Making Workforce Decisions with Micro Trends in Mind

The law of demand says that at higher prices, buyers will demand less of an economic good – think gas, eating out, shopping, etc. It doesn’t apply when we’re talking about labor. 

For years, I advised blue collar clients to stop trying to squeeze pennies out of hourly rates for the fewer and fewer workers available, and instead, automate the work. After all, the best way to cut labor costs is to not have workers at all (labor costs x 0 = $0), right? If they had taken the macrotrends to heart, they wouldn’t be scrambling now.

Now, here we are with rising wages, record level job openings, and a total violation of the law of demand. That’s because workers are not an economic good. The labor market acts like other supply chains in many ways, but the difference is distinct: Talent has a choice. 

People can choose to be in one talent supply chain or another. They can choose to work for a company’s wages, or not. They can choose to join a company who understands the importance of DEI, or offers flexibility, or prioritizes growth…or not. This is where many micro labor market trends come into play and become increasingly relevant. 

Remember the resource scarcity explained in Insight #1? In a talent supply chain context, scarce resources have options. And companies need to focus on talent choosing them.

Data Point 1: Wage Growth

In the chart below, wage growth has been rising for some time, much more so in the blue-collar and manual service workforce. What we’ve seen post-COVID regarding wage inflation isn’t unique to the pandemic. It started several years prior and then rapidly accelerated during the pandemic, reaching pre-recession levels and now beyond. 

Will the trend reverse? Is it due to economic cycles or broader demographic realities? Will a macro shortage of labor drive higher wages for the mid to longer term?

Let’s assume wage growth is here to stay. What does that mean? It means companies will have to compete on other factors in order for talent to choose them. 

Data Point 2: Diversity and Demographics

Let’s look at the demographic make-up of the macro talent supply chain and where growth is expected. I often use demographic data to prove why Diversity, Equity, and Inclusion (DEI) is not just the right thing to do, but an imperative for a company’s talent supply chain to survive.

If companies hire and promote white men only, they need to know that segment is only 1/3 of the labor market. In excluding women, they’re missing half the workforce. Most importantly, the generation coming into the workforce has no ethnic majority. These workers are going to join companies that look like all they’ve ever known — diverse communities. 

If a company’s DEI strategy is not truly strategic, then maybe considering the impact to their current and future talent supply chain will get them moving. 

Data Point 3: Flexibility

I approved my first remote worker more than 20 years ago. She was a new mom and made the case for flexibility. Today, she’s a highly successful senior leader at a healthcare system. Now more the norm, talent is choosing flexible work and joining companies who offer it. Talent has made their choice clear.

Flexibility also isn’t just about where you work — it’s about how you work. The chart below is my new favorite chart. Once considered a fallback instead of a choice, part-time or temporary work is now a flexible option for many. With today’s labor market, talent who were using this work option as a fallback have likely found something more permanent. This leaves those who work part-time doing it as a choice. 

Organizations who aren’t restructuring to allow for more flexible work hours could be losing out on a highly educated and highly talented workforce, exercising their choice to work this way.

Companies make hundreds of decisions every day, but are they making their workforce decisions with macro and micro labor market realities in mind? Or are they working with old mindsets and models? 

Wages, DEI, and flexibility are all intertwined. If you aren’t going to pivot your labor strategy on wages, then you have to offer something to offset — because being the least attractive on all three factors is a losing strategy, guaranteed. Unless you can automate all your work, you better be talking about more than just compensation as a solution.

-Teresa