Sound the trumpets! The angels are gathering. The better
angels of capitalism, that is.
While the Great Recession revealed the resilience of our market system — companies adjusted quickly to the slowing market — it also revealed the distressing consequences of the way we do business. As unemployment rose to nearly 10 percent at the end of 2009, many employers sought to maximize short-term profits. They fired more employees than necessary, causing harm to families and communities everywhere. The employees left behind were often pressed to work longer hours at lower pay.
That situation is about to change. Not just because of the efforts of the $15 NOW campaign, although higher minimum wages in Seattle will certainly help. More important, Seattle recently reached a major turning point. In April, the region’s unemployment rate hit 5 percent, a level at which economists say we are at, or close to, full employment. There are 34,000 more people working in the region today than at the peak of the economy before the recession.
It may not feel like full employment with tens of thousands of long-term unemployed still unable to find jobs — and much still needs to be done to address that issue — but when unemployment falls much below 5 percent, economists say, a shortage of skilled workers begins to force wages higher. Headhunters now like to say that “150 is the new 100.” Positions that recently went for $100,000 are suddenly paying $150,000.
“There is some anticipation that as we hit [full employment], wage rates could rise dramatically,” says Paul Turek, a state labor economist. With many workers retiring or taking disability, explains Turek, the Seattle labor force is shrinking even as demand for labor rises, making conditions ripe for wage inflation.
Inflation is usually bad. But when wages nationwide represent the smallest share of national Gross Domestic Product in 63 years, it’s pretty clear that things are out of whack. A little wage inflation may be just what capitalism needs to redeem itself. A tightening labor market will punish the companies that treat their workers badly, while valuing those that build healthy corporate cultures where employees are recognized and rewarded for their hard work.
The winners in the coming years will be companies like Smartsheet.com (page 38), which has built loyalty by covering 100 percent of health insurance premiums for employees as well as spouses and dependents, and Redfin (page 40), which offers employees sabbaticals after five years of employment. Redfin has built a culture that gives it a strong foundation as it goes on a hiring spree to expand its presence across the country.
Other employers who want to retain or compete for talent will have to start beefing up their benefits plans, upping salaries and creating a better work environment. Auburn-based Zones Inc. recognizes that to attract the talent it needs to pursue aggressive growth, it must find better ways to train young employees and respond to their desire for community involvement (page 70). Less wealthy companies can find plenty of inventive ways to make life better for employees, including providing a better balance between work and personal time.
In the short term, operating in a tighter labor market may mean slimmer profit margins. But employers who do the right thing will be rewarded over the long term with happier employees, and they will be better positioned to benefit from the economic growth that results from having more wealth spread across a broader segment of the population. Employers who don’t may find their workers looking for better positions elsewhere. All the more reason for them to start listening to their better angels.