Inflation, rising energy prices and geopolitical instability are impacting wages and organizations’ ability to attract and retain talent. In this episode of All Things Work, host Tony Lee speaks with David Mitchell, professor of economics and director of the Bureau of Economic Research at Missouri State University, on how organizations can prioritize compensation, benefits and employee experience to succeed in filling open positions during a rocky economic period.
Inflation, rising energy prices and geopolitical instability are impacting wages and organizations’ ability to attract and retain talent. In this episode of All Things Work, host Tony Lee speaks with David Mitchell, professor of economics and director of the Bureau of Economic Research at Missouri State University, on how organizations can prioritize compensation, benefits and employee experience to succeed in filling open positions during a rocky economic period.
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This episode of All Things Work is sponsored by ADP.
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Speaker 1:
Business success requires thinking beyond today. That's why ADP uses data driven insights to design HR solutions to help your business have more success tomorrow. ADP always designing for HR talent, time benefits, payroll and people.
Tony Lee:
Welcome to All Things Work. A podcast from the Society for Human Resource Management. I'm your host, Tony Lee, Head of Content here at SHRM. Thank you for joining us. All Things Work is an audio adventure, where we talk with thought leaders and taste makers to bring you an insider's perspective on All Things Work. Today, our focus is on the economy in the year ahead. The unemployment rate has fallen steadily from pandemic highs, which translates into many companies having a very difficult time finding and keeping talent. In addition, unions are reemerging in attracting new support, and compensation budgets are growing in an attempt to keep up with inflation. Some economists say all of these factors will moderate as the year progresses while others aren't so sure. My guest today, joining me to discuss the economy and its impact on HR and the workplace, is David Mitchell. David is a professor of Economics and Director of the Bureau of Economic Research, as well as the Center for Economic Education at Missouri State University in Springfield, Missouri. David, welcome to All Things Work.
David Mitchell:
Thank you very much for having me.
Tony Lee:
So why don't we go ahead and start with frankly, the elephant in the room. Is it possible to make any kind of economic projections for the year ahead when global politics are so unsteady?
David Mitchell:
Yeah. Putin has thrown a real wrench into the works, right? Hasn't he? Because now you have all of these other additional problems that you didn't have two weeks ago. What's going to happen to oil prices? Are we going to have continued supply chain issues? He's made it a lot more difficult, a lot more interesting to make any a forecast going forward. I'll say that for sure.
Tony Lee:
Do you have any sense of what the immediate impact over, say, the next month or two might be as opposed to the long term impact?
David Mitchell:
So I think you're going to continue to see energy prices rising, oil, gas, heating. Those are going to continue to be a problem. Spring comes along and summer comes along, you might actually start to see some moderation in some of that, right? You won't need as much natural gas to heat your home, but you might need more natural gas to run the power plants to generate electricity later this summer. But you're going to continue to see, I think for at least the next month or two, gas prices continuing to stay high, unless of course this all comes to a dramatic end here really quickly with Russia.
Tony Lee:
Yeah. All right. So let's talk about the workplace and the economy and where they correlate. So let's start with unemployment. A bank rate survey found that 56% of people say they couldn't afford 1,000 dollars emergency, which begs the question, why aren't more people rushing to fill the huge number of open jobs.
David Mitchell:
Yeah. You've got a lot of issues going on here, right? You have COVID. People are still, I think some people are still a little bit leery, even though a large percentage of the population says that they're not leery. You also have this complete shift in the way people were working that's been happening over the past now two years, where a whole lot of people are saying, look, I worked these last two years without having to go into the office. I didn't have to worry about the commute and spilling coffee on myself while I'm driving and taking public transportation. I want to continue to work at home. You can't make me come back into the office. You also have a lot of people who said during this two year timeframe, look, my job is not as secure as I thought it was.
Maybe I need to go into business for myself. So you've seen probably a whole lot of an increase in people starting their own business. And then you also have the other issues, like we said, have just inflation where people are saying, look, prices have gone up. My wage increase is not nearly as much as the increase I'm seeing at the pump or in the grocery store. Why should I continue to come in and work harder if I'm actually earning less money than I was say two years ago. And then of course that the very final thing on top of that is that a lot of people still have some savings from their stimulus checks. Even though people are saying that they don't have 1,000 dollars in emergency funds, there is a fairly large, significant percentage of the population that did see a huge increase in their savings. They paid off lots of debt. And so they might not need money as much now, as they might have say two years ago.
Tony Lee:
And you know what, every one of those reasons make perfect sense. I'll add yet another one, childcare issues. We had a number of two income families that decided we can make it on one income so that one parent can stay home with the kids. Right?
David Mitchell:
Exactly. Yeah. And you're exactly right. And that hits from two different ways, right? One where people are like you said, people are saying, "Hey, I don't notice a huge increase or a huge decrease in our standard of living with only one of us working now that we're not paying childcare." And on the flip side of that, people could be saying, "Look, childcare is so expensive. It's not worth going back to work." So it is actually two related issues there. We had that exact same issue when my wife and I were a whole lot younger and we had kids that were at that age. We figured after she worked and paid childcare, she would be making around $2 an hour. And you know, I told my wife, I said, look, if you want to want to work, that's great. If you don't want to work, that's fine too. I'll support you to whatever it is that you want to do. Just know that you're doing all this work for two bucks an hour and that's completely up to you what you want to do going forward, so.
Tony Lee:
Yep. And even with inflation, if it was now $8 an hour, it wouldn't be too hot.
David Mitchell:
Exactly. Yeah. That's exactly right.
Tony Lee:
Yeah. So let's talk a little bit about hourly employees because they were certainly impacted differently during this period. And now moving forward, you had a lot of hourly employees who saw average wages rise fairly dramatically from the minimum wage from a lot of employers was up a lot. And yet they still can't seem to find people. Are they the same reasons for hourly workers?
David Mitchell:
You know, I'm kind of a believer in that once people start doing something for a long time, it gets hard for them to change that. For example, one of the things I tried to instill in my kids was a strong work ethic. You know, you need to make sure you get up, you get to work on time. Don't steal from the company, stay off your phone. And if you have a two year time period where you're not able to go into work, the company says we don't need you, work from home. We're letting you know we can't bring you in because of COVID et cetera. That work ethic is, I mean, it's like a skill set, just like anything else. And it kind of can atrophy and degrade over time. And so I think to some degree you have seen a change in people's work ethic, at least for some hourly employees.
You're just saying, look, I don't want to do it. There's just no point to it. It's not worth me doing that anymore. And like I said, you've got other issues where people are saying, look, I see my boss gets to work from home, but I have to go in, why should it be that way? And I've done a lot of hourly work too. I did retail and fast food. Worked at a mental hospital. It's grueling work. It's tiring. So there might be a little bit of just good old fashioned jealousy. Why should I be the one going there, standing there, having customers yell at me. Mad that something isn't on the shelves. It's not my fault. I'm not getting paid enough for this. I'm not getting paid enough for this. And the boss and the manager at home working from home. So people would just say, forget it. I'm just not going to do it. So I think that's possible too.
Tony Lee:
Yeah. And then there has been some criticism of employers that are actually over hiring hourly workers. And then the hourly workers don't get full time hours. They thought they were getting a job for 40 hours a week and they end up getting called for 20 or 25 hours a week because there are plenty of people. So I guess it swings both ways. Right?
David Mitchell:
Exactly. And people are just saying, look, forget it. You've been saying you need people and here I am. And now you're not even going to give me these hours. Forget it. My oldest son during the pandemic, he was sitting there collecting unemployment and I said, look, I don't think this is good. I think you need to go out there and try to find another job doing something else. And he got a job at a company and he worked three hours for two months. And so he gave up, essentially, unemployment to work for three hours for over a two month time period then came to me and said, this is what I get for trying to play by the rules. I lost out on all this unemployment compensation. This is ridiculous. I shouldn't have done this.
Tony Lee:
Yeah.
David Mitchell:
You try to tell them look, this is going to help you out in the long run. It helps your work ethic. But a lot of people would just look at that and say, forget it. You're just not going to go back to work.
Tony Lee:
Mm-hmm. So, and looking at the talent shortages, another aspect that I think what's worth discussion is the fact that baby boomers are retiring. And from everything I've read in the research we've seen, they're retiring at a much faster rate due to the pandemic than anybody expected. So you've got lots of shortage and a real lack of expertise at a lot of companies because a lot of knowledge walked out the door. How was that impacting the economy?
David Mitchell:
You're exactly right. You had these baby boomers who are going to retire and it's always best to not retire at 62 if you can, to keep going, preferably to 65 or 67 to your quote unquote full retirement age, if possible, if health allows. But, a whole bunch of people, they lost their jobs or they got laid off with COVID and they said, look, I'm close enough, forget it. I'm throwing in the towel. I'm walking out and they're done. And now the companies are scrambling. They can't find the talent that they need, especially at the wage that they're willing to pay. If they try to raise wages, that means they're going to have to increase costs. They're going to have to come under condemnation from the general public saying, hey, you're taking advantage of inflation. You're not playing by the rules, when they're just trying to fill these needs. So a lot of these companies are kind of in a catch 22. I mean they need to raise prices in order to pay their employees more. But raising prices is oftentimes the very last thing you'll want to do in a lot of these situations. And so it just leads to this interesting shortage of labor in a country of 330 million people. It's interesting, a country this size that you'd be having this type of problem. But here we are.
Tony Lee:
Yeah. And I'm curious from an economist standpoint, a lot of companies have tried to come up with incentives to hire people, to retain people, things like sign-on bonuses and stay bonuses. Do you have an opinion on those? Because believe me, there's a lot of big argument in the working world going on about whether these are wise or not. And yet you can't drive any highway in this country and not see a sign out in front of a fast food restaurant that says $500 sign on bonus.
David Mitchell:
It's a psychological thing when people say, oh my goodness, a signing bonus of a thousand dollars. But when they get in there and then they find out what the wage actually is and they say to themselves, look, if you'd pay me an extra three bucks an hour or four bucks an hour or whatever it is. I could have that 1,000 dollars within X number of hours and then continue to go on. The signing bonus, I understand the psychology behind it from the employer standpoint, but I'm always an advocate of the best incentive for an employee is their pay. Their base pay. Pay a decent wage, pay a market wage, but the markets don't try to pay as little as you possibly can. And do that. Don't have a bunch of bonuses or if you do this, you work extra hard and we'll give you the phone or something. Employees, myself included, we're all wise to this. We know a bird in the hands better than two in the bush. So the company saying they're going to pay this 1,000 dollars and them actually doing that could be two different things. And my other son, he also was going to get that signing bonus when he worked at a fast food company and they let him go two days before the signing bonus kicked into place.
Tony Lee:
Oh my gosh. Wow.
David Mitchell:
Yeah. So I mean, when word gets around, especially with social media, it's a whole lot harder to pull the wool over people's eyes now, right? I mean, 20, 30 years ago, you could do that. And there's no way for 17 year old David to figure that out, but today's 17 year olds, they can get on social media and say, Hey look, company X, Y, and Z, they're going to tell you this signing bonus, but you're never actually going to get it. And I think that's one of the reasons that it hasn't been as useful as people think it has been.
Tony Lee:
Wow. So along those same lines, to talk about what employees, the greater power that employees, some feel that they have these days, labor unions are making a comeback. After years of declining membership, they seem to be gaining new support. Younger millennials, Gen Z, especially. And if you look at those who are working at Starbucks and Amazon, they seem to be leading the way. What do you think the future holds for, for unions in this environment?
David Mitchell:
You know, it's unions are there when people feel like they're getting the shaft at work. I mean, basically. If employees feel like their employers treating them fairly, they're paying them a decent age, they're responding to their needs. Usually most people say, look, I don't need a union. The fact that you're seeing kind of this rise in union membership, especially in fields that were not necessarily union friendly, very hard to organize, right? Fast food restaurants. I mean, everyone knows that, typically when you think fast food restaurants, you think some 16 and 17 year old kid, they just want to get some money after hours from school and collect some money and go home. The reason I think that you're seeing a lot is that, is that people are responding to this and look and saying, look, I mean, I'm doing all of this work.
You're not really treating me fairly. I tell you I need my Saturday off. And then you call me Friday night at 10 o'clock at night and say, you have to come in and I've already made plans with my family. And you say, yada, yada, yada, you need to come in. And people are tired of that. And this is why, like I said, I think one of the best ways, if an employer wants to ensure that his employees don't try to unionize, the best way to do that is to pay a decent market wage. Don't pay the minimum that you can get somebody for. Don't have to pay the $50 an hour to somebody to work at McDonald's, but I mean, you don't have to pay the minimum wage either and try to treat people decently. And I think most people respond to that. Economists are very famous for stating that people respond to incentives. You know, if your employer treats you well, you're going to have an incentive to want to keep that employer in business. You don't want that employer going out of business, trying to find another job. And you have an incentive to do your best. So, that's what I'm always an advocate of.
Tony Lee:
Yeah, no, makes sense. Well, I mean, these daya, compensation and benefits experts are in their element. I mean everything from inflation based increases in pay to just the wide range of benefits that they can now offer. I mean, there are some employees who'd be happy just to have a flexible schedule and they don't need anything more, but inflation is here. So do you have a sense for what the impact is going to be on compensation and benefits due to inflation?
David Mitchell:
Yeah. Inflation is really tricky. You know, it's the more you study inflation and by study it, I mean, read about it, especially in historical context, in medieval Europe or 20th century Germany, something of this nature, it's really, really interesting. One of the things about inflation, if you only get a raise once a year, your income is still going down throughout that entire year. You might have to move to the point where you have raises every six months, every three months, something of this nature, because if inflation is running... Let's make up a number. Let's say it's running at 12%. It's not like prices are all the same on January 1st. And then on December 31st, they all go up 12%. They're going up throughout the entire year, but your pay is not, which means your real pay is falling behind all throughout the year.
And this is one of the dangers of inflation, right? Once inflation gets kind of embedded into the system, it is really, really difficult to weed it out. It's a psychological thing, right? I mean, we are in the middle of asking for raises here at the university for next fall. And we're already sitting there thinking in our minds, Hey, we need a six or 7% raise just to keep up with where we were a year ago. So I mean, that's what we're demanding, right? Which means of course now, Hey, the price of tuition's going to have to go up six to 7% because the cost of running the university's got up six to 7% and it is the same for all these other employers too. So the faster that the fed can get inflation under control, the better off we're going to be in the long run. Cause like I said, once this gets in to people's minds, it's very, very difficult to turn it off.
Tony Lee:
Yeah. And we're almost out of time, but you know, healthcare obviously is a big impact as well. And since employer sponsored healthcare is one of the biggest expenses beyond salary for most companies, I assume they can expect healthcare to be going up that percentage as well. Right.
David Mitchell:
I would assume. Yeah. I mean, and you're saying there's another issue too, because you know, like what happens with our employer is that they'll give us a raise and then they'll increase the cost of our healthcare. And so that our actual take home pay isn't changing at all. And I'm assuming that a lot of companies do that as well too. And I understand that the cost of healthcare has gone up. I mean, I'm not saying that I don't understand what's going on, but it is disconcerting, and this is something else that like you said, employers really need to watch because you can see the cost of healthcare increasing sometimes even faster than the general rate of inflation, simply because of the way that healthcare operates in this country. So it's like you said, I mean, human resource managers right now are, I mean, they'll look back on this time and say, wow, how did I get through all of that? You know, 10 years from now is what they'll be saying.
Tony Lee:
They'll be the subject of case studies in business schools everywhere.
David Mitchell:
Yeah, exactly. I mean, when they were studying this 10 years ago in school, they're sitting there thinking, oh, it's going to be a cushy job. They just go in and set the pay and here's the conditions and fill out this form and you're done. And now they're getting it from all sides.
Tony Lee:
Absolutely. All right. Well, that's going to have to do it for today's episode of All Things Work. A big thank you to David Mitchell for joining me to discuss the economy and its impact on HR in the workplace. And before we get out of here, I want to encourage everyone to follow All Things Work wherever you listen to podcasts and also, listener reviews have a real impact on a podcast visibility. So if you enjoyed today's episode, please take a moment to leave a review and help others find the show. Finally, you can see all of our episodes on our website at shrm.org/atwpodcast. Thanks for listening, and we'll catch you next time on All Things Work.
Speaker 1:
Business success requires thinking beyond today. That's why ADP uses data driven insights to design HR solutions to help your business have more success tomorrow. ADP, always designing for HR talent, time benefits, payroll and people.