By Peter Chung
A few months ago, I turned 40. I was at the airport by myself, eating bad Chinese food, working on a client presentation. My thoughts wandered to what life was like 40 years ago vs. today. So much has changed: how we consume media, technology, cars, and even how much I’m going to have to pay for college when my two young children reach that age!
When I had a chance, I did some research. It was startling to see how our costs have gone up over 40 years. Buying or renting a home has gone up more than 5X. Filling up your gas tank has gone up more than 4X. America is “richer,” the Dow Jones is up more than 3000% and also good for us, and interest rates are 10 points lower today. One thing to note: with inflation, $1 in 1978 is equivalent to $3.86 in 2018 purchasing power. So while the average cost of a home is 6.8X more expensive today, when you throw in inflation, that same $54,800 home in 1978 would cost $225,389 today (when using the historical average inflation rate of 3.6% per year). Yet, according to the U.S. (Fed) Prime Rate, the average cost for a new home purchase was $368,500 in May of 2018.
This tells me that providing a roof over our heads today is much more expensive when you compare apples to apples. But minimum wage has not kept up with inflation. According to the U.S. Bureau of Labor Statistics (BLS) consumer price index, the dollar experienced an average inflation rate of 3.44% per year. Prices in 2018 are 286.42% higher than prices in 1978. In other words, $2.65 in 1978 is equivalent in purchasing power to $10.24 in 2018, a difference of $7.59 over 40 years. However, Federal Minimum Wage is set at $7.25 today.
In the staffing industry, one of the biggest struggles is finding available candidates. The latest unemployment numbers released are at 4% vs. an average of around 6% 40 years ago. Less than 10 years ago, however, we were seeing months of unemployment numbers as high as 10%! We’re seeing historical lows on unemployment today but we are also experiencing historical highs on the job demand side.
There are more than 6.5 million job openings today according to the BLS. There are more than 6.8 million Americans looking for jobs. This is the first time on record in the U.S. where there are more job openings than unemployed Americans. Why aren’t jobs getting filled?
First, there is a large skills gap between expectations from the employers vs. what the labor market currently can provide. Employers are asking for higher education, specific industry expertise, and multiple years’ experience to start a job.
The good news is that average hourly wages have increased about 23% from the 2009 recession, from $18.61 to $22.49, according to the BLS. Due to the nature of the staffing industry, though, the hourly wages offered are typically lower when working for a staffing firm vs. going directly to an employer. Most of my staffing clients face this pressure of low wages coinciding with low unemployment numbers, which means less available candidates.
Specifically, when looking at Light Industrial jobs (warehouse, forklift, shipping and receiving) in the Chicagoland area, the average pay rate this year is around $12 per hour. While this is significantly higher than the Federal Minimum Wage, according to MIT’s Living Wage calculator, in the Chicago Metropolitan Statistical Area in a household of two adults (one working) and one child, the living wage is $23.89. A one-adult household can get by at $13.05 per hour. In other words, if you are trying to raise a family in Chicago, you’d better secure a job that pays at least $23 an hour to survive.
That said, staffing firms are put to the test when they work with employers. Typically, both parties will agree to a set term of pay rates (hourly wages given to employees) and bill rates (what the staffing firm charges the employer). That difference is called the markup and is typically calculated as a percentage of the pay rate. The markup can range from 20% to 200% depending on the temporary position and market.
The problem lies in the fact that employers want to control their overhead in order to increase profitability, while competitive pressure and the need to grow revenue forces staffing firms to accept lower pay rates just to win business.
Who suffers? Everyone.
Lower pay rates mean that staffing firms will face a more difficult time filling positions because the pay is not competitive enough. Even when they are able to hire people, it’s hard to squeeze enough profit to warrant that business. Plus, when pay rates are low turnover is a problem and staffing firms end up having to refill many of those positions every week. The client/employer is not happy because they have no temporary employees on the floor, but instead of looking at the low pay rates, they blame it on the staffing firm’s efforts.
Meanwhile, the temporary employee believes that the staffing firms are paying the low rates and “stealing” money from their pay checks. What they don’t always know is that the staffing firm carries all the burden a traditional employer would normally shoulder: Federal and State Unemployment taxes, Social Security and Medicare taxes, and Workers Compensation insurance. Temporary employees accepting these low pay rate offers are often taking whatever they can to work, but more likely than not are already looking for the next job that will pay more, so they can improve their quality of life.
The next time you are working with a staffing firm, make sure data is being used to help make good decisions. Careerbuilder has access to a host of information on the labor market including labor trends, average salary, and the supply and demand of specific positions. You must use data and properly interpret it to develop the proper pay strategy. Both sides of the party must look at the impact of a lower and higher pay rate and what it will do to their respective businesses — good and bad. Sure, the employer’s profitability might go up, but at what cost? Unhappy, overworked employees? Having to pay overtime because positions are not getting filled? Staffing firms sometimes express that they feel like they are in a hamster wheel, spinning around and around in the recruitment process trying to fill positions with pay rates 30% lower than the market average.
Instead of unhappy parties, using data and facts to support offering the proper hourly wage can make hiring candidates in today’s market easier, retain temporary employees, and improve the end client’s business.
Peter Chung, Major Account Executive, Staffing & Recruiting Group, joined CareerBuilder in 2013. He has helped some of the largest staffing and recruiting firms in the country best utilize their CareerBuilder resources by providing training and insights to improve their recruiting process, identify labor market trends, and grow their overall business. Prior to CareerBuilder, he spent almost a decade in market research, working with Fortune 1000 companies utilizing data in strategies around consumer research, marketing initiatives, and new product development. During this time, he helped organizations such as Cargill, Del Monte Foods, McDonald’s, Dreyer’s Ice Cream, Walmart, and the FDA.