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October 2018

Feeling the Pinch: Tools to Navigate a Dynamic Labor Market

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By Bob Lemke and Matt Whitson

How can employers rethink the way they recruit, retain and engage their workforce during a time of rising wages, historically low unemployment and uncertain industry growth?

As leading employers contemplate their futures and the moves they need to make to thrive, their ability to re-imagine the way they deliver value to their customers will always be a central planning theme.  Translating opportunities more swiftly and navigating new ways to attract and retain the best people is a new reality which has set in for many leading business owners. Employees’ expectations have changed, and the organizations who have embraced methods to address the new normal are beginning to prosper. They have enabled a healthier organization, fit to compete in an increasingly challenging business environment.

Identify the Trends
According to the U.S. Bureau of Labor Statistics’ (BLS) Office of Productivity and Technology, the golf course and country club industry sector has experienced some of the greatest increases in compensation while experiencing a decline in productivity over the most recent 15 year period. In these analyses, the BLS’ data indicates a sharp decline in labor productivity and output per employee during this period. The data illustrates the joint effects of many influences on the amount of goods and services produced per hour worked.
The increasing pressures to elevate the minimum wage along with impacts that large box retailers have had on wages has certainly contributed to the increased cost of labor. The estimated long term impacts of these movements on the unemployment rate are mixed. The Illinois Economic Policy Institute suggests that there will be no long term effect, while the Congressional Budget Office projects job loss if there is an increase in the federal minimum wage.

Despite these mixed forecasts, increases at the lower end of the pay scale should expand the potential labor pool, since the vast majority of low wage earners work within a five-mile radius of where they live. Therefore, prospective employees who would not have considered a job at $7.25 may consider the job at $10. In addition, these increases should expand the access that employers have to teenage workers who were previously excluded. Pew Research Center data indicates that 16- to 24-year olds have comprised 50.4 percent of minimum wage workers and recent BLS data suggests that fewer and fewer teens are either working or looking for a job.

Identify Opportunities to Differentiate
Every organization faces unique challenges and opportunities when it comes to making the workplace run smoother. In many ways, an employer’s response to today’s dynamic labor market is shaped by their view of the future of their business. As organizations work to build teams designed to meet these new challenges, business leaders can consider lessons learned by others, and the success they have had to improve strategic decisions and business results. Think of the potential value that could be realized if decisions around the workforce were elevated to the same level as the decisions business leaders make about customers, markets or new products?

 Our research suggests that the most successful employers: (a) adopt long-term planning and enhanced strategic integration, (b) promote employee wellbeing and accountability, and (c) act on a commitment to inform and engage employees about their business.  One solution is to use the “Stop-Start-Continue” framework, which helps gain incremental improvements by facilitating conversations with critical stakeholders.
Stop — What’s not working? Start — What might give us better results? Continue — What is working well that we should keep doing?

By engaging with other business leaders, as well as marketing and customer acquisition experts, business owners can better determine what trade-offs are needed to advance their workforce investments.

Managing Returns on Workforce Investments
Similar to any portfolio, employers can actively manage their workforce investments to create the type of workplace that attracts and retains the best people.  To guide these investment allocation decisions, many leading organizations now include an evaluation of employee preferences in their ongoing program management responsibilities. These evaluations consider the impacts of a changing workforce and create additional insights to:

• Re-allocate reward investments to new programs, or modify existing arrangements;
• Identify aspects of pay and benefit programs that are valued by critical workforce segments; and
• Understand the underlying drivers of employee engagement.

In these studies, employees complete a series of survey questions that measure relative importance and recommended financial allocations for the benefit and reward elements being evaluated. Employees are also asked to evaluate different combinations of these items to determine what tradeoffs they are willing to make, the drivers and sensitivity of preferences for different reward elements. Employers can then refine the analysis and project across time to evaluate changes in the mix of base salary, incentive compensation and employee benefits to better define the optimal portfolio rebalancing decision.

Navigating a Path Forward
Employers have an opportunity to change the dialogue to guide decisions around workforce investments and differentiate their employment brand. From this realignment, new cultural connectivity can evolve to embody mutual respect, aligned incentives and balanced rewards for employees. What’s more, leadership can mitigate operational risk and strengthen their ability to respond in the future. 

Bob Lemke and Matt Whitson are principals, HR & Compensation Consulting, with Gallagher Benefit Services. For more information email Bob_Lemke@ajg.com.

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