Labor Issues & Escalating Overhead

By Sue Minichiello

The good news is the economy is strong. The bad news is the economy is strong. Such is the paradox for American business owners. While a good economy typically means higher consumer spending, it also means higher operational costs, especially for labor and wages.

The current increase in workforce expenses is fueled largely by a labor shortage, but the strong economy – with its consistently low unemployment and increasing minimum wages – isn’t the only issue at hand. A lower immigrant and refugee influx is also playing a role, as is the opioid epidemic. This article will explore all of those root causes and consider ways employers can minimize the impact.

“We’ve been experiencing low wage growth and very low unemployment rates simultaneously for at least three or four years,” said Claudia St. John, President of Affinity HR Group, a human resources consultancy. “While low unemployment continues, wage growth is catching up and making up for lost time.”

Eleven states and Washington, D.C. are set to raise the minimum wage in 2019. Nearly 30 states and more than 40 municipalities across the U.S. have already increased the rate beyond the federal minimum of $7.25, and there’s talk that Congress is going to look at raising that as well.

St. John added that the minimum wage is about to go up to $15 for workers in New York City fast food restaurants (and, incrementally, by 2021 for the rest of the state). That increase happens prior to increases in other industries, creating an even more challenging situation for some employers. Why would a person who can earn $15 an hour at a fast food restaurant choose to take, for example, a position on a cleaning crew of a Building Services Contractor (BSC) for less? Quite simply, they wouldn’t. So, some employers are not only poised to lose existing labor, but also realize they must offer more to attract new workers.

Add to those circumstances a significant reduction in immigration – including a crackdown on documentation and an increase in worksite raids and audits – plus far fewer refugees coming into the country.

“Historically, new American entrants have filled entry level positions across a variety of industries, but that pool has dwindled along with tighter restrictions in the past couple years,” St. John said. “At the same time, employers are having to more vigilantly scrutinize documentation to avoid raids and audits by ICE (Immigration and Customs Enforcement).”

According to a recent ICE news release, the number of worksite investigations rose from 1,691 in FY 2017 to 6,848 in FY 2018; I-9 audits from 1,360 to 5,981; and arrests from 311 to 2,304. The release said those figures represent “surges” of 300-750 percent.

As for the effect of the opioid epidemic, it comes down to the fact that many individuals cannot pass the drug test necessary to be hired.

The labor shortage spurred by all of these factors means that companies need to do more to attract and retain employees. One step St. John recommended is to gather and analyze data, because it can help identify important trends, gaps, and opportunities. In particular, she advised using data to determine why employees leave and to examine turnover rates by division, location, and supervisor.

“Most times, people don’t quit jobs. They quit their supervisor,” she said. “Other practical matters like proximity to public transportation, general location safety, and scheduling frequently play a part, too.”

Once enough data has been compiled to be statistically relevant, patterns showing why a business is losing employees are likely to emerge, giving management the opportunity to correct, mitigate, or eliminate the causes.

St. John pointed out a few other things to consider. If a good employee left due to a family situation that required a different or more flexible work schedule, reach out to them after some time has passed to see if life circumstances have changed and they are interested in coming back.

“Traditionally, people have frowned on pursuing these so-called ‘boomerang’ employees, but you may not have that luxury now and, honestly, a good employee who is familiar with your company and knows the job could be of great help.”

She also recommended going back to review job applicants who were in the running but not hired to see if they’re still available and, if your data reveal scheduling was the reason employees left, it’s worth considering how to increase flexibility and predictability.

“There needs to be a change in the mindset of employers,” St. John said. “It used to be you were in the business of screening out employees. Now you’re in the business of competing to attract and retain employees. That’s a huge shift to which you need to adjust.”

image courtesy of Hotel News Now