Employers are currently facing an unprecedented set of headwinds. First, companies find it difficult to attract and hire a sufficient number of workers. As businesses attempt to fully resume operations on the other side of the COVID-19 pandemic, consumers are also eager to return to their normal eating, travel and shopping habits for more than the essentials.
But the lack of workers remained a thorn in the side of businesses and businesses were forced to adapt where possible. Restaurants are struggling to serve their loyal customers. Grocery stores, fast food outlets and retailers have increased the use of self-service checkouts and self-service kiosks. Airlines have delayed or canceled thousands of flights due to shortages of pilots and attendants. The lack of truck drivers continued to plague supply chains.
The employer’s hiring woes should really come as no surprise when you consider some critical facts. The unemployment rate is near a multi-year low, at 3.7% in August. Not so long ago, an unemployment rate of 5.5% was generally considered full employment. The labor force participation rate, the percentage of working-age Americans currently employed, on the other hand, is at its lowest level since the late 1970s.
Additionally, in what has been called the Great Quit, in the first few months of 2022 nearly 4 million people per month voluntarily quit their jobs. In most cases, quitting a job was an attempt to improve pay by moving to one of the roughly 10 million open jobs in the country.
However, not all departing employees changed jobs. A good number have left for other reasons, such as burnout from the pressures of the pandemic, to resolve childcare issues, or to seek more formal education to improve job opportunities.
There has recently been a glimmer of hope for employers trying to manage employee turnover. No less than 4% of employees who left their jobs during the Great Resignation returned to their former employers. Additionally, the deteriorating economy is forcing some baby boomers who took early retirement due to pandemic-related fallout to return to the workforce.
A second major hurdle facing employers is a largely disengaged workforce. Currently, millennials make up the largest segment of the workforce, and millennials typically prioritize work/life balance.
The employer’s current shortage of employees and its inability to quickly recruit and hire new employees undoubtedly fuels the perception among millennials that employers are not meeting their professional and personal needs and causing them to turn to jobs that meet those needs. In the case of millennials, there is the additional problem that they were already among the least engaged in their work.
Often, the main reason employees stay or leave a job stems from their treatment or the perception of their treatment by their supervisor or manager. Employees leave bosses, not companies. In a Hays study of nearly 2,000 employees, 43% said their company culture was the main reason they were looking for a new job.
Employees cited a lack of communication and an inability to provide feedback as creating the perception that their opinions were unimportant and not valued. Other studies have shown that nearly 80% of employees who leave their jobs cite lack of appreciation as one of the main reasons for leaving.
The challenge of dealing with employers whose employees can easily become dissatisfied and consider leaving a job they perceive as not meeting their expectations is not insurmountable. Adopting an employee-friendly culture is a simple and inexpensive solution. Expressing genuine appreciation and treating employees like the valuable assets that they are should be part of the daily routine of all managers and supervisors.
Sincere efforts to make employees feel like they’re part of the company and to remain genuinely engaged with employees on a daily basis can reduce employees’ motivation to head for greener pastures.
The third and final hurdle employers face is how to reconcile wage increases with currently high rates of inflation, without knowing how long this high inflation will persist. According to current estimates, the median wage increase in 2022 will be 3.4%. In a survey of more than 1,400 companies by human resources consultancy Willis Tower Watson, employers predict salary increases in 2023 of 4.1% on average.
With inflation averaging around 8% over the past year, peaking at 9.1% in June 2022, workers are rapidly losing ground. However, the fact that inflation remains stable year-on-year in July 2022 may provide a small glimmer of hope that it may soon start to decline. But even if the Fed’s interest rate hikes succeed in reducing inflation over the next few months, inflation will likely outpace the wage increases provided by many employers.
Once an employer grants a raise, it is difficult, if not impossible, to recover if economic conditions deteriorate. Thus, cautious employers are often slow to significantly increase salaries due to the difficulty in determining long-term trends and their implications. According to compensation data and consultancy Pay Scale, 51% of workers believe they are paid below market, even when paid at market rate or above.
This means that even without the impact of inflation, employers are likely to perceive their compensation as insufficient. Employees who perceive themselves as underpaid are more likely to leave their jobs.
Employee increases have averaged about 3% over the past 10 years. Unless inflation comes down to the 2-3% level, employers will see employee demands for wage increases far beyond this historical average of 3%. In fact, some employee advocates advise workers to seek wage increases equal to inflation at a minimum and preferably 3-4% above the rate of inflation to make up for lost ground. This is a headwind that will require skillful maneuvering from employers amidst an uncertain business climate.