How do you compete with the American government for talent?

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The Bureau of Labor Statistics published “The Employment Situation – March 2021” earlier this month. Here is a quote from that report…

The number of long-term unemployed (those jobless for 27 weeks or more), at 4.2 million, changed little over the month but is up by 3.1 million since February 2020. In March, these long-term unemployed accounted for 43.4 percent of the total unemployed. The number of persons jobless 5 to 14 weeks declined by 313,000 to 1.9 million. The number of persons jobless less than 5 weeks, at 2.2 million, was essentially unchanged over the month.

The irony of that quote is that while so many people are unemployed, companies have been facing a difficult time hiring. Why? There are several reasons: Skills required for the job do not meet the skills of the long-term unemployed, parents are electing to remain home with children or older family members during a still-spreading virus; all being relevant factors. However, the most significant reason why hiring has been such a challenge for certain industries is… unemployment benefits. Consider these quotes from a recent Atlanta Journal-Constitution article, “Employers are hiring again but struggling to find workers.”

Chris New said he has turned down $250,000 in business because he just can’t hire enough laborers and drivers at his Carrollton-based company, Barnes Van Lines.

“There are plenty of people without jobs, but unemployment benefits give them too much incentive not to work,” he said. “We advertise and nobody comes in looking for a job. A lot of people are taking advantage of the system. It’s really killing us.”

Another quote from that article reads…

The supply of drivers perennially has been a problem, but lately it has fallen far short of what’s needed, said Sam Pollard, director of fleet operations for Syfan Transport.

The growing Gainesville company has been planning to add nine drivers this year to its current stable of 25 who haul manufactured goods all over the South and Midwest.

“I’ve never missed a number, but I don’t know if I can add nine,” he said. “I’ve been in this business 22 years and this has been the most difficult for hiring by far.

And another…

An on-site restaurant at Mount Vernon Towers, a 300-unit condominium complex in Sandy Springs, also has been hard to staff, said Scott Carriere, a member of the condo board. The condo furloughed nearly half its 85-person staff at the start of the pandemic, but had trouble getting them back as restrictions loosened.

They just don’t return phone calls,” Carriere said. “We call agencies and they say, ‘We can’t even find anybody we can send you.’”

And another…

Manufacturing also is scrambling for workers, especially among front-line positions. Thomaston Mills in Thomaston has been trying to hire about 10 people for various positions, including mechanics and machine operators, but it’s been slow going, said co-owner Janet Wischnia.

UNCLE SAM HAS A BETTER DEAL

The hiring problem in Georgia is not an exclusive one and like GA the blame in hiring difficulty points to (in part) extended unemployment benefits. Consider these quotes from Business Insider where they interviewed a McDonald’s franchisee in Florida desperate to hire new talent.

A McDonald’s in Florida is paying people $50 just to show up for a job interview. But it’s still not attracting many applicants. Blake Casper, the franchisee who owns the restaurant, told Insider that a general manager and supervisor came up with the idea for the interview reward after he told them to “do whatever you need to do” to hire workers… Casper said that, to his surprise, offering people $50 simply to come in for an interview still has not convinced many people to apply for jobs.

When queried on his difficulties, Casper responded.

“The biggest challenge out there is the federal government and the state government are going to continue with this unemployment, because that is truly creating the incentive to not work right now,” Casper said. “And, how do you blame somebody? You can make more money on unemployment — and so, we’ve got to be at least above that.”

McDonald’s is not the only restaurant experiencing recruitment challenges. The Ohio Restaurant Association is feeling the pain as well. According to WCPO in Cincinnatti, unemployment benefit is a source of woe for the restaurant industry. Here are a few quotes from their article, “Labor shortage worsens: Where are all the workers?

The Ohio Restaurant Association blames three things for this worsening labor shortage:

Many people are still afraid to work in a close restaurant environment, such as a hot kitchen. Some workers have switched from cooking and serving to driving for DoorDash and Uber Eats, which gives them more flexibility and no close contact with other people. Extended unemployment benefits often exceed pay for some jobs, and that will continue until September.

John Barker, president of the restaurant trade group in Columbus, told us “a lot of people are saying ‘why would I need to go back to work when I have this federal and state support?‘”

IS MORE MONEY THE ANSWER?

Paying employees less money than unemployment benefits are forcing companies to be more creative with how they woo potential hires. Giving someone $50 just to interview was not working for McDonalds. Perhaps, signing bonuses are the answer? This is what one restaurant did for hiring and retaining staff. This according to Fox Business

Mermaid Inn owner Danny Abrams reopened his fish place on Amsterdam Avenue, but due to “trouble finding servers, cooks and bussers,” he’s serving only 70 people outside at a time. “We could easily do 40 more,”  he said, but there’s not enough help. He’d like to serve all his legally permissible seats indoors and out, but he’s short five kitchen staff, two dishwashers, seven servers, a bartender and three bussers. A looming other problem:  “We plan to reopen three other Mermaids in the next month and a half but I don’t know how we’re going to do it.”

Orsay’s Collin said, “We tried to hire on every possible platform – restaurant job sites, Facebook, whatever. People call, they make appointments – and then don’t show up. We’ve even thought about offering signing bonuses” to lure employees.

But mega-operator Starr beat him to it.

Without enough staff, “Our people are working like crazy, working tons of overtime. Eventually there will be consequences. People will burn out, people will quit.

“So we try clever ways to entice people” to sign on. We’re giving $300 signing bonuses at some places and we may have to expand it.”

In the Atlanta Journal-Constitution article I cited previously, Area VP of Randstad – Sara Kirby located the pulse of the issue. She said, “Staffing companies — which often see trends first — have seen the burst of demand that heralds growth, but they’ve also seen a change in attitudes. Unemployment payments offer prospective workers a chance to be selective, she said. “People want to go back to work, but they want to work for a competitive salary.”

If true, and it certainly seems to be, the demand for higher salaries is slowly being met. Blake Casper, the McDonalds franchisee in Florida, is considering raising starting wages from $12 — $3 above Florida’s minimum wage — to $13, in an effort to attract more employees. Kings Island has just announced it is raising wages $1 to $2 dollars an hour, as it struggles to find 4,000 seasonal teenage employers this summer. And perhaps one of the more ambitious moves in the restaurant business is being implemented by Chipotle which has a college tuition reimbursement program for many of its workers.

The low supply of willing workers has sparked a wage war. Whereas politicians have been lobbying to force companies to raise their minimum pay, the market appears to be taking the fight from their hands. At least 21 companies are paying a $15 minimum wage and in some instances, that is being outdone. For example, Costco recently announced that it was paying a $16 minimum wage. (Do I hear 20?)

THIS IS GREAT! UNTIL ITS NOT.

For the time being, it is a jobseeker’s market but that can change and have negative long-term effects. I’ll explain after a brief history lesson, courtesy of The Balance.  

Federal unemployment benefits extensions assisted the long-term unemployed in their job search efforts after the Great Recession. Congress approved the extensions in the 2009 American Recovery and Reinvestment Act. They were reauthorized every year until 2013. The benefits provided the long-term unemployed with up to 99 weeks of unemployment checks. It helped support them until they could find decent jobs. Without the extensions, they would have had to take any job they could, leading to underemployment. This might preclude them from ever catching up as their skills became more outdated. Unemployment benefits are extended through Sept. 6, 2021, with the adoption of the American Rescue Plan (ARP).

So, while the government benefits are generous enough to incentivize lower wage workers to not pursue employment, said benefits are not infinite and they have repercussions. A Pew Research study about the Great Recession found that recessions affect the long-term unemployed worse than others in the areas of personal relationships, career plans, and self-confidence.

In particular, the long-term unemployed reported the following:

  • More than half, or 56%, saw their income decline, compared with 42% of the short-term unemployed (less than three months) and 26% of those who kept their jobs.
  • Almost half experienced strained family relations. That’s compared with 39% of those who weren’t unemployed as long. Forty-three percent lost contact with close friends.
  • Nearly 40% lost self-respect. Almost one-quarter sought professional help for depression compared to 10% of the short-term unemployed.
  • The recession had a “big impact” on their ability to achieve career goals for 43% of them. That’s true for only 28% of their short-term peers.
  • More than 70% say they either changed careers or seriously considered a career change. An additional 29% became underemployed with lower pay and benefits than their previous job.
  • In other words, the longer you are unemployed, the harder it is to recover the momentum your career had prior to unemployment. How will this fare for the United States when the long-term unemployed account for 43.4 percent of the total unemployed population? Well, there are a couple of possibilities as I see them. 

TAKE WHAT WE OFFER OR ELSE!

Employers are in a bind and the fact that they are raising wages is a sure sign of that. If American workers do not take advantage of the opportunities before them today, they will be taken from them tomorrow. What do I mean? There has been a surge of migrants at the southern border who have entered our country illegally and by the grace of the government. Big business has been proven to be exploiters of this population and rarely are they punished for taking advantage. If American workers will not rise to the challenge, businesses may feel forced to exercise extra legal means to get their work done. Simply put, if Americans refuse the work offered and its cheaper to employ undocumented citizens, why employ and pay Americans the required minimum wage? Moreover, why should that have to change when government benefits eventually end?  

UBI TO THE RESCUE?

Another tact the country could take is Universal Basic Income which is loosely described as free money from the government without the burden of meeting any requirements. “Los Angeles may soon become the largest city in the US to introduce a universal basic income (UBI) program, joining its neighbors to the north – including Stockton, Oakland and San Francisco – in offering some residents a monthly cash boost with no strings attached,” to quote The Guardian.  

At least one UBI experiment is considered a success. In Stockton, CA, a program, financed by private donations, gave $500 per month for two years to Stockton residents who earned less than the median income. According to The Guardian, “After receiving $500 per month for two years without rules on how to spend it, 125 people in California paid off debt, got full-time jobs and had “statistically significant improvements” in emotional health…”

Perhaps the success of the Stockton experiment is due to the private funding and not the government funding that UBI funds tend to originate from. Case in point, a recent article in the Toronto Sun argued against UBI for Canada because of the exorbitant costs associated with it. To quote

Finally, to pay for such a program, advocates often suggest raising taxes on upper-income Canadians. The federal government could not, however, pay for such a program even if it confiscated all after-tax income of Canadians earning more than $250,000—this would fund only 25% of the UBI mentioned above and only 87% of the OAS-style guaranteed annual income.

Again, raising taxes on high-income earners would not be enough — not even close — to pay for the program. It would instead require a host of substantial tax increases imposed on Canadians of all income levels, and likely include hikes to the GST.

Another case against using government funding can be found in the Business Insider 2018 article – “Finland is killing its world-famous basic income experiment.” To quote…

Since the beginning of last year, 2000 Finns are getting money from the government each month – and they are not expected to do anything in return. The participants aged 25–58, are all unemployed, and were selected at random by Kela, Finland’s social-security institution. Instead of unemployment benefits, the participants now receive €560, or $690, per month, tax free. Should they find a job during the two-year trial, they still get to keep the money. While the project is praised internationally for being at the cutting edge of social welfare, back in Finland, decision makers are quietly pulling the brakes, making a U-turn that is taking the project in a whole new direction.

The Universal Basic Income experiment in Finland began in 2017 and ended in 2018. So, what spurred on this experiment in the first place? Here’s another quote from the same Business Insider article.

“The existing unemployment benefits were so high, the Finnish government argued, and the system so rigid, an unemployed person might choose not to take a job as they would risk losing money by doing so – the higher your earnings, the lower your social benefits. The basic income was meant as an incentive for people to start working.

But in December last year, the Finnish parliament passed a bill that is taking the country’s welfare system in quite the opposite direction. The new ’activation model’ law requires jobseekers to work a minimum of 18 hours for three months – if you don’t manage to find such a job, you lose some of your benefits.

The reason for the turnaround in Finland is simple, the working population of Finlanders did not like the idea of giving away tax money to people capable of working, without requiring people to earn it. The results of the UBI experiment was published by the University of Helsinki. Basically, “The results of the Finnish basic income experiment suggest that basic income does not increase employment, and that current employment services are appreciated more than previously thought.”

So, UBI seems to work when using private funds but hits roadblocks in terms of incentivizing work behavior, when using government funds? This is interesting and something that may be ignored should momentum for UBI build in America. Why ignored? We already have staggering debt that is only increasing each year. However, that does not stop new spending propositions by our leaders. If UBI is to work, it has to be funded by the private sector. It could not be afforded by tax payers. But, I digress.

WHAT DOES IT ALL MEAN?

We are living in a perfect storm for more discontent in American society. Government benefits are encouraging nearly a fourth of Americans not to work as more migrants enter in at an alarming pace. Businesses may be forced to employ these undocumented workers and likely at a much lower wage than what they pay Americans. This may mean that the long-term unemployed are out of work longer and as time progresses, without the assistance of government benefits. With so many people out of work and no budget to continue government assistance, Universal Basic Income might be pitched as a solution. However, any success is contingent on private funding. Finland has already shown the world that taxpayers resent giving away money to people who can work for themselves. All of these issues no doubt will have an impact on American business, the American worker and the huge new surge of undocumented workers; just in time for the upcoming 2022 elections. Oboy.

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