Table Stakes

Table Stakes

 

 

 

I have troubles with this question:

“Why are Job Openings so hard to fill?”

It is a misleading question, or to be more precise, a misleading half of a question. Either through dishonesty or ignorance, it leaves out a key aspect of employment. A more realistic, honest query asked by anyone serious about hiring is this:

“Why are Job Openings so hard to fill AT THESE WAGES?”

The reason for this is basic economics: The first question is abstract theory; the second question is a market discussion of supply and demand that includes price. Without including price, this question is rendered meaningless. Employment is the exchange of time, efforts, and skills for dollars. How can anyone have a meaningful discussion about hiring when omitting half of the exchange, the wage portion of the question?

I have been a longtime observer of this phenomenon.

As an example, back in May, I referred you to a Pittsburgh Business Times story on local businesses doubling their starting wages from $7.25 an hour to $15 an hour. Instead of a handful of applicants, they got more than 1,000. This is not a new insight; the problem was obvious 5 years ago.

By April of this year, it was becoming apparent that the balance of power between capital & labor was shifting; (Neil Irwin of the NYT agrees). This changing dynamic suggests an interesting and complex change is occurring in the labor market.

Consider the Quits Rate: It is not only above pre-pandemic levels, its reached 2.7%, an all-time high. (I always take notice when an economic data series reaches an all-time high or low). We’ve never had more gainfully employed people quitting their jobs to do something else – perhaps take another job, maybe start their own business, or to just do nothing at all.

“Employers aren’t only struggling to hire new workers, they look as if they are having a hard time hanging onto the workers they already have.” -Justin Lahart, WSJ

When the Quits Rate hits a record, something bigger than mere UE bennies is going on.

Consider these two headlines:

Workers Are Quitting Hotel and Restaurant Jobs at the Highest Rate on Record

Americans Starting New Businesses at Record Pace

Do you suspect this is not a coincidence? It sure sounds like a lot of people are telling their bosses to, in the words of Joe Weisenthal, “take this service job and shove it.

2020’s record number of new business formation is yet another fascinating datapoint. I imagine lots of people discovered during the pandemic they prefer to control their own schedule, manage their time, and design their work process / how they do their jobs themselves.

Job openings at record highs, Quit rates at record highs, new business formation at records highs . . . why, it’s almost as if these things are related!

WFH is not quite like working for yourself, but it’s very different than 9 to 5 in an office toiling for da boss man. When given an opportunity to choose, many people prefer the former over the latter. Some enough to vote with their feet. As Morgan Housel explained in The Psychology of Money, “Controlling your time is the highest dividend money pays.”

For many people, wages are an important factor in employment decisions. Teenagers, for sure, and many other workers regardless of age. But that is merely table stakes, the cost of being an employer in the modern economy. It is much more complex than that.

And I am not merely writing this as an armchair theoretician: RWM has 40 employees who get above-average salaries, health care, 401(k), profit share, and equity. But just as important, they are given wide latitude in how, where, and when they do their jobs. Even pre-pandemic, they get control over their daily lives in a way many other firms do not give employees.

Our philosophy is “Tell employees what their and the company’s goals are, develop metrics to measure progress, give them the tools they need to accomplish those goals, empower them to make smart decisions. Then get the hell out of their way.”

Compensation is merely Table Stakes, which allows you into the game. But there are many other factors that drive employment, retention, and wages.

As I said, it’s complicated.

I see this economy running at a 6 to 8% GDP, showing no signs of slowing down. Saving rates are high, credit availability is good, interest rates are low, and there is a ton of pent-up demand from the COVID-induced recession. This is the textbook recipe for an economic boom, with all of the commensurate increases in wages you would expect.

How this STILL is escaping some businesses is beyond my ken.

 

 

 

Previously:
Wages in America

What Makes Teen Employment Data So Interesting… (June 9, 2021)

Finding it Hard to Hire? Try Raising Your Wages (May 6, 2021)

Shifting Balance of Power? (April 16, 2021)

Can’t Find Qualified Applicants? Raise Your Pay! (September 8, 2016)

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