life well-lived across five critical elements: career, social, physical, financial and community wellbeing.

Career – liking what you do each day and being motivated to achieve your goals

Social – having supportive relationships and love in your life

Physical – having good health and enough energy to get things done daily

Financial – managing your economic life to reduce stress and increase security

Community – liking where you live, feeling safe and having pride in your community

That’s a tall order for small business leadership to take on – but we must. By taking actions to cultivate employees’ wellbeing, ideally, employee engagement and their experience are enhanced, and satisfaction, performance and retention are increased, which in turn becomes a competitive advantage and part of your recruitment mechanism. Many of the elements of wellbeing seem personal, and outside the scope of the employer / employee relationship so how can we, as business owners, employers and leaders address these elements without being intrusive?

Ahhh… your guess is as good as mine! Just-kidding, yours is probably better – but I’ll try anyway.

Career – security is the name of the game here. Setting clear expectations and providing consistent updates demonstrate care. Through frequent and authentic communication employee engagement can be deepened by the display of, and action to back it up, of actively supporting employees.

Social – providing opportunity for connection – whether it’s a “good vibes” Team or Slack channel, impromptu happy-hour(s), summer-picnic or team lunch. When employees feel that the other employees have their back, engagement and satisfaction is sure to be increased. Feel free to use this line from my days in Navy:  “The beatings will continue until morale improves!”

Physical – Healthy body, healthy mind. But be careful before telling employees it might be a good idea to get to the gym! Providing opportunities is probably best that can be achieved here – whether that is breaks from the computer, ergo chairs and standing desks, to gym stipends or the occasional in-house massage (not from the boss themselves, hire a pro!). Without our health, we have nothing.

Financial – sensitive yet direct communication is paramount here. Employees should be taught to understand the relationship of their contributions to the value derived. Clarity in what it takes to get to the next ‘level’ is a big deal for most. Acknowledgement and merit will always trump arbitrary. As we’ve discussed, inflationary pressures are punching us all squarely in the bank account – knowing this and knowing that changing horses is providing good employees with a minimum of 10% bump in pay, should not be taken lightly and it would be wise to get in front of these issues. Financial security and personal wealth building are always going to be huge factors for employee engagement, and quite possibly the one that employers have the most direct control over.

Community – as leaders we must walk the talk. We all have great mission statements and core values (or we should), we need to make sure that we’re acting on them. Connecting your business to the community, and how it benefits it, and clearly connecting the work the employees do to it creates an engaging bond to the work. A little greater good sentiment can go a long way.

By applying some focus and attention on these basics, leaders can strengthen employee wellbeing, and in turn, cultivate resilience and engagement now and for the future. We do not need to ask Captain Obvious, but this stuff is hard… and frustrating. Employers can do their best to take care of their employees, pay-well, provide opportunity, be supportive and on and on, and employees can still pack up and go… just as employees can be strong company men and women and never be noticed and rewarded… we are all human, life happens, we just must keep at it and be open to constant improvement. As our ‘new normal’ continues to be established we will have to see what behaviors and patterns were trends and which ones are here to stay – but by continuously communicating with our teams, we should be in a better position to address the needs of the always evolving workforce.

Good luck and Godspeed,

Stephan

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Stephan P. McMahon & Company