July 9, 2018
Will escalating wages lead to pay-led inflation for the first time ever, and leave unionized employers in a perilous staffing crisis?
It’s no secret that we’re experiencing a job vacancy challenge. Go into any retail food establishment, and you will pass a “Help Wanted” sign in the window. Healthcare employers are similarly slugging it out with competitors in a battle to recruit and retain valuable employees at the professional and non-professional levels. The improved economy, low unemployment, and the hangover of decades-old wage suppression will result in an upward pressure on wages in the lower echelons of the labor market. As compression of the wage/salary structure causes internal inequities (the mid-level folks will be clamoring, “Where’s mine?”), the cost of doing business will be more expensive.
Like it or not, the employers in relatively labor-intensive industries will continue to raise starting rates and adjust the pay of more senior employees in an effort to combat this battle to adequately staff their businesses. Eventually, it will settle out, but that settling could take years.
The Wall Street Journal on July 5, 2018, article quotes Labor Department statistics that bear out the trend of voluntary separation. In April, 3.4 million workers quit their jobs compared to 1.7 million who were involuntarily terminated. Quitters nearly reached the 2001 record. The quitters received significantly higher pay improvements than those who stayed with their employers. Another scary fact is that in Q.1 of 2017, 6.5% of employees under age 35 changed jobs compared to 3.1% for employees aged 35-54.
The effect on unionized employers.
Unionized employers, while having benefited for years in the predictability of wages for their employees, will now be cursed by the same contract that gave them that predictability. Since the death of cost-of-living increases (COLA), a labor agreement sets in place for the term of the contract wage rates and scheduled increases. Exceptions to this would be in piecework environments, which have become less fashionable over time. Now the employer is cursed by the locked in wage schedule that will not allow it to offset turnover by raising starting rates. This is particularly true in the hospital industry where the competition for a declining number of registered nurses has resulted in many attractive incentives for new hires and for those employees who can attract a candidate for recruitment… those responses are not readily available in unionized hospitals. This puts the unionized hospital and other unionized employers at a great disadvantage in an increasingly tightening labor market.
Overall, the existing conditions will force from the bottom up higher pay for all employees and the resulting higher cost for all employers, and it is predictable that, in the future, unions and employers will negotiate agreements that will either renew the cost of living allowance concept or provide employers with greater flexibility in what they offer as a starting rate. Predictably, that concept will last until the first grievance appears from a more senior employee who finds out that a newly hired colleague is making more money than her.
William R. Adams, Ph.D.
President & CEO
Adams, Nash, Haskell & Sheridan