One reason there are so many open jobs in the USA right now

The very best macro-economic report that helps to shine a light on current labor market conditions is the Bureau of Labor Statistics JOLTS (Job Openings and Labor Turnover Summary) report.

The JOLTS report covers job openings, hires, total separations, quits, layoffs, and other discharges, and offers us lots of interesting data points to better understand the US labor market - and by proxy, the health of the US economy.

Last month's JOLTS release, on May 8, included one pretty remarkable number in its summary - the number of job openings in the US as of the end of April had risen to 6.6 million - an all time high since the data series began to be compiled in 2000. 6.6 million open and unfilled jobs. That is a lot of openings. No wonder every time I go out I see a bunch of 'Help Wanted' signs.

Jobs stay open, or perhaps better said, remain unfilled, for a whole bunch of reasons - most of them pretty good reasons. Taking time to sort, screen, and interview candidates; trouble finding the right skill set for specific roles; companies taking the extra steps to really be sure a candidate is a good fit before making a hire - these and more are all decent reasons why jobs stay open.

But I have another reason, and some research, I want to point you to that is another reason why some jobs remain open, and open longer than perhaps they should be. It's the concept of 'degree inflation' - the tendency of employers to require that candidates possess more advanced educational degrees than the job function truly requires, and that many candidates simply do not have.

Over the weekend I read a really interesting report on the subject of degree inflation, what it means, where and how often it is occurring, how it negatively impacts the organization, and finally, offering some suggestions for employers to avoid unnecessary degree inflation when hiring.

The report, titled 'Dismissed by Degrees: How degree inflation is undermining U.S. competitiveness and hurting America's middle class'by authors Joseph B. Fuller and Manjari Raman, both from the Harvard Business School, is an interesting and deep look at just what happens when companies try to use artificial degree requirements as a screening tool and a proxy for candidate skills and suitability for a given role.

This is a long report, and I definitely encourage you take some time and read it through, but here are the top three most interesting points or pull quotes from the study that I want to share.

1. In an analysis of more than 26 million job postings, we found that the degree gap (the discrepancy between the demand for a college degree in job postings and the employees who are currently in that job who have a college degree) is significant. For example, in 2015, 67% of production supervisor job postings asked for a college degree, while only 16% of employed production supervisors had one.

2. Seeking college graduates makes many middle skills jobs harder to fill, and once hired, college graduates demonstrate higher turnover rates and lower engagement levels. A systemic view of the total economics of hiring college graduates shows that companies should be extraordinarily cautious before raising credential requirements for middle skill positions and should not gravitate toward college graduates based only on a vague notion that it might improve the quality of their workforce.

3. Degree inflation particularly hurts populations with college graduation rates lower than the national average, such as Blacks and Hispanics, age 25 years and older. In addition, degree inflation raises the barriers to entry for Opportunity Youth, the nearly six million young adults who are currently not in school or in jobs. Companies that insist only on a college degree deny themselves the untapped potential of eager to work young adults as well as experienced, older workers as pools of affordable talent.

Really interesting and plenty to think about in just those three short pull quotes from the report. Even when current holders of a given role in the organization largely do not hold college or advanced degrees, many companies try to require said degrees for new hires into the same role. Then when companies do manage to hire candidates that are say, 'over-degreed' for a role they have to pay them more, the new hires are less engaged, and are more likely to leave - driving up costs and starting the entire process all over. And finally, imposing artificial degree requirements on roles effectively screens out groups of candidates disproportionately and may make any organizational diversity hiring initiatives even harder to progress.

The conclusion of the report does offer some solid suggestions to reduce or eliminate the degree inflation tendency, (chiefly having a better understanding of the critical skills and competencies needed to perform in a given role, and a broader understanding of how candidates can demonstrate these skills), I won't run through them all here, but take a few minutes to read through them as I think most organizations can pretty easily take steps to better understand this issue and make adjustments and changes to their hiring practices.

There are 6.6 million job openings in the US right now. I bet a fair number of them have 'Bachelors Degree' listed as a requirement, when, if we were to be honest, it isn't really required.

Have a great day!

CHART OF THE DAY: Your semi-regular labor market update

Two quick charts on my favorite CHART OF THE DAY topic - the trends in macro labor force dynamics in the United States.

First, the big headline from a few days ago, the official unemployment rate in the US dipped below 4% for the first time since late 2000, ( was the ) hitting 3.9% as of the end of April 2018.

For a look at this headline trend, see the below chart from our pals at FRED:

And while this dip below 4% for the first time in almost 20 years was what most reports about the state of the labor market honed in on, (and probably rightly so), the 'truth' of the health of the labor market usually resided in other metrics. Like, for example, one of my favorites - the length of time it takes organizations to fill an average open position.

Here's the latest on that - from the DHI-DFH "Mean Vacancy Duration" data (the latest I could find on this is from the end of February 2018).

While you can see some upticks and downticks in the average time to fill, the trend since the end of the recession in 2009 is clearly up and to the right - meaning it continues to take longer and longer for most companies to fill open jobs. Officially, the mean vacancy duration for February 2018 is at 28.9 working days - essentially over a month to fill any open job.

If you did into the details of the report, (and I did, since I am a weenie), one number really stood out. It now takes over 21 working days to fill roles in the hospitality and retail sector - think hotels, restaurants, fast-food, retail stores. That number is up dramatically from its 'bottom' of about 14 days just a few years ago. You would think that these roles should be the easiest to fill, and maybe they still are, but even today's easy roles to fill are taking longer and longer to actually be filled.

There is more to this story, and I need to take some time to look at what is happening with wage data, labor force participation, and the openings and quits rates, but these two charts and their data are both pretty revealing.

It's probably a good time to be a job seeker, all things being equal.

And it is also a good time to be a recruiter - a good one anyway, because your value to organizations keeps growing.

That's it from me - have a great day!

What the Toys R Us meltdown reminds us about workforce trends

By now you probably have seen the sad news that Toys R Us is in bankruptcy, and is facing the likely closure of its 700+ stores in the US in the coming months.

Definitely a sad day for many, especially for the thousands of Toys R Us employees soon to be out of work, and for the let's say 'traditionalists' among us who still enjoyed shopping for toys and games and the like in the 'real world', and not just from an Amazon app.

Of the many reasons that have been blamed for Toys R Us demise, competition from Amazon (and others) is frequently cited, along with the pretty staggering amounts of corporate debt and debt service payments that Toys R Us has been burdened with since its acquisition by Private Equity companies in 2005. Other post-bankruptcy analyses have pointed to Toys R Us failure to modernize its shopping experiences, inability to grasp digital commerce trends, and the fact that they lost touch with their most important customer - mothers shopping for their kids.

But there is one other factor that has contributed to the toy retailer's plight, one that has not been mentioned as much in the coverage, and one that has much wider implications in work and workplaces as well. And it is this: people in the US are having fewer children, thus creating fewer of Toys R Us' prime 'end customers', and, eventually, fewer entry-level workers for all US firms to recruit.

Here it the thing, the folks running Toys R Us maybe couldn't figure out what to do about this trend, but they did see it coming. Here is an excerpt from their most recent 10-K financial filing from April 2017:

"Most of our end-customers are newborns and children and, as a result, our revenues are dependent on the birth rates in countries where we operate," the filing reads. "In recent years, many countries' birth rates have dropped or stagnated as their population ages, and education and income levels increase. A continued and significant decline in the number of newborns and children in these countries could have a material adverse effect on our operating results."

Data from the CDC in the US backs that up - the most recent data available from 2016shows the US birth rate hitting a record low, and with no obvious sign of this trend changing, retailers like Toys R Us are going to face continuing pressure. Longer term, if this trend does continue, all kinds of employers will face pressure too - a different kind of pressure perhaps, this one stemming from relatively fewer entry-level or younger candidates, as well as the need to create workplaces that are more open, accommodating, and available to older workers too.

Since I love charts, I will close with this one, from our pals at FRED - a look at the increase in the 65+ labor force in the US over the last 20 years or so.

I will spare you trying to squint at the small print, but the total number of workers aged 65+ has more than doubled since 2000 - with almost 10M people in that group as of the latest data. And even if you can't read the small print, it is easy to see the 'up and to the right' trend in the data.

Fewer babies and young kids means trouble for Toys R Us in 2018. It could mean recruiting problems for your organization too, in a few years. Don't wait until it is too late, like our pals at Toys R Us, to know how to react.

Have a great week!

US companies are flush with cash, where does 'raise wages' fall on the priority list?

Last week on the blog we noted the shift in the mix of annual employee compensation increases - companies have and are continuing to increase their use of one-time and variable comp increases like annual bonuses and lessen their use of base (and in theory, recurring), salary and wage increases. The argument, many companies make, is that variable comp awards tie comp more closely to individual and organizational performance measures and provide the organization more flexibility and adaptability to respond to changing market conditions and business performance.

We have even seen this trend play out in the wake of two recent legislative decisions that have combined to create a pretty significant windfall of excess cash/after tax profit for many of the US's largest companies. One, the reduction in the 'stated' corporate income tax rate from 35% to 21%. And two, the reduction of the tax rate on the repatriation of US company cash that has been parked in overseas accounts, and now can be brought back to the US at a lower tax rate (about 15%).

With all this additional cash available to many large companies (most of whom are large employers), it makes sense from an HR / Talent point of view to ask a pretty simple question: Will and to what extent will all this cash flow to employees in the form of salary/wage increases or bonuses?'

Well, sadly for most employees, and for HR and Talent leaders who might be advocating for increased investment in people, the short answer to the question is 'Hardly'. Take a look at the chart below, from a Fortune piece citing some recent BofA Merrill Lynch research on just what these companies plan to do with their soon to be repatriated earnings:

Looking though that list of top six likely uses of this repatriated cash, maybe you could argue that the one that came in sixth, 'fund pension' has some direct benefit to current employees. Share repurchases, which we will see again in a second when looking at the knock-on effect of lower income tax rates, could also benefit employees who participate in ESOP plans or have a decent bit of their 401(k) tied up in company stock. But that is an indirect, and incomplete benefit at best.

Another review, this time by the financial firm Goldman Sachs, paints a similar picture of who the likely beneficiaries will be from lower corporate tax rates. From a piece reported by Marketwatch:

Buyback announcements are up 22% this year to $67 billion in just six weeks, Goldman Sachs said in a note to clients. This follows a report by benefits consulting firm Aon Hewitt finding that 83% of large companies don’t expect the tax cut to boost salaries at all — just help pay for small bonuses companies like WalMart  and AT&T, gave workers, which reporters soon discovered were, themselves, skewed toward higher-paid, longer-tenured employees in many cases.

And it comes as Goldman finds companies have raised guidance on re-investment in their businesses — the putative reason for cutting corporate taxes at all — only 3%.

A couple of things to note here. CEOs and Boards do have a responsibility to their shareholders - some would certainly argue that the shareholders' concerns matter more to corporations than any other stakeholders. So moves to increase the share price (repurchases), and return profits to the holders, (increased dividends), are definitely proper and prudent uses of excess cash/profits.

But the really small levels of internal re-investment, and commitment to improving the long-term compensation levels for employees is a little bit disconcerting. But it also reminds us of something really important. Namely, that for most large organizations labor cost, (and by extension, their investment in people), is just that - a cost that has to be managed.

What the organization is willing to invest, and whether they are willing to increase this investment is subject to a complex set of variables - competition for talent, product/service strategy, overall labor market conditions, the impact of automation and outsourcing, and even the legal/regulatory climate.

But what does not, yet, seem to be moving the needle on investment in people and employee compensation,(aside from the slew of copycat one-time $1,000 bonuses we heard all about), is this sudden windfall of excess corporate cash/profits as a result of recent corporate tax changes.

More simply put, organizations increase what they are willing to pay for any resource only when they have to, not because they are able to.

Apple won't volunteer to pay more per piece to their supplier of iPhone screens just because they can.

And they won't volunteer to pay their engineers, accountants, and facilities staff more just because they can as well. Interesting times for sure.

Have a great day!

CHART OF THE DAY: There are too many open jobs, (or not enough people to fill them)

A really quick shot for a busy Thursday - from the most recent JOLTS report (that's the Job Openings and Labor Turnover Survey and you should have this page on permanent bookmark), the most recent (as of December 2017) data on the ratio of Unemployed workers to job openings in the US.

Here's the data...

    

The actual chart on the BLS site is interactive if you want to play around with it, but I will save you the time and let you know that as of the end of December 2017 the ratio of unemployed workers to open jobs was down to 1.1. Basically, the US economy is closing in on having nearly the same number of unemployed workers, (about 6.3 million ) as there are job openings (about 5.8 million) as of the end of 2017. The ratio of 1.1 has been steady for most of 2017 and ties the all-time low in the this data series' history.

I have not much else to add to this, beyond what you already know. The labor market continues to be at or near record levels of 'tightness'. It will be really interesting (and fun if you are a data geek like me), to see of the ratio goes below 1 at some point, a situation where even if every open job in the US was suddenly filled by an unemployed person, there still would be open jobs remaining. I guess then we will have to build more robots to fill those jobs.

Have a great day!