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3 Ways the Labor Market is Impacting Businesses

3 Ways the Labor Market is Impacting Businesses



As we start a new decade, economists, business leaders and most Americans try to predict what’s to come in our economy. One topic that will continue to have a substantial impact on businesses and Americans is the labor market.
Most notably is the unemployment rate at a 50-year low of 3.5% according to the U.S. Bureau of Labor Statistics. This gives employees an opportunity to seek a company that is a good fit for their skillset. At the same time, they have higher negotiating power knowing that they are a valuable asset to a company. This even has similar effects on a low-skilled worker, who typically contributes to a high turnover rate with lower wages.

1) Competition is at a Record High to Attract and Retain Skilled Employees

This situation requires companies to be more competitive to attract and keep that talent as recruitment and poaching is high – increased wages, benefits and work perks are spanning corporate salaries to minimum wage labor. Companies like Buffer are even going so far as to provide salary transparency by posting employee earnings on their website (Buffer Salary Formula). Or, a Seattle based company setting a minimum salary of $70,000 with a consistent 20% raise each year (The Dan Price Pay Experiment). The bar will continue to be raised as other companies try to achieve a competitive advantage for employees in their industry.

2) Profit Margins are not Increasing through Inflation

Typically, business leaders understand that the increased demands of employees from a low unemployment market is balanced by inflation. In the last few decades, though, employers haven’t seen this complementary relationship. Economists mention in this WSJ article: “The Philips-curve framework hasn’t been behaving like economists thought it would.” While there is still some correlation between the two, businesses are not experiencing the benefit of a full workforce while increasing their profit margins due to the pricing power achieved through inflation.

3) Businesses are Addressing Budget Constraints with New Funding Strategies

Combine bargaining for top talent employees with little to no price increases, companies are reevaluating their finances to see how they can continue to thrive in their market.
With the new year comes new projects, equipment and technology. While some executives may consider delaying this type of expense, leasing or financing all aspects of that new project or equipment can assist their bottom line while meeting the labor market demands.
Here’s the way we see it: First American can help companies achieve their goals through creative financing solutions despite the challenges they face.

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