In a recent column at BloombergView, Michael Strain, an economist at the American Enterprise Institute, asserted that US businesses, particularly manufacturers, protest too much about the skills gap. Their inability to source skilled employees could be solved, he argued, if they were simply willing to pay higher wages for the talent they need:
Wage growth is picking up, but it is lower than what many economists expect in light of overall economic conditions, and it is not soaring for specific industries.
Simply put, if businesses can’t find workers — or can’t find workers with the right skills — they should raise their wage offers. Basic supply-and-demand logic suggests that doing so will broaden the pool of workers interested in the job, and will make the job more desirable to applicants. In addition, raising wage offerings would likely draw in some of the millions of Americans who report they want a job but are out of the labor force. So unless wage growth picks up, the warnings about labor shortages will fall flat.
Strain is not the first economist to argue that the skills gap is a simple supply-and-demand problem that could be solved by raising the price of labor, or that the problem is on the demand side (not enough attractive jobs) as well as the supply side (not enough skilled workers). Stagnant wage growth may be a factor in US employers’ labor market woes, but in focusing exclusively on wages rather than training and hiring barriers, Strain’s claim oversimplifies the challenge employers are facing. Years of research consistently tell us that while competitive compensation is a large component of what attracts candidates to jobs, there’s no simple formula by which you can convince any given candidate to take a job simply by offering a high enough salary.
It’s easy to point to “basic supply-and-demand logic” to criticize manufacturing companies when you don’t actually understand their experiences in local labor markets, but who says manufacturers aren’t trying to raise wages already anyway? A 2015 study by the Manufacturing Institute and Deloitte showed that 80 percent of manufacturing companies were already willing to pay more than market rates to reduce the skills gap—especially for more skilled labor, such as machinists, craft workers, and industrial engineers. Yet according to our own research at CEB, now Gartner, only 23 percent of heads of HR in the manufacturing industry believe they can close critical skills gaps over the next 12 months.
Belden Inc., a manufacturer of electronic networking equipment based in St. Louis, Missouri, faces the same labor market issue as most other industrial employers in the Midwest, including the challenge of hiring and retaining workers for safety-sensitive roles in places where opioid addiction has reached epidemic proportions. Belden’s CEO John Stroup is taking an innovative approach to tackling the opioid problem at his company’s factory in Richmond, Indiana, where this past winter, one in ten applicants failed their drug tests, as did several people already employed there. At CNN Money last week, Lydia DePillis profiled Stroup’s efforts to give these workers a second chance:
For Stroup, the decision was a simple cost-benefit analysis: How much would it cost to help people get sober in this Rust Belt town of 37,000, compared to what he was losing by not having them available to work? After a few meetings with board members and addiction experts, he came up with a plan. If an applicant or a current employee failed a drug test, but they still wanted the job, Belden would pay for an evaluation at a local substance abuse treatment center.
People deemed to have a low risk of developing an addiction could spend two months in a non-dangerous job before they are allowed to operate heavy equipment again, as long as they passed periodic random drug tests for the rest of their time at the company. People at high risk would spend two months in an intensive outpatient monitoring and treatment program, with the promise of a job at the end if they made sufficient progress. On average, Belden figured it would have to shell out about $5,000 for each person it gave a second chance to.
The experiment started in March and has so far had eight participants. Two at-risk current employees made it through the monitoring period and are back to work, while others are still being evaluated. It will take a few more months to see if the program really works, but the few Belden employees who spoke to DePillis said they were heartened to see the company trying to help current and prospective employees with opioid issues recover rather than discarding them.
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With less than a year to go before the March 2019 deadline for finalizing a deal for the UK’s withdrawal from the European Union, three separate reports have come out in the past week highlighting continued anxiety among employers in key sectors about their ability to meet their labor needs in a post-Brexit environment.
First, Tech Nation 2018, the UK’s annual government report on the country’s tech sector, identified access to talent, cost of living, and Brexit as the main challenges cited by the tech community in the country’s key tech hubs of London and Cambridge. Mike Butcher at TechCrunch criticizes what he sees as the government’s attempt to downplay the elephant in the room, arguing that the report “has been heavily spun to de-emphasise the effects of Brexit on the UK tech industry”—which he says will be severe when considering the impact Brexit will have on British tech companies’ other major concerns:
In the rest of the country, access to talent was cited as the most common challenge – affecting 83% of the UK’s regional tech clusters. Access a funding was a top 3 challenge in 49% of clusters and bad transport links were also cited. Funding is clearly also Brexit-related, given that funding from the European Investment Fund has collapsed since the Brexit vote. The European Investment Bank has slashed deals with UK VCs and private equity groups by more than two-thirds, with no equivalent funding from the UK government in sight. …
However, you probably won’t get that impression from the way the report is being pitched to the media … Instead, the report is filled with heady statistics about the UK’s booming tech industry. The report also makes absolutely no mention of the effect of the UK leaving the EU’s Digital Single Market.
Another report, released on Monday by TheCityUK, an organization that promotes the UK as a global financial center, warns that losing access to European talent will have a harsh impact on the finance industry. That report, prepared in partnership with EY, urges the government to reform immigration policies to allow the sector to maintain access to a pan-European talent pool, arguing that hiring European talent after Brexit through the existing mechanisms for non-European immigrants will increase the City’s costs for hiring international staff by 300 percent. “Simply applying the current immigration system for non-European citizens to European citizens after Brexit will not work,” TheCityUK’s Chief Executive Miles Celic said in a statement carried by Reuters. In response to uncertainty over the future of UK immigration law, banks have already begun preparing to shift staff from London to other European financial centers like Frankfurt to handle their continental business.
In the wake of the Tax Cuts and Jobs Act passed by the US Congress in December, which slashed the corporate tax rate from 35 percent to 21 percent, some large employers announced that they were raising pay, expanding benefits, or (most commonly) issuing one-time bonuses for their employees with the billions of dollars in savings they would gain from the tax reform package. Critics of these tax cut bonuses say they are a cynical attempt to curry favor with the Trump administration and mask the fact that investors are reaping the lion’s share of the rewards. Most of the windfall is being passed on to shareholders through dividends and stock buybacks, as the Wall Street Journal noted in a recent article noting the impact of the tax cuts on corporate earnings in the first quarter.
Some companies are investing their tax cuts in in employees in a different way. The aerospace manufacturer Boeing, for example, announced in December that it was investing $300 million of its tax savings in employee programs, one third of which would go toward learning and development (its total savings from the tax cuts are expected to be around $400 million a year, the Seattle Times reported in January).
In fact, many organizations are putting part of their tax savings toward learning: Our pulse survey on tax reform at CEB, now Gartner, found that among organizations allotting part of their tax savings to HR, 39 percent were investing in employee training, development, and education—the second most common target for these allotments after pay and benefits. (CEB Total Rewards Leadership Council members can see the full results of that survey here.)
After a series of strikes last week, the influential German union IG Metall sealed a deal with employers in which its members gained both an increase in pay and the right to a substantially shorter workweek, the Local reported on Tuesday:
Both the union and employers said in overnight statements they had reached a “tolerable compromise” with some “painful elements” covering 900,000 workers in key industrial state Baden-Wuerttemberg, which could be extended to the 3.9 million workers in the sector across the country. The key concession is the right for more senior employees to cut their working week to 28 hours for a limited period of six to 24 months.
The union had pushed for staff to have a right to more flexible working conditions around key life moments such as the birth of a child, looking after a relative or ill health — with the right to return to full-time hours afterwards. But bosses rejected unions’ demand that they continue paying full-time salaries to some of those who choose a limited period of reduced working hours. Meanwhile, employers also gained more flexibility, to increase willing workers’ weeks to 40 hours from the standard 35.
The agreement will also see the metalworkers’ pay increase by 4.3 percent, in addition to some one-off payments, in a compromise from their original demand of a 6 percent raise. Stefan Wolf, head of regional employers’ federation Südwestmetall, said that the compromise was “reasonably balanced” but said the deal would be “difficult to bear” for some firms.
In another sign of the US labor market’s robustness, the number of Americans filing new unemployment claims fell last week to its lowest level in over 44 years, Reuters reported on Thursday:
Initial claims for state unemployment benefits fell 22,000 to a seasonally adjusted 222,000 for the week ended Oct. 14, the lowest level since March 1973, the Labor Department said. … Claims are declining as the impact of Hurricanes Harvey and Irma washes out of the data. The hurricanes, which lashed Texas, Florida and the Virgin Islands, boosted claims to an almost three-year high of 298,000 at the start of September.
A Labor Department official said claims for the Virgin Islands and Puerto Rico continued to be impacted by Irma and Hurricane Maria, which destroyed infrastructure. As a result the Labor Department was estimating claims for the islands.
The week’s massive decrease in claims was likely inflated by the Columbus Day holiday, but other data in the Labor Department’s report also indicate a very healthy labor market: The number of people still receiving benefits after an initial week of aid fell 16,000 to 1.89 million in the week ended October 7, which was the lowest level since December 1973, and the four-week moving average of continuing claims fell 22,750 to 1.91 million, the lowest since January 1974.
Reuters also highlighted a report from the Federal Reserve Bank of Philadelphia indicating strong employment in the manufacturing sector in the mid-Atlantic region this month, with the bank’s measure of factory employment rising 24 points to a record high of 30.6. That report’s average workweek index also increased, while no firms reported decreases in unemployment in October.
Although the candy company Mars owns some of the world’s most famous brands (who hasn’t heard of M&Ms?), its employer brand is much less well known, Quartz’s Oliver Staley observes. Staley takes a close look at the company’s ongoing efforts to become more attractive to talent as it plans to expand its workforce by 70,000 employees over the next decade. Like other big players in the confectionery industry, Mars has historically been very serious about guarding its trade secrets, but its notoriously secretive culture had the downside effect of limiting the number of people outside the organization who knew what it was like to work there.
The company now faces the challenge of attracting talent from a generation of young people who grew up enjoying Mars products, but may never have thought of it as a place to pursue a career:
To get its message out, Mars is doubling the staff dedicated to luring college students, deploying social media, and honing its sales pitch to woo potential candidates. That often means showering them with M&Ms, and handing out gift boxes stuffed with candy bars and snacks. In making its pitch to MBAs and recent college graduates, Mars also stresses the variety of opportunities it can offer new hires because of its many business lines, and recruiters talk a lot about the company’s corporate culture, which historically combines egalitarianism with eccentricity—sometimes with surprisingly forward-thinking results.
That culture has in some ways been ahead of its time—Staley notes that Mars was ahead of most American corporations in adopting ideas like open offices, flat management, and bonuses based on company performance. The company scores high on lists of great places to work and people who work there tend to stick around. Indeed, that’s one possible reason behind the company’s current recruiting challenge: