The current employment squeeze: Curse or blessing in disguise?
Not a single board I am on nor any of the other multitude of business leaders I am in contact with are free from the current wage pressures, perhaps the highest we’ve seen in more than thirty years. As one recruitment head said to me, “in job fairs we used to interview candidates - now they are interviewing us.”
While it’s convenient to blame the government and COVID related fiscal stimulus, PPP loans, expanded unemployment benefits, and emergency bans on evictions, there are many other forces at work as well. Workforce participation is down and while I am often accused of being a curmudgeon, I refuse to believe it’s because people are inherently lazy.
One of many reasons people are not in the work force has to deal with what I believe is the great reduction in dual income families. As those of us with school-age children know, the last two years has placed an enormous burden on families who relied on school to be a low-cost form of childcare, especially with low-cost after school programs. Coupled with that is an unfortunate consequence of the great economic strength of human mobility, meaning familial childcare is also unavailable. Demand for childcare has increased and the cost along with it.
The calculus is different than pre-COVID when the cost of childcare was less than the after-tax revenue from a second job. Now, perhaps more so than for a century, it makes financial sense to have a parent at home and out of the labor force. Don’t forget, we are talking about front-line workers who do not have the luxury of work-from-home jobs.
Regardless of the reasons for the current state of wage pressure, it is very likely here to stay at the very least until the childcare cost-wage relationship flips again. So, what do we do? What makes the most strategic sense?
It is time to go against Wall Street’s conventional wisdom. Managing for short-term profits by holding fast on labor rates only gets you a labor shortage. This causes burnout in existing employees and makes that shortage worse. Then you likely have top leaders and board members sitting around self-righteously wringing their hands and pointing fingers rather than taking actions needed to secure a profitable future, and perhaps even survival itself.
If you believe wages never go down and will likely go up in the future then your best strategic move is to pay the stabilized wage rates as soon as you can - and if you have been keeping equity in the business, that time is likely right now. This way you get today’s $15, $20, or $30 and hour worker for those rates and are really only paying a premium until wages stabilize again. Your employees will have increased motivation and you will be able to recruit and retain the best. If you are in a competitive environment, this is a significant advantage. As a buddy of mine often implies, the best people increase your operational speed, capacity, and yield. As a result, you will likely need fewer employees to have the same output as your competition in the future. This is true in service as it is in manufacturing.
If you are not willing to be this bold, at the very least start paying people based on where you believe the rates will be in a year or you risk a revolving door. There are times to be risk averse and times to take action, the consequence of not taking action now may indeed be existential. Or in the words of the great Roman statesman, scholar, and skeptic, Cicero, “More is lost by indecision than wrong decision. Indecision is the thief of opportunity. It will steal you blind.”
