A January 16, 2018 article in USA Today reports that tightening labor markets have “provided a financial boon to many full-time employees, who are notching lots of overtime…”
In the January 18, 2018 episode of NPR’s The Indicator from Planet Money podcast, called “The Beigies,” was a story about a manufacturing company in the northeast US, originally published in the Federal Reserve’s Beige Book.
"Another industrial firm had 20 unfilled openings in a plant with 100 employees and said they were making up for it with significant overtime. When asked why they didn’t increase wages to fill the openings, the contact said they would have to pay all the existing workers more which would be uneconomic."
What is troubling about these stories is that maximum overtime is only effective as a short-term strategy. The tight labor market, however, barring an unforeseen economic catastrophe, is not a short-term problem. Employing this strategy for too long leads to employee burnout and sinking morale. Higher stress levels contribute to health problems. These factors, and others, combine to result in a reduced sense of loyalty and increased turnover. If these companies cannot afford to hire the employees they need to effectively manage their workloads, how will they replace those that leave? Who will train them if they do?
Following the quote above in the Beige Book:
“Another industrial-firm contact said that when a worker leaves, they typically end up paying the replacement 10 percent more than the departing worker.”
This insight could have helped the first manager referenced to realize that postponing the inevitable is not a winning strategy. In fact, the delay only serves to increase costs, despite the common misperception that costs will remain constant. Following this logic, many conclude that it is, therefore, advantageous to postpone. This is simply not true.
Business leaders in similar situations need to accept the realities and respond accordingly, before irreparable harm is done to the company. Ignoring the problem will allow lower productivity, lower quality, higher absenteeism, and higher turnover to strangle the business. The downward spiral of performance, if not corrected, will drive the business out of existence.
[Link] “Jobs market: Labor shortage means longer hours but more cash for workers.” USA Today, January 16, 2018
[Link] “Summary of Commentary on Current Economic Conditions by Federal Reserve District.” (Commonly known as the Beige Book) Board of Governors of the Federal Reserve System, January 17, 2018
[Link] “The Indicator from Planet Money.” NPR, January 18, 2018 [4:30]
Jody W. Phelps, MSc, PMP®, MBA
JayWink Solutions, LLC
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