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?

The 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.