Who really needs a $15 minimum wage?

On January 14, 2019

In the January 15, 2019 Ask The Headhunter Newsletter a business owner says a $15 minimum wage law will put him out of business.

Question

minimum wageI operate three restaurants. It’s getting harder and harder to hire workers. People just don’t want to do this kind of work any more, but for young people it’s actually a good way to learn good work habits. We do a lot to train new employees.

I’ve tried local newspaper ads, online job postings, and I even sent jobs to local college career offices. I know you’ll ask how much we pay and it’s not the $15 an hour they’re trying to raise the minimum wage to. But it’s good pay, $8.75 an hour. I can guess what you’ll say: That’s why the minimum wage should be raised, so people will take these jobs. But I can’t afford it. It would put small businesses like mine out of business. A $15 minimum wage is counter-productive because it will price low-level workers out of jobs altogether.

What else can I do to fill these jobs?

Nick’s Reply

You’re not the only restaurant owner facing a supply and demand problem with labor. And it’s not just the food service industry that’s facing it. Employers across industries have a big supply of jobs but labor is demanding more pay!

I’m not going to mince words. If your business can’t afford to pay a minimum $15 an hour wage, your business cannot afford to exist. You should close it down and let a better-managed competitor hire your employees and service your customers. Many will disagree with me vehemently, but I’ll try to explain why I say this. (See  also The Job Monopoly: How companies keep pay low.)

Let’s cut to the chase

My economic logic is simple and you — and many employers — have already discovered it, even if you all pretend otherwise: Nobody’s going to work for you because it costs more to live than the peanuts you’re paying.

You cannot — or you refuse to — pay fair-market compensation. That’s why you can’t hire the workers you need, no matter what your rationalizations are. There is no “talent shortage” in America. That’s politically radioactive bunk!

Fair-market compensation is an amount people need for shelter, food, transportation and other basics of life. That’s more than $70 a day where most people live.

If your business can’t generate enough cash to pay a living wage, your business is going to fail for lack of workers. Shut it down now and get it over with.

A shortage of workers who will work for peanuts

Please read this recent article in Bloomberg Businessweek: Restaurants Are Scrambling for Cheap Labor in 2019. We’re going to discuss your complaints about the “shortage” of workers, which really seems to be a shortage of workers willing to work for peanuts — and the apparent shortage of sound business practices.

Echoing you, the CEO of Applebee’s says to Bloomberg, “It’s hard to find quality folks to work in the restaurants.”

But many restaurants cited in that article “are loath to raise wages, which must be offset by higher menu prices. They count on ample pools of workers willing to accept modest pay.”

Bloomberg also reports a November 2018 Pew Research Center study that tells us there’s a shortage alright — of young workers willing to accept modest pay.

“Just 19 percent of 15- to 17-year-olds had jobs in 2018, compared with almost half in 1968… It wasn’t much better for 18- to 21-year-olds: In 2018, 58 percent had been employed in the previous year, down from 80 percent in 1968.”

That means employers have to take measures to attract their share of a smaller “willing” labor pool.

Misguided hiring strategies

You mentioned what you’re doing to find workers — posting jobs in different places. Let’s look at the “strategies” restaurants in that article have developed “to recruit and retain young workers” in what they complain is a very tight labor market:

  • Employers throw “hiring parties with free nacho fries to draw prospects.”
  • They hand out “recruiting cards that say, ‘We are looking for great talent like you!’”
  • Employers blast out “text messages with links to… food freebies to lure candidates.”
  • One employer offers “an employee mobile app” that lets workers swap shifts easily.
  • Another tries to keep employees engaged by surveying them about a “new rib recipe” on the menu, and about their “happiness” with their uniforms!

Gimme a break! What do free nachos have to do with convincing people to accept low wages? This is someone’s idea of “strategy” for filling jobs?

From the Bloomberg article: “The younger labor market, they really want to feel connected to a brand,” claims Will Eadie, “global vice president for strategy at WorkJam, which provides training and other digital labor services through a mobile app for clients including restaurants and retailers.”

@*!#&%@#!!

But where’s the money?

While companies pay consultants like Eadie to connect hungry employees to their company brand, a couple of companies in the Bloomberg story are actually giving away money:

  • “A Naf Naf Middle Eastern Grill in Madison, Wis., is offering $500 hiring bonuses for shift leaders and assistant managers.”
  • “A Wendy’s in New Hampshire last year tried luring candidates with $1,000 bonuses.”
  • “Golden Gate Bell [a Taco Bell franchise with 80 locations], which employs about 1,800 and competes with Wendy’s, McDonald’s, and big-box retailers for employees, also recently started a quarterly bonus program for hourly staff.”

Bonuses are a good thing — but a one-time bonus is the oldest compensation trick in the book. It’s a one-time expense a company can write off. But it’s a far cry from permanently higher wages. (See Why employers should make higher job offers.)

$15 wages will put us out of business!

There’s been a national chorus of business owners who oppose a $15 minimum wage. They sing a song about how higher wages would have “an unmistakable side effect: pricing the working poor out of the labor market.”

That’s the tune of an opinion column in New Jersey’s Star Ledger by Matthew Johnson: “I’m a young business owner. Raising the min. wage won’t help N.J.’s working poor.” (Johson “co-owns some family-run small businesses” but does not disclose what they are.)

His claim is the essence of economic hypocrisy in America: “For low-skill workers, the prospect of earning less than $70 for a day’s labor may seem daunting. However, the alternative is a prospect which is far worse.”

Maybe it’s time to go out of business!

In the classic style of a boss who believes he’s earned the right to be greedy because he took the risk of starting a business, Johnson suggests his employees would be worse off if he paid them more — because then he’d have to fire them because he can’t afford it!

I’ve got another take on this. For businesses whose very existence depends on paying less than a living wage, the alternative is that they should go out of business and let more capable, better-managed competitors take their place.

Faced with a $15 minimum wage, warns Johnson, “employers will be forced to make tough choices to remain competitive in our challenging environment.”

There’s no tougher choice in business than accepting failure — or figuring out how to deal with overwhelming market pressures, including the pressure faced by Applebee’s and Taco Bell and White Castle to hire the workers they need to stay in business.

But $8.75 can’t pay the rent. Nor can nacho fries. Those workers want more money! Just like market forces push living costs upwards, market forces will put Johnson and other poorly managed concerns out of business. (See These industries are more likely to screw you on pay.)

Healthy employers and healthy workers thriving together

Johnson needn’t worry about those workers he’d have to lay off. A better-managed competitor like Love2brew Homebrew Supply, also operated in New Jersey, will hire that talent, grow without sacrificing product quality or customer service — and the economy will be stronger as a result.

“We pay all of our employees at least $15 an hour — and it works,” Ron Rivers, founder and CEO of Love2brew, writes in another Star Ledger op-ed: I’m a small business owner, here’s why a $15 minimum wage works for us.

Rivers says the company hasn’t had to raise prices on its 1,500 products to cover higher wages.

“My team entered the home-brew industry with an understanding that a high level of service and customer support would set us apart from our competition.

“We see this as a critical component to meeting and often exceeding our customers’ expectations of excellent service… Raising our starting pay to over $15 an hour has supported our continued acceleration to a position of national leadership in our niche home-brew market… the results speak for themselves as our customers have been coming back for over seven years.”

Like opponents of the $15 minimum wage, advocates of such legislation recite their own saws. Rivers says, “No one earning minimum wage has much, if any, money to put back into the economy — not to eat out, go to the movies, drive down to the Shore for a weekend, or invest in a hobby like home-brewing.“

Paying higher wages is good, he claims. “Historical data help us understand that wage increases lead to more spending and higher overall employment levels.”

Somebody’s right and somebody’s wrong.

The role of government in the economy

There are of course nuances in this debate, and there may be businesses that can argue persuasively that $15 an hour is really a bad idea.

But if we step back historically, like Rivers does, and look at long-term economic and societal trends, it’s pretty clear: Wages keep going up right alongside the cost of doing business, improvements in technology, and the increasing quality of life we enjoy as a result.

When I read op-ed columns by young business owners like Matthew Johnson, I can’t wait for them to grow up. When Johnson proclaims, “It should not be up to government to decide who wins and who loses in this delicate economic equation,” he pretends he lives in a nation where economic equations do not depend on well-thought-out economic policies.

But America is too big to thrive without them. That’s why it’s pure bunk that government should not be involved in setting wages.

The pitchforks are coming

For my money, no one explains the big picture as well as rich guy Nick Hanauer, one of my favorite capitalists. Hanauer is a billionaire with a clear view of how capitalism really works — by plowing profits back into society. I urge you to watch his TED talk: Beware, fellow  plutocrats, the pitchforks are coming.

Hanauer is a staunch advocate for a $15 minimum wage, not just because he’s a philanthropist, but because he’s the plutocrat and capitalist so many small business people — like Matthew Johnson — aspire to be. He’s learned something they don’t know.

“Government does create prosperity and growth, by creating conditions that allow both entrepreneurs and their customers to thrive. Balancing the power of capitalists like me and workers isn’t bad for capitalism. It’s essential to it.

“Programs like a reasonable minimum wage, affordable health care, paid sick leave, and the progressive taxation necessary to pay for the important infrastructure necessary for the middle class like education, R&D — these are indispensable tools shrewd capitalists should embrace to drive growth, because no one benefits from it like us.”

Hanauer warns owners of great wealth, owners of businesses big and small, that social upheaval always starts with gross inequities in the distribution of wealth. And today, he says, we’re at a social and economic tipping point. The under-paid workers are restless. The pitchforks are coming.

Who really needs a $15 minimum wage?

I’m not really telling the owner of the three restaurants who submitted this week’s question to go out of business. I expect any dedicated business person to figure out how to run their business profitably — for themselves and for their employees. And I hope they can. But it’s up to them to pull it off — or go out of business.

I think a $15 minimum wage is crucial to America’s economic viability and long overdue. We all need it.

I don’t share Matthew Johnson’s cynical and — yes — greedy interpretation of capitalism. I don’t buy the proposition that some workers don’t deserve a living wage and should be grateful to earn less than $70 a day because to pay them more could put a business owner out of business.

It’s a far more parsimonious interpretation of capitalism that suggests a business which cannot afford to pay a $15 hourly wage should go out of business so that a healthier, better-managed one might take its place.

Our economy is just as dependent on wealthy labor as it is on wealthy management, the two combining to operate profitable businesses that can put more money back into the economy. There is no real growth in a society unless both owners and workers have wealth to re-invest in the growth of the entire nation.

(See Jobs plentiful! Pay is up! But, how are you doing?)

Okay, it’s your turn: Who really needs a $15 minimum wage? Who can live and prosper without it? Can businesses hire the workers they need, if they keep insisting on paying less? Would it really be better if businesses just went out of business if they can’t pay $15 an hour?

ADDENDUM January 15, 2019

Here and elsewhere in the national debate about the $15 per hour minimum wage, apologists for lower pay seem to rely on a silly fallacy. It goes like this:

$8.75 may not be enough in the big city, but in a small town in the Midwest a worker making $8.75 an hour might be able to afford an apartment nicer than city workers making 3 X $15 an hour could even begin to afford.

It’s just not true. Let’s flesh it out. What does $8.75 an hour buy? $8.75 works out to $350 gross income per week, $17,500 per year (assuming a 40-hour week and two weeks of vacation).

Depending on where we look (A, B, C), financial advisers suggest that one’s rent should be in the range of no more than 25% to 30% of their income. That gives the $8.75 wage earner between $364.58 and $437.50 to spend on rent.

Now let’s test the fallacy. Where in the United States can the $8.75 wage earner rent an apartment?

We’ll start with the median rent in America — in 2017 it was $1,012:

But let’s cut some slack. In 2016 it was $981:

But those are medians. Let’s look at the least expensive cities for renters. In this example, Toledo, Ohio is the lowest at $550:

Of course, some people don’t rent. They have a mortgage payment. Maybe they lost their job — they still have to pay the mortgage. Maybe all they can find is that $8.75 wage. While the median mortgage payment in 2017 was $1,022 per month, let’s look at a more conservative figure — for a first-time home buyer who spends less: $838 per month:

It seems that best case our $8.75 wage earner needs to come up $550 per month to live in the lowest-rent city in the country. Now let’s go back to what portion of that earner’s $17,500 per year salary is available to pay rent or a mortgage. Most generously, at 30% of total income, our earner has $437.50 available for rent or a mortgage.

At a $15 wage, that same worker would have $750 for rent. The chart of lowest-rent cities suggests there are three affordable places: Toledo, OH, Memphis, TN, and Glendale, AZ.

So, the fallacy about there being places where a person can get by earning $8.75 or $10 or even $15 is just that — a fallacy.

Don’t agree? Have data that proves me wrong? Please post it!

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B.S. on the jobs numbers euphoria

On July 9, 2018

In the July 10, 2018 Ask The Headhunter Newsletter a reader asks whether the news about jobs creation isn’t a load of crap.

Question

jobsEvery month the Department of Labor issues the “jobs numbers” and the “unemployment numbers” and everyone goes gaga about how great things are. There are loads of jobs to apply for! There’s a shortage of talent, so that’s good tidings for us job seekers! You’d think simple market economics would mean higher salaries and job offers.

But it’s not true. I don’t see higher pay or even higher job offers, not at any meaningful level. Employers aren’t hiring any faster or acting more competitive. Taking two months to decide to make a job offer isn’t the sign of a tight labor market. And demanding my salary history so they can low-ball me on a job offer doesn’t look like companies are struggling to fill jobs.

What’s your take? Am I missing something or is the jobs euphoria in the news just B.S. cranked out by stoned experts?

Nick’s Reply

The jobs euphoria is B.S.

Since last year I’ve been collecting samples of the reports you’re talking about, and there’s a dirty little secret that the pundits and politicians keep trying to bury in the news — but like a nasty case of the hiccups, it’s impossible to hide.

Politicians, the U.S. Department of Labor (DOL) and the media have been reporting on exciting gains in job creation. The U.S. created 213,000 new jobs in June (MarketWatch, July 6, 2018) and monthly jobs growth has been positive for the past several years. That seems to be a good sign, but for what and to whom?

According to the DOL’s Bureau of Labor Statistics (BLS) JOLTS report (Job Openings and Labor Turnover) issued June 5, there were 6.7 million jobs open in the U.S. at the end of April. On July 6 the BLS reported that 6.6 million people were unemployed. That means there are more jobs that need to be filled than there are unemployed people.

It’s a 5-alarm fire!

With every new report, economists say they’re flummoxed. With labor in such short supply, the surfeit of demand to fill vacant jobs suggests employers would bid up salaries and wages to get the workers they need — especially if they expect to lure people with jobs away from other employers.

By no stretch of the data is that happening. In a bluntly cynical July 5 Forbes article, Byron Auguste reports that “Three decades of stagnating wages—rising just 0.2% annually since the early 1970s, adjusted for inflation—means an economic five-alarm fire.”

While economists, analysts and politicians struggle to explain wage stagnation by blaming a “skills shortage” (improperly skilled workers are not worth higher wages) and a failure of workers to “re-educate” themselves, Auguste refers to the “skills gap narratives” as “the usual suspects” in the never-ending rationalizations about why companies aren’t paying salaries commensurate with market demand.

“The U.S. has arrived at an inflection point in our economy, technology and demography that demands a reality check on the sorry state of our labor market, and the – i.e., our – institutional practices that produce it,” writes Auguste.

Remember that phrase: institutional practices. We’ll come back to it. But first, I want to throw some spaghetti against the wall, and I hope you can help me read something useful in the patterns it makes.

Where’s the money?

Virtually every new report about “more jobs” includes an embarrassing parenthetical gotcha. It goes like this:

Along with a lot of good news, the all-important wage numbers again disappointed, with average hourly earnings up just 2.7 percent year over year, one-tenth of a percentage point below expectations.
— CNBC, July 6, 2018: The five most important numbers from the June jobs report.

This hand-wringing about the wage numbers in the face of unprecedented jobs growth isn’t new. On December 8, 2017 USA Today reported:

The labor market remained healthy in November, adding jobs at a strong clip despite a shrinking pool of available workers. Still, there were some potentially troubling trends for employees, most notably persistently sluggish wage gains.

“Some potentially troubling trends?” Oops! For months, little side notes like this have appeared in report after report (I think this is what the news media mean by “full disclosure”), then these afterthoughts get buried under the euphoria of politically stoned economists and pundits, and beneath the proclamations of “good times are here!”

“The June ’18 employment report showed a drop-off from May in both the rate of hiring as well as the wage increase year over year,” said Paychex president and CEO Martin Mucci. “We saw for the first time that the annual wage increase dropped below 2.5 percent, which is pretty surprising given the tight labor market. That seems to be the big question out there. Small businesses have a little bit of a harder time hiring workers in a tight labor market so you’d expect that to be going up.”
–Accounting Today, July 3, 2018: Paychex sees wage and job growth slowdown at small businesses in June

Lousy wage increases are “pretty surprising,” eh? “So you’d expect [wages] to be going up,” eh? No kidding.

Typically, wages pick up at this point of an economic cycle because a low jobless rate forces companies to boost wages to find workers… Wage growth in Ohio and the U.S., tepid for the most part since the end of the Great Recession, is starting to show signs of getting weaker… It’s a trend that has baffled economists and others. “Everybody is really perplexed about why that is,” [said Frank Fiorille] vice president of compliance, risk and data analytics for Paychex].
–The Columbus Dispatch, July 3, 2018: Bad sign for workers — wage growth getting weaker for many

Everybody is really perplexed!

ZipRecruiter says everything is cool!

Here’s my favorite. CNBC calls it exactly what it is in the title of this July 6, 2018 article: The jobs “conundrum” continues: “How are we not getting higher wages?” But then CNBC lets an economist from ZipRecruiter (economist or marketer?) spin it to keep perplexed job seekers searching for temp jobs that pay less than, well, an economist-cum-marketing-manager makes at ZipRecruiter:

“While the wage growth rate didn’t increase this month, having it hold steady is a good sign,” said Cathy Barrera, chief economist at ZipRecruiter, an online employment marketplace.

Lousy wage growth is a good sign! ZipRecruiter couldn’t care less what wages are, as long as jobs remain unfilled and employers keep posting them, and job seekers keep clicking them. That’s how Zip and other job boards make money. It’s all good, folks!

Does it matter that there are more new jobs every month? Probably. Unless you’re a middle manager who just lost her job making $95,000 with good benefits, and now you’re looking down the barrel of a fly-by-night recruiter’s job posting for a contracting job that pays $23 an hour — and the guy ghosted you after you filled out 9 pages of online forms and sat for a nerve-racking video interview with an algorithm.

It’s a good sign there are loads of jobs out there for you to apply for on ZipRecruiter, dontcha think?

CEO jobs pay well!

Let’s put all this euphoria into some context. People are starting to ask questions about all that job growth.

If companies need more skills, can’t they just pay people more?
–Forbes, July 5, 2018: Skills And Tomorrow’s Jobs Report: The Usual Suspects

Must be the skills shortage — it seems not enough blue-collar workers are getting the re-education they need to apply for a job that pays better in today’s new world. Like CEO.

CEOs of America’s 350 largest firms made an average of $15.6 million in 2016…or 271 times more than a typical worker in 2016…While the CEO-to-worker compensation ratio of 271-to-1 is down from 299-to-1 in 2014 and 286-to-1 in 2015, it is still far higher than the 20-to-1 ratio in 1965 or the 59-to-1 ratio in 1989.
–Economic Policy Institute, July 20, 2017: Top CEOs took home 271 times more than the typical worker in 2016

Oops. Where, indeed, is the money going in this booming economy?

Are consulting jobs sucking wages out of the economy?

Okay, I’ll stop. I’ve got loads more, but you get the point.

The euphoria is generated to keep you down on the farm. While economists and analysts blame pathetic wage increases on workers who are too lazy or too stupid or too complacent to re-educate themselves for today’s modern jobs, I’ve got another explanation. I think this is part of what Byron Auguste is referring to when he cites “the sorry state of our labor market” and points to the “institutional practices that produce it.”

Temporary, part-time, contracting jobs that companies are substituting for full-time, permanent jobs are sucking the wages out of our economy.

We’ve discussed it here before: Consulting: Welcome to the cluster-f*ck economy. Contracting gigs are one of the institutional problems that shift profits to CEOs, investors and employers and keep wages low. Why’s that so hard for economists to understand?

BenefitsPro spills the beans to the folks who manage corporate benefits programs in a July 6, 2018 article: Stagnant wage growth driving worker dissatisfaction:

Another culprit is an increase in temporary or part-time work, an issue that’s come to a head in Italy, with businesses clashing with the new government over plans to restrict temporary contracts.

Is supply-and-demand dead?

BenefitsPro includes a tasty graph whose blue lines put the U.S. on the same side of the world economic story as Italy. (Source: Organization fro Economic Cooperation and Development.)

oecd

Economists might have an Aha! moment if they study that graph side by side with this graph from the BLS, which is cited in a July 10, 2018 JOLTS news release:

bls

How could “real average annual wages” be lower in 2017 than over the past 10 years when there are more jobs vacant than there are unemployed people? Is the relationship between supply and demand really dead?

Where does the money go?

Let’s go back to one of the precious quotes above, from The Columbus Dispatch:

“Typically, wages pick up at this point of an economic cycle because a low jobless rate forces companies to boost wages to find workers…”

Well… you’d think so, when corporate profits are up and employers are paying their CEOs 271 times more than the typical worker. You’d think so, when Congress passes tax breaks that are supposed to trickle down to everyone that works. So WTF is going on?

Let’s go back to the BLS. I love this little graph, based on BLS statistics and published by Bloomberg last April. It shows the employment cost index — what companies spend on compensation:

The accompanying text bemoans that “employment costs rose more than expected in the first quarter and a measure of private wages had the biggest annual gain since 2008.” What Bloomberg doesn’t note is that way over on the left side of that graph U.S. companies were sharing a whole lot more with their workers. What companies spend on compensation today is still way down from a 2003 high, and current compensation costs still have not “recovered” to even 2007 levels. (Yah, I can see — there was a recession around 2007-2008 but, hey, do I look like an economist?)

(The share of profits that companies spend on workers varies by industry. See my column on PBS NewsHour: Which industries are being too greedy to pay you fairly?)

When the economy is booming, profits are up, and companies are so awash in cash that they demand the freedom to invest it in elections — why is anyone at a loss to explain why we’re not seeing higher wages?

The White House promised ’70 percent’ of the tax cut would go to workers. It didn’t… the Republican tax reform package that was supposed to raise wages and spur hiring has instead funded a record stock buyback and dividend spree, benefiting investors and company executives over workers.
–NBC News, June 26, 2018: What did corporate America do with that tax break? Buy record amounts of its own stock

If you can’t re-tool your skill set to be a CEO, you could try one of those online investment courses, so you could make a living at your PC — as an investor!

What was your question?

When I can’t figure something out, sometimes I give myself room to rant. I cut out articles, data, graphs — and I spread them out on the floor, hoping I can puzzle them up into an answer that makes sense to me. Forgive me if I’ve ranted too long.

But if I threw one or two bits of information up on your screen that give you pause to think about this strange economy and job market in a new way, maybe it’s worth it.

Let’s go back to the question in this Q&A:

“You’d think simple market economics would mean higher salaries and job offers… Am I missing something or is the jobs euphoria in the news just B.S. cranked out by stoned experts?”

Wages and salaries are basically stagnant, and more people are admitting it. Employers are spending less on wages and salaries because they’re renting temporary workers from “consulting firms.” But the bucks are there.  They’re just going to somewhere (and to someone) other than the labor pool.

So I think the euphoria about “jobs creation” is indeed B.S. because more new jobs during a labor shortage without higher wages is not good news — it tells us something is very wrong. It’s B.S. because what’s being created is a phantom industry of middle-men that suck value out of our economy. (See The Job Monopoly: How companies keep pay low.)

Where will it end?

How long can the economy — which is people, after all (and there are more workers than CEOs) — withstand this scenario?

I dunno. There’s an old saw about profits: Pigs get fat. Hogs get slaughtered.

Billionaire Nick Hanauer, a staunch advocate for higher minimum wages, says it best: “The pitchforks are coming.”

Do the “jobs creation” numbers and stagnant wage growth make sense to you? Are workers really so incorrectly skilled that it explains why they’re not getting the jobs employers say they’re dying to fill? I blame some of it on our “consulting economy.” If you study the spaghetti on the wall, what do you see? Is the jobs euphoria justified?

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What the Federal Reserve doesn’t know about recruiters

On March 13, 2017

In the March 14, 2017 Ask The Headhunter Newsletter, we look at what some economists at the Federal Reserve say about jobs.

federal reserveRecent reports from the Federal Reserve suggest that switching jobs — and probably employers — is the best way to boost your salary and your career.

In this special edition, we’ll explore what the Federal Reserve doesn’t know about recruiters, and why you should stay away from recruiters who waste your time with been-there-done-that jobs and lower salaries.

Are recruiters killing careers and the economy?

The best recruiters and headhunters boost employers’ productivity by finding discounted talent and up-and-coming talent to fill jobs those people may not have done before. By stimulating capable job candidates with new, motivating career challenges, insightful recruiters help create value for an employer — and boost our economy.

But untrained, inept recruiters lack insight and foresight. They don’t bother to understand an employer’s future needs or a job candidate’s untapped potential. They look for quick and easy “perfect matches” turned up by automated recruiting algorithms. These keyboard jockeys do little but process resumes whose key words match key words in job descriptions. They add no value. They kill career growth and job productivity.

Inept recruiters far outnumber good ones, and that’s killing our economy. Companies aren’t filling jobs with the best hires. But the fault lies with employers themselves, and with Human Resources executives, who buy — hook, line and sinker, and at enormous cost — the reductionist job applicant sorting systems that drive hiring today. (See Why HR should get out of the hiring business.)

New research and analysis from Federal Reserve economists reveals a problem of mismatches between workers, salaries and productivity, but fails to identify and discuss the structural cause of the problem — counter-productive recruiting.

The mad rush to fill jobs mindlessly

With the Department of Labor reporting lower unemployment and increasingly scarce talent, employers are rushing to fill jobs by relying on methods that yield staggeringly low signal-to-noise ratios.

By design, these systems actively solicit as many applicants as possible for each job. (Consider the applicant funnel ZipRecruiter, which exhorts HR managers to post a job on “one hundred-plus job sites.”) The ease with which these systems enable and encourage job seekers to apply for any job in a mindless feeding frenzy contributes to understandably low yields. Then HR managers, who fail to realize that more is not better, claim to be shocked and cry “talent shortage.”

When matches are made, they’re often undesirable to the candidate. It’s a common complaint among Ask The Headhunter readers: Employers want to hire you for a job only if you’ve done that job for three, four or five years already — and they’ll often pay you less. Even when they offer you a raise, the job is usually a lateral move. It’s not a career opportunity or a chance for you to hone new skills  — it’s just an easy database match.

This seems to be much more than a job-seeker frustration. According to economists reporting from several branches of the Federal Reserve, it may be one of the causes of inflation and lower productivity. (See Bloomberg Businessweek: Job Switchers Solve An Inflation Mystery.)

But the economists don’t attempt to explain why employers are making such short-sighted, self-defeating hiring decisions — and I think it’s because the problem is so pervasive that it’s invisible. Although job seekers have long been very vocal and angry about it, the backdrop of reductionist, rude, automated recruiting across America seems to be such a necessary evil that no one but the job seeker sees or questions it. (See HR Technology: Terrorizing the candidates.)

The compelling need to fill jobs obscures the importance of planning to hire strategically and wisely — not just to fill round holes with round pegs quickly. American companies seem unaware of their mad rush to fill jobs mindlessly, and economists seem content to accept the prevalent recruiting infrastructure without reviewing it, simply because employers are content to keep paying for it.

This seems to be what the Fed’s economists don’t know about recruiters and the job market.

The failure is on the front line

Job seekers report wasting enormous amounts of time today fielding fruitless recruiting inquiries and participating in interviews for the wrong jobs. The question arises:

Why do employers look for perfect matches between workers and jobs?

The assumptions behind this quixotic search are incorporated into the ads that candidate vendors like Indeed, LinkedIn and ZipRecruiter run constantly:

  • Employers must hire without training anyone or allowing time for a learning curve.
  • Perfect hires are best.
  • Talent can be had at a discount.
  • Employers don’t have time to find talent on their own.
  • Every job can be posted to “a hundred-plus” job boards instantly.
  • “Big data” makes perfect hiring possible.
  • More job applicants is better.
  • And so on.

These assumptions push employers head-long into automated recruiting. But when we start questioning those assumptions, we’re left with the boots on the ground that create the biggest constraint on hiring the best talent: Inept recruiters on the front line.

When complex factors make it difficult to suss out what triggers the choices business people make, I get lazy. Though I’m not a scientist, I was trained as one, and I find that even if a problem seems complicated, it’s best to start with the law of parsimony: The simplest explanation is probably the right one.

If employers had better recruiters, they’d hire better people, increase productivity and stimulate the economy.

Yet, an employer’s first contact with an engineer, a scientist, a software developer, a machinist, an accountant — anyone the employer needs to hire — is through a person who is probably the least likely to understand qualities and characteristics that make the candidate the best one for the employer. It’s a person least likely to understand the work and the job. Except in rare, wonderful cases where employers have very good recruiters, it’s an incompetent recruiter.

Because employers believe they now have “intelligent applicant systems” at their disposal, many (I think most) dispense with highly trained and skilled recruiters. Employers on the whole have unsophisticated, untrained recruiters who quickly eliminate the best candidates because they’re rewarded for making the easy choices, not the best ones.

The Federal Reserve connects the dots between talent, pay and productivity

Bet you’ve been waiting to see how the Fed fits into this. Let’s dive in.

The job boards say employers can hire the best talent for less money because their databases are bottomless and the perfect candidate is in there, if you just keep looking.

But the Federal Reserve says higher productivity coupled with better career opportunities and higher salaries is better for everyone — and for the economy.

Consider the ambitious little Bloomberg Businessweek article referenced earlier, Job Switchers Solve An Inflation Mystery, that deftly puts the jobs puzzle together:

“Labor economists… are increasingly studying how job-hopping Americans drive compensation gains and affect the traditional interplay of low unemployment, wage gains, and inflation.”

It turns out those economists are now focused on what we already know: The surest way to get a big salary boost is to change employers and stretch yourself.

Consider this handful of factoids and data cited by Bloomberg, from economists at the Chicago Fed, the Atlanta Fed, the New York Fed, and the St. Louis Fed:

  • “23 percent of employees are actively looking for another job on any given week, putting in four or five applications over a four-week period.”
  • “Employers are poaching workers, as 27 percent of offers to the employed are unsolicited.”
  • “Job switchers earned 4.3 percent more money in July 2016 than a year earlier, while people who remained in the same job enjoyed only a 3 percent increase.”
  • “The so-called quit rate, a favorite indicator of [Fed Chair Janet] Yellen that measures voluntary separations from an employer… has almost recovered to levels seen before the recession of 2007-2009.”
  • “Job-to-job changes and the threat of job-to-job mobility are strongly predictive of wage increases.”
  • “Job switching is ‘a good sign for the economy’ and ‘an indication of dynamism,’ according to the [Atlanta] Fed’s [President Dennis] Lockhart.”

And note this nugget of gold in the Bloomberg story:

“While [St. Louis Fed economist David] Wiczer said that the bulk of wage hikes occur from job switching, he cautioned that the gains are highly cyclical, as the median job switcher didn’t reap much of a salary increase during recessions.”

What this means to you: With the economy shifting from recession to inflation, your best bet to make more money today is to switch jobs. I’ll stick my neck out and say that my reading of the Fed analysis — and my own experience and reports from Ask Headhunter readers — is that that you also need to switch employers if you want that dramatic pay increase.

But you can and should optimize that bet by making sure the next job you take also enables you to be more productive. Of course, recruiters sabotage that objective almost daily when they solicit you for jobs that would set your career back five or ten years.

Warning! Warning!

We already know that most recruiters love to stick you into a “new” job that’s not new at all. They don’t get paid to give you a chance at career development — or to help a manager hire for the future. They offer the same job you’ve been doing because you’re the least risky choice for them.

They pluck you from thousands of job applicants only when their database algorithms show that you’re already doing the exact job they’re trying to fill. There’s no need to train you. You will require no learning curve. You are the safest bet and, if you’re unemployed, the recruiter knows he can probably nab your desperate ass for less than you were earning at your last job because you need a job.

But that recruiter is dangerously naïve. The “perfect match” won’t increase productivity because you’re being plugged into the same job you were doing elsewhere, and your motivation is going to plummet along with your value.

Even if the new job pays more than your last one, this is a huge red flag for employers, warns Giuseppe Moscarini, a visiting scholar from Yale at the Philadelphia Fed:

“What we should worry about are wage raises for workers who stay on the same job and are not getting more productive.” [Bloomberg Businessweek]

Whether the “same job” is at the same employer or a new one, Moscarini suggests wage inflation without higher productivity seems to fuel inflation in the economy.

Recruiter failure

I don’t think employers or economists see the razor that’s cutting into productivity and economic growth. But it should be clear to any Ask The Headhunter reader.

It’s the recruiters.

Most recruiters look for an exact match of a resume to a list of key words in a job description. They’re not assessing job candidates to find value a competitor missed or the value an employer can leverage into higher productivity and profit over time. They tell managers to interview any candidates the automated recruiting system flashes on their displays.

Recruiters, who are an employer’s front line in the talent war, are generally not equipped to do their own jobs. They’re doomed to fail because they’re not really recruiting. They’re checking boxes on a database app. The result is hires that are less than optimally productive.

Job Seekers: Follow the money!

The Fed economists are offering job seekers and career-oriented workers a gift of tremendous insight, even if it seems obvious: Your smartest career move may be to switch jobs and employers.

Pursue only jobs that offer you substantially more money and require you to stretch your skills and capabilities — that is, to do more productive work that’s more profitable for you.

That strategy, they also suggest, may be best for employers and for the economy.

Smart workers don’t change jobs or employers without an opportunity to learn and develop new skills, to take on greater responsibility or authority, to stretch themselves — and to make more money. Those who accept been-there-done-that jobs do it reluctantly or because they feel they have no choice, especially if they’re unemployed.

The Fed tells us not only that lots (23%) of employees are actively looking for new jobs, but that competitors are trying to steal them away. Done for the right reasons and for the right opportunities, switching jobs and companies can pay off big. Employers give people who switch 40% higher raises than they give to people who stay where they are (4.3% vs. 3%).

So, follow the money. When a recruiter pitches you a re-run job for little or no extra money, suggest he go find a job he’s better at — because he’s not helping you or the employer. He could be killing your career and the economy. Has anyone told that to the Fed’s economists?

Did you get a better raise for staying in your job, or for switching out? What was the percentage? Did a recruiter move you into another same-old job, or help you advance your career? What’s your take on the Fed’s findings and conclusions?

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Jobs plentiful! Pay is up! But, how are you doing?

On January 9, 2017

In the January 10, 2017 Ask The Headhunter Newsletter, we attempt a reality check — about jobs. Disclosure: I wrote a snarky column to start the New Year. But it’s not as snarky as the news.

Question

Nick, I know the newsletter has been on vacation over the holidays, but have you been reading the jobs news? Am I crazy, or do people really believe unemployment is down and pay is up? That there’s suddenly a job for anyone who wants it? That all our troubles are over? Man, sign me up for a new job for 2X what I was making when I had a job!

Nick’s Reply

jobsDuring my Christmas break, the news kept coming hot and heavy from the U.S. Department of Labor and associated pundits and experts: You should stop complaining about jobs and salaries. Everything’s great!

I’m sure you’re reading the same good news, but all I want to know is, does this reflect your experience with the job market and employers? Or is your head spinning?

Jobs: U.S. Department of Labor News

In the past few days, the DOL reported:

  • “Unemployment rates were significantly lower in November in 18 states and stable in 32 states and the District of Columbia…”
  • “The national unemployment rate was 4.6 percent in November, down from 4.9 percent in October, and 0.4 percentage point lower than in November 2015.”

Fewer people unemployed!

Bloomberg News

Recent Bloomberg reports tell us:

  • “The 4.7 percent jobless rate remains close to a nine-year low, even with a tick up last month.”
  • We’re seeing “enduring wage gains as labor market tightens.”

You’re getting paid more and employers are working harder to hire you!

  • “Worker pay rises at fastest pace since end of last recession.”
  • “Fiscal stimulus would stoke further gains as labor [is] scarce.”
  • “Average hourly earnings jumped by 2.9 percent in the 12 months through December, the most since the last recession ended in June 2009.”
  • “Workers in almost every category, from mining and construction to retail and education, saw paychecks rise from November.”

JPMorgan Economic News

Michael Feroli, JPMorgan’s chief economist, says:

  • “I expect to see continued acceleration in wages this year.”

And get this: Labor shortages may become more common. Employers are going to be begging you to take a job! I hope that makes you feel better if you’re facing a shortage of exactly the one job you need to pay your bills.

But then there are the gotchas from from the DOL reported by Bloomberg:

  • “More Americans joined the labor force but had not yet found jobs.”

Oops. And try this double-talk on for size:

  • “The number of people who were jobless and gave up looking for work declined to a three-month low…” but “One caveat: fewer people who were already in the labor force but unemployed were able to find jobs.”

Associated Press News

The Associated Press isn’t being left behind:

  • Since 2009, “the job market is in infinitely better shape. The unemployment rate is 4.7 percent. Jobs have been added for 75 straight months, the longest such streak on record.”
  • But, er, ah… “The proportion of Americans with jobs… dropped a full percentage point.”

Uh… apply the grammatical logic tool to that one and you get… More Americans are without jobs!

  • “Hiring has been solid yet still hasn’t kept up with population growth.”
  • “…many workers, especially less-educated men, have become discouraged about finding jobs with decent pay and have stopped looking.”

Yes, that means many, many Americans are screwed, but they’re probably not educated enough to parse those sentences to glean the economic reality. But when they try to pay for food next week, they’ll grab their pitchforks and torches.

Middle America

And don’t miss this troubling factoid: The “routine work” that pays middle-income wages is disappearing. But the good news is, those of you doing “higher- and lower-paying jobs” should have no trouble finding work! Tech jobs have “soared” 42%. Hotel and food service jobs have “jumped” 19%!

Apply the grammatical logic tool to that one and you get… Middle America can’t find a job!

  • More good news: “Over the past year, average hourly pay has risen 2.9 percent, the healthiest increase in seven years.”
  • But, uh, in a “robust economy” pay gains would be more like 3.5%.

There’s more, but your under-paid, under-fed or unemployed (or under-employed) brain probably couldn’t take it.

Let’s stop pretending

The jobs news is so contradictory that nobody knows — or will admit — what’s really going on. While the government, economists, banks and pundits spin a story that makes heads spin, I think the wisdom about all this is in the crowd. The people living, succeeding, failing, giving up, dropping out, scraping by and dying in this economy have a clearer picture of what’s really going on than what’s being reported.

How are you doing?

Early January of a New Year is a good time to sweep away the news and ask you — How are you doing in all this? I think we all want to know what’s really going on in our economy and job market.

  • Does this news reflect your experience?
  • Are you finding more jobs — real jobs — are begging to be filled?
  • Are you getting paid more money?
  • Are employers hiring you more quickly at higher salaries?
  • If you already have a job, has your boss increased your salary to avoid losing you?
  • What’s really going on with respect to jobs, employment and pay?

I don’t think we’ll sort this out, but we can do a more honest job of discussing the truth than the news pretends at!

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These industries are more likely to screw you on pay

On May 23, 2016

In the May 24, 2016 Ask The Headhunter Newsletter, we dispense with the Q&A and explore some bad news about who’s hogging the profits.

Yes, You’re Getting Screwed

  • While the price of fuel has dropped and airlines and their shareholders run to the bank with higher returns, you pay more to sit in smaller airline seats and to arrive at your destination later.
  • Your stock broker gets rich off the higher fees you pay on your investments, while the value of your portfolio stagnates or declines.

The trend is hardly worth debating — you pay more to get less. And now we know for sure that it’s hitting your paycheck, too: As corporate profits soar, you get paid less for your work.

I love capitalism, but this isn’t capitalism — it’s greed, and it’s putting our economy and our society at risk because it’s devaluing the work you do and killing your motivation to be more productive.

greedyA banker’s story

The irony is that a guy at JP Morgan Chase — a big bank making big bucks — has spilled the beans. Bloomberg reports that JPM’s chief economist, Michael Feroli, recently published a research note that reveals — Ta-Da! — “workers’ slice of the economic pie is getting smaller.”

It’s doubly ironic because JP Morgan’s first-quarter profits beat estimates — while the firm slashed bankers’ pay. Even the bankers that are screwing us are getting screwed!

Feroli sharpens the point and explains the connection: As big business gets bigger, there’s a clear link between increasing concentration of ownership and “labor’s declining share… of the value a company creates.”

Which is the long way of saying, you’re getting the shaft while The Man gets richer. The owners of those industries make out while your paycheck gets smaller.

Sheesh — I never thought I’d find myself talking like a workers’ rights nut.

It’s worse than unfair pay

So I’ll make myself clear: While I worry about workers, I worry far more about the gross imbalance between the value of work and what people get paid to do it. Even more than I worry about tired employees’ families going hungry due to stagnant wages and salaries, I worry that American productivity and ingenuity are at risk — because who’s going to be productive and inventive if that behavior is not going to pay off?

It’s worse than you getting paid less. Our entire economic system is at risk because the concentration of ownership and wealth has reached such critical mass that it seems it’s going to destroy itself by ignoring a basic tenet of capitalism — at least according to my definition: Profits spur motivation to do more profitable work when those that create profit enjoy the rewards.

What happens when workers — at any level and in any kind of job — see where the profits are going? I think it spells trouble.

Is Feroli right?

Rather than discussing the regular Ask The Headhunter Q&A column this week, I’d like to ask you to please read Peter Coy’s short article about Feroli’s work in Bloomberg Businessweek: Rising Profits Don’t Lift Workers’ Boats.

And then, if you dare, skim a report written by Jason Furman, chairman of the president’s Council of Economic Advisers: Benefits of Competition and Indicators of Market Power. It’s dense, and one of Furman’s conclusions will seem obvious:

“When firms take action to impede competition, through anticompetitive mergers, exclusionary conduct, collusive agreements with rivals, or rent-seeking regulation to restrict entry, their profitability may increase, but at the cost of even greater reductions in consumer welfare and societal benefits.”

Feroli used this report to map where the value created by various industries goes — and to draw the troubling conclusion that…

“…industries with more concentrated ownership… pay out their extra profits to shareholders, or to the government in taxes, but not to workers.”

He notes that between 1997 and 2012, in transportation and warehousing, the “share of business accounted for by the top 50 companies rose by 11.4 percentage points,” while in health care and social assistance, it fell 1.5%. What’s telling is that between 1999-2014, in transportation and warehousing, the share of profits paid to employees fell 7.6% — the biggest drop of any industry in the study — while in health care and social assistance, employees’ share of profits rose 1. 8 percentage points.

Draw your own conclusions. Then let’s talk about whether you’re getting paid less — and whether it’s because a concentration of ownership and wealth doesn’t reward the people who come up with the ideas, do the work, and create the wealth.

This week’s takeaway

Since this is Ask The Headhunter and my purpose is to give you a takeaway to help you be more successful — here it is, based on the sources I’ve discussed above: It seems you’ll earn better pay working in an industry where there’s more competition and less concentration of ownership. So pick your job targets wisely.

Feroli’s and Furman’s work suggests, for example, that the healthcare industry pays more of its income to employees, while the transportation and warehousing industries (which includes airlines and railroads) pocket more of the profits and leave workers in the lurch.

Here’s how various industries stack up in terms of the revenue share controlled by their 50 biggest players. According to Bloomberg, Feroli’s analysis suggests “the share workers got tended to decline in industries where there’s more consolidation.” That is, when more revenues are controlled by a smaller number of firms (“consolidation”), the less that industry is likely to pay to its workers.

cea-table

Of course, being the smart little community you are, you already know which industries are the problem…

If you need help assessing specific employers, these Fearless Job Hunting books will help you with these specific issues:

FJH-5Book 5: Get The Right Employer’s Full Attention

+ How to pick worthy companies (pp. 10-12)
+ Is this a Mickey Mouse operation? (pp. 13-15)
+ Scuttlebutt: Get the truth about private companies (pp. 22-24)

.

FJH-8Book 8: Play Hardball With Employers

+ Avoid Disaster: Check out the employer (pp. 11-12)
+ Due Diligence: Don’t take a job without it (pp. 23-25)
+ Judge the manager (pp. 26-28)

.

How can you tip the balance back towards making your work more profitable to you — when your work is profitable for your employer? Or has our economy shifted so far that it’s going to tip over? In your experience, which industries share the wealth — and which of them pocket the profits you help produce?

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