The labor shortage is really a pay shortage

The labor shortage is really a pay shortage

Question

labor shortageI bookmarked an article you wrote a few years ago: B.S. on the jobs numbers euphoria. Jobs numbers are the #1 story again: 260,000 jobs added versus over a million the economists predicted would be a slam-dunk! Is that a labor shortage or job shortage? Maybe a pay shortage? Once again they’re blaming us, people looking for jobs! We’re not educated enough or skilled enough or willing to go on goose-chase interviews recruiters e-mail us about. Now we’re deadbeats living on rich unemployment supplements. Who needs to work, right? I DO!

Nick’s Reply

The burning question in the news today is, why are so many employers unable to fill jobs? Is it because, as some claim, recipients of pandemic relief benefits would rather “collect” than work? Is it because people who want to work are afraid to, because the virus is still a risk? Or, as others say, are working women staying home because someone has to watch the kids while schools are closed?

Labor shortage or shortage of pay?

I’m no economist — hell, they just got the “jobs added” numbers wrong by about a factor of 4! — but based on what my readers tell me and on what I see, the answer is simple. Employers don’t want to pay market wages and salaries to attract workers for jobs they say are so important to fill.

I believe low pay most readily explains much of the inability to hire. There’s no labor shortage. It’s a supply and demand problem. And many employers are running scared because they don’t know what they’re doing. (A more cynical view is that they’re just greedy.)

Let’s look at the contradictions.

Business to labor: You’re deadbeats

On one hand, unemployment has remained at around 6.1% — still very high. According to Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, between 8 and 10 million people who want to work can’t find jobs. He also suggests it’s unreasonable to expect the effects of the pandemic are over. He says things are getting better, but it’s going to be months before we see substantial improvements. Judging from the numbers, we don’t need an economist to tell us the problem is a shortage of jobs — jobs that pay enough to attract workers.

The U.S. Chamber of Commerce, on another hand, suggests those 8 to 10 million are deadbeats living large on pandemic relief benefits. In fact, the Chamber is so sure it can find jobs for all those people that it has demanded the extra $300 per week unemployment benefits be cut immediately. Says the Chamber: “It’s giving some recipients less incentive to look for work.”

Labor to economists: You’re stupid

Now we need a third hand to juggle the facts. On May 6 Barrons proclaimed, Get Ready for a Blockbuster Jobs Report of 1 Million or More. Oops! The next day, the Bureau of Labor Statistics revealed that business added just 266,000 jobs last month — not over a million like economists confidently predicted. So, where are “all those jobs” employers can’t fill and that you should be applying for?

Who’s stupid about jobs?

It seems pretty simple: The real disincentive to look for work is that there aren’t enough jobs since the pandemic started! Employers who are trying to get back up and running think they can keep pay low because millions are “looking” — but job seekers aren’t buying low wages. They’re not stupid.

I’m sure some jobs are going begging, but lots of unemployed workers are refusing to beg. Let’s look at some examples.

Who’s competitive?

New Jersey’s Star-Ledger reports:

“Mike Jurusz is worried about the summer. As owner and executive chef at Chef Mike’s Atlantic Bar & Grill in South Seaside Park, [a New Jersey beach town] he said he can’t find anyone to hire. He blames his staffing troubles on expanded unemployment benefits and stimulus payments. ‘It’s impossible to get help right now,’ he says.”

Here’s where facts run into overwrought explanations — and perhaps into poor business decisions. (By the way, I don’t pick on Jurusz or anyone else except that they’re a handy examples provided by the press. I don’t know him or his business other than what I’ve read.)

Jurusz doesn’t reveal what he’s paying to fill those jobs. Yet he complains that “businesses that raise their hourly wage to entice workers make it harder for others to compete.”

Now get this.

“‘We are going to have to be forced to pay people who are not worth what they should be getting,’ Jurusz said. ‘That will increase my labor costs, then we have to increase the pricing because we have to stay in business. You’re going to see $30 plain pizzas and $35 subs.”

What I hear is a small businessman running scared. I feel for anyone facing business challenges, but having to make payroll is going to put some businesses out of business. Welcome to the new economy.

Do employers really need to pay more?

They do if you listen to retailers, who say that to compete with Amazon, which pays more than $15 an hour to snatch up available labor, they, too, have to raise wages. While some restaurateurs can’t beat that kind of job offer, Amit Patel, a snack-food manufacturer, also in New Jersey, said to the Star-Ledger:

“Do you think an employee would want to work at $10 or $11 an hour in a COVID environment when they have no job security, no benefits? People are realizing their worth is a lot more.”

Patel has raised the wages his company pays by 30% since the start of the pandemic.

Smart employers are busy hiring

Another New Jersey restaurant owner in the same Star-Ledger article, Tim McLoone, said he doesn’t blame the hiring challenges on people who don’t want to work.

“It’s offensive to demonize one group of people,” he said. “There’s no question that unemployment has contributed to the diminishment of the labor market, but it’s not like they’re staying home to watch The Price Is Right and they don’t want to work.”

McLoone recently increased hourly wages to $15 for employees who don’t receive tips. Got a labor shortage? Grow up and pay what you have to. It’s called a market.

The economists who got it wrong are trying to scapegoat working stiffs who know from experience that employers aren’t adding jobs at the rates economists claim. All those job postings on Indeed and LinkedIn include a lot of dupes and garbage. They know many employers aren’t offering wages worth working for — just ask them what the recruiters are pitching. Anyone that planned on over a million new jobs got suckered by wishful economic predictions.

It’s a new labor market

Blaming the pandemic relief program is a cheap shot designed to deflect responsibility from employers large and small that have been profiting enormously for a decade without sharing with their employees. You can look up the average disparities between executive pay and employees somewhere else. I’m frankly sick of looking at the numbers. If anything, the relief benefits are balancing the scales a bit.

But there’s another part to this. Some of those unemployed workers have wised up to the game. They’ve gotten smarter than employers and economists. They know they’re worth more and won’t work for less.

In other words, it seems employers that respect the law of supply and demand offer higher wages — and they can afford to. Just look at Amazon. If your business model doesn’t permit you to pay enough to attract good workers in a highly competitive market, maybe that says you can’t compete. Maybe you shouldn’t be in business. It’s a new labor market.

The “jobs numbers” suggest that many of the millions of unemployed who want to work are wise to wait until healthy businesses offer them higher pay. The pandemic benefits make it a bit easier to hold out, but it’s the choice I’d make even without the benefits.

The noise continues

I’m not an economist or a labor market expert. But it’s not hard to see what’s going on. I can interpret what I see pretty easily by looking where the big money is telling me not to look — past the noise.

For example, the U.S. Chamber of Commerce says:

“Based on the Chamber’s analysis, the $300 benefit results in approximately one in four recipients taking home more in unemployment than they earned working.”

The Chamber is bragging that its members pay less than unemployment does? If employers really believe Uncle Sam is out-bidding them and keeping labor on the sidelines, those employers are simply uncompetitive.

The Washington Post reports that:

“Some businesses have been complaining to the White House and lawmakers that they are having a hard time recruiting workers, particularly for low-wage, hourly jobs.”

But are these businesses offering more competitive wages?

“Average hourly wages rose about 21 cents across the country, data that the BLS suggested reflected increasing demand for labor.”

21 cents? Not only are these clowns not competing with Amazon and Tim McLoone, they aren’t even anteing up to stay in the game. The Star-Ledger reports that Morey’s Piers, operator of amusement parks in New Jersey, has boosted pay 25% to $15 an hour to fill 1,500 seasonal jobs this summer. There are those that get it and those that don’t.

Labor shortage: Last thing employers want to do is raise wages

This isn’t complicated, unless you listen to economists and greedy employers. Yes, greedy employers. I’m not even going to offer you links to articles about massive profits, stock prices and executive pay that has dwarfed employee pay in the past several years. I’ll just point out that the business world’s alpha dog, Jeff Bezos, has allowed that he understands and supports tax hikes on corporations and the very wealthy — and Amazon has boosted employee pay. The jig is up. It’s time for business to pay up.

I’ll leave you with two brief audio segments from a Bloomberg Radio interview with Fed President Neel Kashkari. (I’ve added emphasis.) This guy gets it and he’s not afraid to say it.

 

      Neel Kashkari-1

Highlight:

“I hope we see employers step up. That was one of the things that was extraordinary about the last recovery. It took 10 years to return to something like maximum employment, and I’m not even sure that we quite got there before the pandemic hit. And it was only in the last few years of the recovery, after many years of businesses complaining that they couldn’t find workers, only in the last couple of years that we finally saw wages start to pick up, especially for those lowest income workers. Businesses will do anything they can do to try to meet their labor needs — and the last thing they want to do is raise wages.”

 

 

      Neel Kashkari-2

Highlight:

“We have the tools to tighten monetary policy to keep inflation in check. I’m not worried about that. What I am worried about is not having another 10-year recovery for our labor market. That’s devastating to millions of Americans and we need to put them back to work much more quickly.”

 

Yah, I know it’s more complicated, but this Fed president has the candor to break it down so it’s simple. It’s time for politicians, employers and government to grow up. The sooner the economy faces it, the better. To get businesses back up and running post-COVID, companies have to pay more. Not because of COVID. Because it’s long overdue. The virus has just served to remind people that life is short — and they’re not willing to work for less.

Those employers that cry higher wages will put them out of business must realize that offering low pay will probably put them out of business.

What do you see when you step back from the “labor shortage?” What’s the fix? Have you stayed out of the job market because employers are low-balling you? Have you found competitive employers who pay well? How can an unemployed job seeker find a good-paying job today?

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Don’t Fill Out That Job Application!

In the July 11, 2017 Ask The Headhunter Newsletter, a job seeker tries to avoid going down the job application hole.

In the last edition, we discussed mistakes people make regarding information they share about themselves — and about information they fail to get from an employer. Now we’ll focus on a special kind of information employers demand from job applicants — your salary history.

job applicationThis has always been a hot topic, mainly because employers just won’t stop asking for information that’s none of their business. Even if HR managers swear up and down that they need your salary data “because that’s our policy,” we all know why they really want it: It gives them an edge on job offer negotiations.

I also promised you some interesting statistics about the value of personal referrals. What’s that got to do with how to deal with salary demands? Let’s take a look!

Question

When I go after jobs through job boards, they always send me a link to a job application form. I’m just curious about your thoughts on the advice of a career coach about what to do when those online forms require you to enter your salary at your previous jobs. She says to type in your desired salary and, when you come to a text field, explain what you did. Do you agree with this?

Nick’s Reply

I think that advice stinks. It’s thoughtless right off the bat. If you have to enter your salary for each of your previous jobs, what sense would it make to enter the same desired salary (for the new job) for each of the old jobs?

More important, such tricks encourage job applicants to play along with a game rigged against them, rather than to pursue the best way of getting hired.

We are so brainwashed by employers to do what they ask that many “experts” don’t realize that it’s simply wrong. The answer to this problem is to consider the facts and to refuse to be manipulated.

Say NO to job application forms

The problem is not whether to disclose your salary history. The problem is the job application form itself. If your path to a job is a job board followed by a job application form, don’t fill it out at all, because it puts you at a disadvantage. Don’t apply via the application. Ignore the application because people get jobs in other, smarter ways all the time.

Now we’re going to un-brainwash ourselves and change the subject to what really matters when applying for jobs: how you get in the door.

A 2013 study from the New York Federal Reserve Bank (“Do Informal Referrals Lead to Better Matches?”) compared methods that a single company uses to hire. The purpose of the study was to test theoretical models of where hires come from — not to describe hiring across many companies.

Where most job offers come from

The Fed researchers found that most job applicants — 60% — at this one company came from online job boards. Only 6.1% of applicants came from personal referrals by employees. But the biggest chunk of actual hires — over 29% — came from those meager but incredibly powerful employee referrals. (See How to engineer your personal network.)

Of course, you might be referred by a company’s employee and still be asked to fill out that form — but now you’ve got an advantage over every applicant who arrived via job boards.

Says the Fed report: “The pool of candidates receiving serious consideration increasingly favors the referred over the course of the hiring process.” (This doesn’t even include personal referrals and recommendations from people outside a company.)

Personal referrals pay off big

The study concluded that:

  • Referred candidates are more likely to be hired.
  • Referred workers experience an initial wage advantage (which dissipates over time).
  • Referred workers have longer tenure at the company.

Getting referred clearly pays off in many ways.

Other studies I’ve seen in the past two decades suggest that personal referrals can account for up to two-thirds of hires. But the main point here is not what the percentages are. It’s that you don’t need anyone’s advice to see that a job seeker’s best bet is to go find people connected to a company — and get them to refer you. (See Referrals: How to gift someone a job (and why).)

Do the work to get the job

“But Nick, that’s a lot of work!” you’ll say. Yep. So’s the job you want. Start working at this now, or you don’t deserve an interview. Stand out from your competition. Don’t take the way in the door that’s offered.

When you get referred by an insider — whether it’s a company employee or a company’s customer, vendor or consultant — you also have more power to say, “No, thank you” to questions about your salary history. A personal referral makes you a much more powerful and desirable job candidate.

How to Say It
“I’d be glad to fill out your application form after I’ve spoken with the hiring manager. [The person who recommended me] spoke very highly of the manager, and I’d like to make sure this is a potential match before I fill out any forms. I’m looking forward to telling [the employee who personally referred me] that I had a great meeting with the manager.”

Does that seem very personal? Yep! It has to be personal if you want to avoid being impersonally abused and rejected!

A personal referral makes you a worthy applicant. If it’s not worth the work to get that referral, so you can avoid job boards and mindless forms, then the job isn’t really worth it to you. Move on to a job that is.

Always question authority — even when it’s a clever career coach. Leave the job application forms for your brainwashed competitors. (See “Make personal contacts to get a job? Awkward…” Get over it!)

Most jobs are found and filled through personal contacts. Everyone I know knows that — but few act like they know it. Why do people still rely on job boards, application forms and rote methods? (Don’t tell me “it’s easier!”) What one thing could we change to shift job seekers’ attention to what works?

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What the Federal Reserve doesn’t know about recruiters

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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