by Pierre G. Villere
As we were going to press this month, all eyes in the human resources world were on the continuing labor shortages; a news story that went viral reported that a Burger King restaurant in Latrobe, Pa. had hung out a banner offering a $1,500 signing bonus, which was later clarified when management explained it was for salaried manager-level positions. My goodness …
But this story is not unique, and this is what our industry is up against in trying to compete in an airtight labor market. Reports in the popular business press abound about incentives that employers are dangling in front of potential new hires in an effort to fill jobs in this painfully understaffed economy. Pilgrim’s Pride Corp, one of the largest poultry processors in the U.S., is advertising a $1,500 signing bonus for a production job that pays between $13.55 to $18.85 an hour in Gainesville, Ga. In the same town, a forklift operator job with Kubota Manufacturing of America pays a $2,000 bonus. Thirty miles south in Bethlehem, Harrison Poultry Inc. is advertising similar jobs that pay up to $20 an hour and come with a series of $500 bonuses throughout the first year of employment, totaling $2,500. A pest-control service specialist job in Charlotte, N.C. comes with a $1,200 bonus, and a diesel mechanic job in Gulfport, Miss. advertises a $1,500 bonus. To be sure, these are not paid up front, but rather are used as both a recruitment and retention tool, with the bonuses being paid over time.
But what this speaks to is a supply/demand imbalance that will eventually correct itself, but not without higher wages that will become permanent. An example of a supply shortage would be a widget manufacturer; if there is a shortage of widgets, it causes other entrepreneurs to enter the widget-making business as they see an opportunity for profit, thus increasing supply. Suddenly, the widget shortage is gone, as supply and demand are in balance.
Human labor is not the same thing as a widget, but the fundamental idea is similar … in a market economy, both labor and widgets are products with fluctuating prices. When a company is struggling to find enough labor, it can solve the problem by offering to pay a higher price for that labor, as we are experiencing in this booming post-pandemic economy. Those higher wages are clearly attracting more workers, and before long, labor shortages will correct themselves and will also be in balance.
Hypothetically, one of the few ways to have a true labor shortage is for workers to be demanding wages so high that businesses cannot stay afloat while paying those wages. But there is a lot of evidence to suggest that the U.S. economy does not suffer from that problem. If anything, wages today are historically low, and they have been growing slowly for decades for every income group other than the affluent. As a share of Gross Domestic Product (GDP), worker compensation is lower than at any point in the second half of the 20th century. And just as telling as the wage data, the share of working-age Americans who are in fact working has declined in recent decades, representing a pool of would-be workers who are sitting on the sidelines of the labor market.
Corporate profits, on the other hand, have been rising rapidly and now make up a larger share of GDP than in previous decades. As a result, most companies can afford to respond to a growing economy by raising wages, and hopefully raising the prices of their goods and services, therefore continuing to generate profits.
So for the concrete industry, this means continued competition for labor, and at higher wage rates that will be with us permanently. Hopefully the industry will be able to muster the top line pricing strength necessary to offset that wage increase and maintain the industry’s profitability.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pviller[email protected]. Follow him on Twitter – @allenvillere.