by CHRC | May 29, 2020 | Economy, Human Capital, Labor Markets, Skilled Labor
For many years, we have been working with clients to explain the difference between labor market differentials and cost of living differentials, two related, but different numbers. Obviously, Mark Zuckerberg has never called us to ask for a tutorial. Put simply, it explains why a cold Midwesterner might give up a 4,000 square foot house to live in a 1,000 square foot home in San Diego—yet pay the same for both dwellings. While a basket of goods might cost more in San Diego, that same former Midwesterner will gladly pay it because they intend on never wearing a parka again, and spending more time outdoors, in the sun, than inside sheltering from the cold.
Labor costs, on the other hand, are all about the supply and demand of certain skills. If too many former Midwesterners with the same set of skills move to San Diego all at the same time, the labor market floods, and the price for their labor goes down. Perhaps the newly warm people don’t care?
Labor markets have been shifting along geographic lines since the US began to emerge from the 2008-2009 financial crisis. CHRC began to see it when clients would call with one-off jobs that were suddenly experiencing turnover, and they couldn’t believe it was due to an increase in wages, but it was. One project, in particular, clearly painted this new picture. We examined roles at various income levels across the entire US expecting all geographies to converge to a national geographic differential of 0% at some point; for all these geographies, north, south, east, west, rural, urban—they never did. The correlations that compensation consultants had typically seen to explain geographic differentials no longer held.
Our observations are well explained by the writings of economist, Enrico Moretti, including his book, The New Geography of Jobs. He uses examples to explain how the concentration of industries and human capital in certain areas leads to innovation (e.g. Detroit at the beginning of the 20th Century or Silicon Valley at the end of the century).
So, what will happen if tech talent is incented away from the Bay Area? Will this de-concentration dilute both talent and innovation? Perhaps it could drive down housing costs and the cost of living (but probably not proportionally). Our advice to Mr. Zuckerberg is that the law of unintended consequences will probably take over; the labor market pricing for talent will hold, people will take their talent to other firms, and move wherever they like. The new recipients of their talent will innovate with it. Mr. Zuckerberg might very well be left with those workers whose skills are not nearly as in demand, who are less likely to innovate, and who are very grumpy about their cost of living. Read More Here
by CHRC | May 20, 2020 | Competencies, Diversity, Equity, Inclusion, Economy, Human Capital, Productivity
As the world begins to reopen and summer approaches, parents are still left juggling work and children. A (welcomed) end may be in sight for remote learning, but most daycares, summer camps, and kids’ programs are closed, leaving children perpetually home for the summer. How can America be open for business when so many parents need to remain home to care for children?
The federal government has tried to help parents during this time, implementing the Families First Coronavirus Response Act (FFCRA), but the measures put in place really only benefit some parents. A recent Time article addresses this same concern. “Businesses with more than 500 employees are excluded from the mandate, and firms with fewer than 50 can ask for an exemption. That’s left more than 59 million Americans… uncovered by those government leave provisions.” Without the option to work from home, some parents are forced to resign in order to care for children.
Like the other structural flaws that Covid-19 has exposed, it’s abundantly clear that there’s a bigger problem with our current childcare system. Elliot Haspel, author of Crawling Behind: America’s Child Care Crisis and How to Fix It, says, “I think that the crisis calls for a complete re-envisioning of the American childcare system.” Hopefully, we will take what we’ve learned during these times to create solutions that work for all families. Until we do, this will limit the labor supply of those 20 to 45, which are typically key earning years. Read More Here
by CHRC | May 6, 2020 | Compensation, Economy, Human Capital, Wage Increases
For some time now, the compensation consultants at CHRC have been keeping an eye on the wages of those in the service sector. We watch the monthly JOLTS data aggregated by the Atlanta Fed and often have criticized news headlines that put an overemphasis on Manufacturing and Construction job gains and losses because they under-emphasize the large percentage of the U.S. economy that the service sector comprises.
We think Covid-19 has changed America’s understanding of how reliant the economy and all of us are on this service sector.
Given CHRC’s attention to this area of the labor market, and the recent wage pressure caused by over demand and under supply, this headline immediately caught our eye: Returning to Business Is Going to Take a Pay Raise. This sentence in particular caught our attention: “The coronavirus has laid bare that without workers to produce and consume their products, even the most formidable companies are just empty shells.” The author was not an HR consultant or a labor economist; he is an investment advisor who writes a column for Bloomberg.
We agree. If there was already a shortage of workers for the service sector, when we return to normal, whatever the new normal looks like, and whenever normal kinda sorta returns, we do think that some of these roles will see an increase in wages.
Two weeks later we came across the same sentiments, in a theological magazine. While this author’s vantage point was slightly different, his meaning was exactly the same: “Societal value is more subjective, and even higher-paid workers and executives are now recognizing that a well-functioning society really needs people to provide these services.” This author, like the Bloomberg columnist, referenced The Business Roundtable’s “Statement on the Purpose of a Corporation” that 181 executives signed in August 2019. In the statement, these leaders concede that in addition to shareholders, they also serve stakeholders, which includes employees and customers.
Nobody knows what the new normal will look like, but we all know what the world’s been like without haircuts and without meals out, exchanging banter with our favorite servers. We know that many people that do invisible but essential jobs—from garbage collection, to hospital laundry, to first responders—have died from Covid-19. The hope of this Human Resource consultancy is that if financial and theological magazines are publishing pieces that reach the same conclusion, perhaps business leaders are synthesizing similarly and the new normal will involve some evolved compensation conversations. Read More Here and Here
by CHRC | Apr 1, 2020 | Economy, Human Capital
A long time ago in a galaxy far, far away…. a galaxy that did not know Excel, but used a language called Lotus 1-2-3, I was a credit analyst. There I learned financial modeling and was taught a concept called Maximum Reasonable Adversity. In our modeling class, we were assigned a case study about a company that catered meals to airlines. Our credit officers were trying to impart the wisdom that a swing in interest rates or inflation were not the greatest threats to repayment. The greatest risk was an exogenous shock, which while possible might not be probable, at least not highly probable. After much debate, my case partner and I settled on an airline strike: How many weeks of an airline strike could this company withstand and still stay afloat and cover their interest payments?
Enter COVID-19 which seems to have taken the world by surprise. Experts who study pandemics, however, have been modeling the adversity scenarios preparing for the next pandemic.
A recent Economist article highlights another sort of expert who is always looking around the corner anticipating some exogenous shock that could put a company on its back foot and necessitate an immediate and intelligent human response. For those of us who have been in the HR field for decades, this article is a long overdue exposé on what we really do. For those who complain that HR is always planning for worst case scenarios, constantly assessing risk, and planning for succession, perhaps now you will start to understand the lens through which strategic HR views business: how to stock and cultivate human capital inventory not just for the good times, but to weather maximum reasonable adversity. Read More Here
by CHRC | May 30, 2018 | Compensation, Economy, Wage Increases
Two summers ago, we posted an article, “
Is the Economy Getting Better Or Worse?” Still perplexed, this year, we’re hearing from the Kansas City Fed. They strike a cautionary note that if 14.3% of workers haven’t received a raise in the last year, then there aren’t true pressures on wages, and therefore no concerns about inflation, and no need to raise interest rates. QED.
Not so fast. Let us return to the thought process that geometry proofs taught us:
If 14.3% of workers did not receive a wage increase, 85.7% did. Drop to the median, not of the triangle, but of the same Fed statistics. The median wage increase in April was 3.3% and the 75th percentile increase of 13.9%. That delta is 10.6%
So the real question is: Who are the 14.3%? Are they people in jobs that the market no longer rewards? Are they people who have been making at market, or higher, for many years and therefore their employers cannot justify an increase? Are they employees who have not acquired new skills and therefore are stagnated in roles and cannot get a raise? Do they work for companies that are facing economic challenges and doing their best to keep their doors open in the US? Or are keeping wages low but providing benefits?
We, of course, do not have the answers to the questions underlying the 14.3%, but we feel that the focus should be on the reciprocal, the 85.7% … and especially the 13.9%. Where they live and what they do – the intersections of those planes will have far more to do with inflation.
Read More Here.
by CHRC | May 30, 2018 | Compensation, Economy, Wage Increases
Two summers ago, we posted an article, “
Is the Economy Getting Better Or Worse?” Still perplexed, this year, we’re hearing from the Kansas City Fed. They strike a cautionary note that if 14.3% of workers haven’t received a raise in the last year, then there aren’t true pressures on wages, and therefore no concerns about inflation, and no need to raise interest rates. QED.
Not so fast. Let us return to the thought process that geometry proofs taught us:
If 14.3% of workers did not receive a wage increase, 85.7% did. Drop to the median, not of the triangle, but of the same Fed statistics. The median wage increase in April was 3.3% and the 75th percentile increase of 13.9%. That delta is 10.6%
So the real question is: Who are the 14.3%? Are they people in jobs that the market no longer rewards? Are they people who have been making at market, or higher, for many years and therefore their employers cannot justify an increase? Are they employees who have not acquired new skills and therefore are stagnated in roles and cannot get a raise? Do they work for companies that are facing economic challenges and doing their best to keep their doors open in the US? Or are keeping wages low but providing benefits?
We, of course, do not have the answers to the questions underlying the 14.3%, but we feel that the focus should be on the reciprocal, the 85.7% … and especially the 13.9%. Where they live and what they do – the intersections of those planes will have far more to do with inflation.
Read More Here.
