Waging the Hiring War
Will low unemployment come to mean high inflation?
Mike Weimar isn't running some corporate megabehemoth. Impact Displays, a Santa Clara, Calif., graphic design firm that makes trade show signs, has maybe 20 employees. But with a company that size, quickly filling job openings is critical. And right now Weimar is struggling to fill a sales rep position. "I've been trying for a couple of months," he says. "I've had an ad on craigslist and just put one on Monster.com ... but I am based in Silicon Valley, and a lot of people are looking for high-tech sales jobs, and this isn't as sexy. ... And a lot of the people who do respond are kind of flaky."
Finding experienced, capable, non-flaky workers isn't a problem just in Silicon Valley-well, the flaky part might be-nor is it limited to the sales business. It's a daunting challenge for many types of companies all across America. The staffing giant Manpower surveyed 2,400 U.S. employers earlier this year to find which jobs were hardest to fill. Among the top 10 were teacher, accountant, and mechanic. The hardest of all for the second straight year: sales representative. Overall, 41 percent of responding firms reported problems in hiring, about the same as last year. "And it's not just about finding warm bodies," says Melanie Holmes, vice president of corporate affairs at Manpower. "Not enough people are keeping their skills up to date."
On a roll. A recent Federal Reserve report found "continuing tight labor market conditions, especially for skilled occupations," in nine of the 12 Fed districts from New York to San Francisco. None of this should be too surprising given the state of the job market. The unemployment rate was a skimpy 4.5 percent in April, the Labor Department reported Friday. Of course, that number may not seem so low compared with the jobless rates of the late 1990s and 2000. In April 2000, soon after the Nasdaq stock market hit its all-time high, the unemployment rate fell to a low of 3.8 percent.
But today's numbers are still impressive. Consider: The jobless rate has been as low as or lower than today just 10 percent of the time since the 1960s. "This is a tight labor market based on the unemployment rate and on the gains in wages we have seen recently," says Drew Matus, U.S. economist at Lehman Brothers.
So what's not to like? Plentiful jobs-especially for college grads, whose jobless rate is just 1.8 percent-and fatter paychecks aren't exactly the avian flu. Except that they are, kind of, for the killjoys at the Fed. From mid-2004 through mid-2006, the Fed raised short-term interest rates 17 times-from 1 percent to 5.25 percent-to slow the economy and contain inflation pressures. Like a viral contagion, once inflation really starts to spread, it's hard to stop. And one place the Fed has seen cost pressures is in the labor market. Higher wages are fine as long as they are matched by rising productivity, or worker output per hour. But, after a string of boom years, labor productivity slipped badly last year.
What all this means is this: Firms may choose to deal with more rapid cost pressures by passing them into the prices that consumers pay for everything from laptops to doctors' visits. That would place upward pressure on core inflation, which has been above the maximum 2 percent level that Fed Chairman Ben Bernanke would prefer to see. On the positive side for the Fed, labor costs rose at just a 0.6 percent annual rate in the first quarter.
But beyond the pesky inflation issue is what many economics pros call "the employment conundrum." The nation's economy has slowed dramatically over the past year, mostly because of the housing downturn. Yet the unemployment rate has also dropped, as the economy has added some 2 million net new jobs.
So which is right, the weak growth numbers or the strong jobs numbers? Janet Yellen, president of the San Francisco Fed, took a stab at an explanation in a recent speech. Government statistics show the economy is generating income faster than the numbers on gross domestic product would indicate. If the income numbers are on the mark, Yellen said, "this would mean that both labor and product markets have been tight." And that would make the Fed less likely to cut interest rates soon.
But that's the big picture, the view from 50,000 feet. All small-businessman Weimar knows is that the last time he made a job offer, "I couldn't even get the guy to call me back."
This story appears in the May 14, 2007 print edition of U.S. News & World Report.