Wageflation and the Talent Wars

Why are so many employers complaining about the availability of talented workers and the cost of hiring them? Government statistics indicate that real, inflation-adjusted wages are now below 1986 levels. In 2012, the Federal Reserve tracked both an all time high in want ads, along with an all time high in the long-term unemployed, especially among recent college graduates. How can we have both a surplus and a shortage at the same time?

unemployedThe talent wars are heating up. There are three major reasons why things will continue to get tougher for employers at one end of the spectrum, and for some workers at the other.

1. Demographics: As Boomers retire, the generation that follows (GenX) has about half the birthrate from the early 20-teens to the late 2020s, meaning that for every 8,000 Boomers who hit 65 years old daily, there are about 4,000 people reaching age 45. Supply and demand alone will drive pricing for the top echelon of workers.

2. Disparity: The Gini coefficient measures the gap between rich and poor by country, and it is widening in all of the industrialized economies. Technology is replacing mid-level white collar workers (salespeople, data entry,  customer service). Those who lose a task-based job seldom move up into a higher knowledge or decision making position. They more frequently have to settle for lower-paying task-based  employment. So wages decrease for the semi-skilled, while they increase for the highly skilled.

3. Disconnection: I’ve written before about the “Follow your passion” mantra. I have no statistics handy, but we all know that unemployment for college graduates is worse among the psychology and sociology majors than it is for engineers. The higher education system is built to generate revenue from kids sitting in big lecture halls, who support the institutions’ research and academic stars. I identified this gap between the workers that business seeks and those our education system produces as the major issue for employers over the coming decades in my interview with Bob Morris a few weeks ago.

So on one end of the scale, average wages are declining for workers, even those with degrees, who are underemployed in relation to their skills. On the other end we have increasing competition for those whose skill-set is in demand, from electricians and engineers to managers and executives.

That is why I hear complaints such as “He just got his engineering degree. I’ve hired those kids for years at $45,000. I offered this one 70K, and he turned me down for another job that paid 90!” It will get worse.

Small business has always been the training ground for employees entering the workforce. We take people with a specific skill set, and teach them general job skills like showing up on time, following directions and getting along with coworkers. As partial compensation for that investment, we’ve been able to pay “entry level” wages. The challenge going forward will be how we sustain higher pay scales based on the specific skills, while still bearing the cost of general job training.

NOTE: I regularly use these pages discuss a business owner’s challenges in maintaining balance between work and life. After 6 years of dedicated weekly posting, I am going to take some of my own advice. My wife Leila and I are celebrating 4 decades together by taking something that is longer than a vacation, although not quite long enough to be called a sabbatical. I’ll see you in a month.

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2 Responses to Wageflation and the Talent Wars

  1. John H. says:

    John,
    One very important contributor to the high wage expectation is the enormous levels of student loan dept new entries to the workforce bring with them. My friend, an experienced engineer out of work for a year, was recently offered a job at $20 an hour. He requested $24, largely because at $20/hour and a relocation to suburban DC he couldn’t have made ends meet. His prospective employer passed, and cited the position as being done away with.

    What happens to our spending-driven national economy with graduates saddled with life-long levels of college loan debt? What happens to home sales?

    More importantly, what happens to future generations in terms of saving for college for their children,l and what appears to be a self full-filling prophecy for generations to come?

    • John F. Dini says:

      Great point John. We are proud of our “lifestyle” as Americans, but we have also put ourselves in hock over the last 50 years on every level. Every parent I know who makes the college visit rounds is shocked at the level of creature comforts that are now considered standard for student living. Those apartments, on campus eateries and mega fitness centers were built on $1.6 trillion in student debt. It really isn’t sustainable.

      BTW: There are 2 million Americans over 60 years old who still have outstanding student loans, and 140,000 are having their Social Security payments garnished.

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