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The Jobs Problem
Last week I had the blessing of hearing James Bullard speak at a Jackson Area Chamber Event hosted by Union University. Mr. Bullard is a governor of the Federal Reserve Bank of St. Louis and a voting member of the Federal Open Market Committee. So why is it important to listen to a guy like him? The Federal Open Market Committee on which he serves determines in large part where short-term interest rates are set. This group has influenced the Prime Rate’s move from 3.25% at the beginning of last year to 7.75% currently, with further hikes to come. Needless to say, this is a powerful man and a powerful committee with implications of their work affecting everyone in the U.S. and, by implication of our economy’s influence, also the entire world. Mr. Bullard focused his presentation on the theme of disinflation. That is certainly the committee’s hope – that inflation will continue to slow with these rate hikes, eventually getting back down to the Fed’s 2% inflation target. As you’ve heard me say in previous episodes, I think inflation is going to be stickier than most, getting stuck for a time in the 4-5% range, forcing the Fed to go higher on rates than the market currently anticipates.
But my biggest takeaway from the talk was a slide that showed the long-term trend of job lookers vs. job openings. The chart showed that since 1980, we’ve had more people looking for jobs than job openings. As anyone who works in small business today knows, that trend has reversed. There are now many, many more job openings than people qualified or looking to fill those jobs. We call that a tight labor market. Going into the presentation, I would have assumed that Covid and the massive government stimulus injected into the economy was the cause. But in looking closer at the chart, the trend actually changed a year or two before Covid. So it is possible that the pandemic supercharged this new trend, rather than creating it.
Why does this timing difference matter? Because I believe that it might have marked the beginning of a tight labor market that will remain for many years to come. This belief has been informed in many ways by Charles Goodhart’s book “The Great Demographic Reversal” which was published in September of 2020. Mr. Goodhart is a former Central Banker in the U.K. In the book he argues that the low inflation we saw for three decades was a product of hundreds of millions of inexpensive workers around the world, particularly in China, being added to the global workforce. He claims that the global labor force in developed countries doubled between the years of 1991-2018. But now, we have a reversal. With China’s one child policy in place for years, there are not as many new entrants to the workforce as those who will be aging out. He estimates that China’s working age population is expected to shrink dramatically over the next 30 years by perhaps as much as 20%.
Not only that, but more and more nations are going to push to produce things domestically to reduce their dependence on other nations. The Covid shock to the supply chain has revealed just how dependent we are on things made in places other than the U.S. If nations are not as willing to depend on the global workforce to make its products, those countries are going to turn to their own domestic workforce. So if you combine the simple demographics of an aging workforce with a nationalist trend that the war in Ukraine has only exacerbated, you get a smaller workforce. Not to mention that we have a mismatch of skills needed and skills available by those looking for jobs. Plus, the immigration challenges of recent years for the U.S. have left jobs open that immigrants were happy to work, but that many Americans are not. We’ve become very picky about the jobs we are willing to work as American workers. In some cases, like Cousin Eddie on National Lampoons Christmas Vacation we are “holding out for a management position”. If we have a smaller workforce for the foreseeable future, that means hiring is going to remain difficult for many years to come.
So what should you do if you are a small business if the labor market is going to be tight for some time? I’ll give you two suggestions.
Find ways to work smarter. The pandemic taught us that we can think outside the box if we have to. Think about the work that is being done and decide what’s truly necessary and what is not. Over time, as people hand jobs to the next person and as training is passed down, non-essential or inefficient things get added. It’s kind of like the game telephone where you are whispering a phrase down a row of people, and by the time it gets down to the end it has morphed into something other than what was shared with the first person. Take a look at procedures. Ask your team, why are we doing it this way? Think through what makes sense to do in-house and what makes sense to out-source. Know your core competencies and your competitive advantages and focus on doing those things better than anyone else. Explore what technology can help you automate. Get creative on your teammates’ work schedules. Consider remote or hybrid work that might make your teammates more fulfilled and productive. To sum it up, it’s time to take your playbook and rethink how you can do more with your current resources.
Hire smart. Quality in your teammates has never been more important. So often small businesses are so desperate to fill a position that they settle. Consider the 3 C’s that Chick-Fil-A uses for their hiring. #1 is character. If they are not a person of integrity, they are not likely to be a good long-term teammate. Be picky about hiring people with character. #2 is competence. Do they have the experience and talent to do the job? Or do they have raw ability to be trained to do the job? Do you even have the resources and willingness to train them? The last C is chemistry. Do they align with your culture? How will they work with your current team? Do they exemplify your core values? Once you’ve hired people that check these boxes, you’ll need to do all you can to develop them and let them know they are appreciated. Hiring smart is only the beginning. You’ll need to cultivate that talent to keep them on your team and engaged in the work you are doing.
At MBC/Foundation Bank, we’ve worked hard to build a compassionate and collaborative work culture. Our purpose statement is that we exist as a tool to invest in those things that will outlive us. If that statement strikes a chord with you and you want to find out more about joining our financial community, we invite you to start you conversation with us today. If you’ve found this podcast helpful, we hope you’ll subscribe to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.
-President Chad P. Wilson, CFP
Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of McKenzie Banking Company / Foundation Bank on February 21, 2023. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. MBC/Foundation Bank is an Equal Housing Lender, Member FDIC.