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Tight labor market boosts wages, paves way for automation

Fast-food restaurants aren't the only places hungry for employees. High-skilled professional and business services occupations account for nearly 1.4 million openings.

McDonald's said Thursday it would increase wages at its company-owned restaurants by 10% an hour on average. That same day, Amazon announced plans to hire 75,000 people for its fulfillment and logistics centers with an average starting pay of $17. Lowe's recently held a "national hiring day" to fill 50,000 seasonal, part- and full-time jobs with "on-the-spot offers."

But the tight labor market doesn't apply just to hourly jobs. Firms are increasing hiring across many occupations. On Monday, May 10, the U.S. Bureau of Labor Statistics reported that there were 8.1 million job openings in March, with professional and business services one of the largest groups with hiring needs.

This occupational group covers a broad range of jobs, many of which are financial, engineering and computer related. Indeed, an analysis released by the Economic Policy Institute this week found 1.39 million job openings in business and professional services, based on a three-month average. But the analysis also indicated that 1.15 million employees who identify themselves as professional and business services workers are unemployed, meaning there is less than 1.0 unemployed workers per job opening.

HR departments are now moving back to "full hiring processes," said Brian Kropp, chief of HR research at Gartner. But their post-pandemic hiring processes will have to work faster -- they can't keep candidates waiting, and they will need to offer work flexibility of some type.

According to Gartner's research, "more than 50% of candidates say they would never accept an employment offer if they could not work flexibly," Kropp said. Firms must also be prepared to raise wages.

"Many companies have decided that the way to compete in the tightening labor market is to raise wages," Kropp said.

Some argue that government policy is partly to blame for the tight labor market and wage increases. Several states are pushing to reduce unemployment benefits, namely the $300 weekly federal benefit on top of state unemployment. Once that goes away, proponents of this change believe businesses will have more job applicants.

wage increase announcements

Blame for tight labor market

Wisconsin Manufacturers & Commerce, the state's chamber of commerce, wrote Gov. Tony Evers this week urging him to drop the federal unemployment benefit, which was extended by the American Rescue Plan until September.

The Wisconsin chamber argued: "Through September, an individual can receive $670 per week on unemployment thanks to a $300 federal enhancement. That is the equivalent of $16.75 per hour. Business leaders tell us every single day that this expanded unemployment benefit is creating a strong disincentive to work and making it harder for them to hire."

While there is some truth that the federal benefit is having an effect, it's not the only reason why some firms face difficulty with hiring, Kropp said. Some firms offer wages that aren't close to what workers are getting through unemployment, he said. Indeed, the minimum wage in Wisconsin is $7.25 per hour.

Companies that are paying $15 or more per hour are not having a problem hiring.
Brian KroppChief of HR research, Gartner

"The [wage] gaps are enormous," Kropp said. "Companies that are paying $15 or more per hour are not having a problem hiring."

But wages, alone, aren't the only sticking point, and firms will have to hire faster and provide flexible benefits to fill open positions.

For instance, that might involve giving employees more control over their schedules and even their work locations. For professional jobs, where a hiring process can extend over several months, firms should shorten the process from job posting to hiring to 50 days, which is the timeframe of the fastest quartile of employers, Kropp said.

But another issue in this tight labor market is the pandemic's acceleration of automation and the need to train people for new skills.

A new study by the Boston Consulting Group and analytics firm Faethm, which is based in Sydney, sees major workforce disruptions ahead as a result of the digitization of many tasks. And the wage increases may only accelerate the transition to automation.

Accelerating automation

"Where we may hope that raising salaries is good for addressing poverty and rebalancing inequality, it may actually lead to the opposite outcome by encouraging employers to invest in greater automation with an eye toward replacement, rather than reskilling or upskilling," said Stephen Farrell, vice president of Americas at Faethm.

The report, "The Future of Jobs in the Era of AI," states that automation and AI will wipe out millions of jobs.

In computer and mathematics occupational areas, the skills shortfall will rise from 571,000 in 2020 to 6.1 million by 2030. Meanwhile, technology and automation will "drive people out of work," particularly in office and administrative jobs, according to the report.

"In previous recoveries, jobs went away, and jobs came back," Farrell said. "But with automation and AI, certain jobs may not come back at all."

The report doesn't argue that employment will decline as robots replace people; indeed, it states that new jobs will be created. But it does contend that, along with the rise in adoption of AI and automation, the in-demand skill sets will change rapidly, and efforts will be needed to reskill people to adapt to the changes.

Employers are already adjusting by dropping college degrees as an absolute requirement for some occupations. Google, Apple and even the federal government, for example, no longer make a college degree a must requirement for some high-skilled technology jobs.

The report makes recommendations for employers, including measuring skills gaps and considering how to close them. It warns that the labor market "will be unable to supply sufficient new talent to fill available positions" and that they will "need to supplement external hiring with internal development initiatives and on-the-job training."

Patrick Thibodeau covers HCM and ERP technologies. He's worked for more than two decades as an enterprise IT reporter.

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