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Ask the Headhunter: Why aren’t worker paychecks benefiting from gaga job gains?

Nick Corcodilos started headhunting in Silicon Valley in 1979 and has answered over 30,000 questions from the Ask The Headhunter community.

In this special Making Sen$e edition of Ask The Headhunter, Nick shares insider advice and contrarian methods about winning and keeping the right job, on one condition: that you, dear Making Sense reader, send Nick your questions about your personal challenges with job hunting, interviewing, networking, resumes, job boards or salary negotiations. No guarantees — just a promise to do his best to offer useful advice.

Question: Every month the Department of Labor issues the jobs numbers and the unemployment numbers and everyone goes gaga about how great things are. There are loads of jobs to apply for! There’s a shortage of talent, so that’s good tidings for us job seekers! You’d think simple market economics would mean higher salaries and job offers.

But I don’t see higher pay or even higher job offers, not at any meaningful level. Employers aren’t hiring any faster or acting more competitive. Taking two months to decide to make a job offer isn’t the sign of a tight labor market. And demanding my salary history so they can low-ball me on a job offer doesn’t look like companies are struggling to fill jobs.

What’s your take? Am I missing something or is the jobs euphoria in the news just B.S. cranked out by stoned experts?

Nick Corcodilos: Since last year I’ve been collecting samples of the reports you’re talking about, and there’s a dirty little secret that the pundits and politicians keep trying to bury in the news — but like a nasty case of the hiccups, it keeps coming up.

Politicians, the U.S. Department of Labor and the media have been reporting gains in job creation. The U.S. created 213,000 new jobs in June and monthly jobs growth has been positive for the past several years. That seems to be a good sign, but of what and for whom?

According to the U.S. Bureau of Labor Statistics’ JOLTS report (Job Openings and Labor Turnover) issued June 5, there were 6.7 million jobs open in the U.S. at the end of April. On July 6, the bureau reported that 6.6 million people were unemployed. That means there are more jobs that need to be filled than there are unemployed people.

With every new report, economists say they’re flummoxed. With labor in such short supply, the surfeit of demand to fill vacant jobs suggests employers would bid up salaries and wages to get the workers they need — especially if they expect to lure people with jobs away from other employers.

By no stretch of the data is that happening. In a bluntly cynical Forbes article, Byron Auguste wrote on July 5 that “[t]hree decades of stagnating wages — rising just 0.2% annually since the early 1970s, adjusted for inflation — means an economic five-alarm fire.”

While economists, analysts and politicians struggle to explain wage stagnation by blaming a “skills shortage” (improperly skilled workers are not worthy of job offers, much less higher wages) and a failure of workers to “re-educate” themselves, Auguste refers to the “skills gap narratives” as “the usual suspects” in the never-ending rationalizations about why companies aren’t paying salaries commensurate with market demand.

Auguste writes: “The U.S. has arrived at an inflection point in our economy, technology and demography that demands a reality check on the sorry state of our labor market, and the – i.e., our – institutional practices that produce it.”

Remember that phrase: “institutional practices.” We’ll come back to it, because it’s important to explore it. But first, I want to throw some spaghetti against the wall, and I hope you can help me read something useful in the patterns it makes.

Weak wage growth is “pretty surprising”

Try this example of burying the lede in a July 3 article in Accounting Today:

“The June ’18 employment report showed a drop-off from May in both the rate of hiring as well as the wage increase year over year,” said Paychex president and CEO Martin Mucci. “We saw for the first time that the annual wage increase dropped below 2.5 percent, which is pretty surprising given the tight labor market. That seems to be the big question out there. Small businesses have a little bit of a harder time hiring workers in a tight labor market so you’d expect that to be going up.”

Lousy wage increases are “pretty surprising,” eh? “So you’d expect [wages] to be going up”? No kidding.

Here’s another example from the Columbus Dispatch:

Typically, wages pick up at this point of an economic cycle because a low jobless rate forces companies to boost wages to find workers… Wage growth in Ohio and the U.S., tepid for the most part since the end of the Great Recession, is starting to show signs of getting weaker… It’s a trend that has baffled economists and others. “Everybody is really perplexed about why that is,” [said Frank Fiorille] vice president of compliance, risk and data analytics for Paychex].

CEO jobs pay well!

But why is everybody really perplexed? “If companies need more skills, can’t they just pay people more?” Byron Auguste asked in Forbes in early July.

It seems that not enough workers are getting the re-education they really need to apply for a job that pays better in today’s booming economy: a job like CEO.

“CEOs of America’s 350 largest firms made an average of $15.6 million in 2016…or 271 times more than a typical worker in 2016….” reported the Economic Policy Institute on July 20. “While the CEO-to-worker compensation ratio of 271-to-1 is down from 299-to-1 in 2014 and 286-to-1 in 2015, it is still far higher than the 20-to-1 ratio in 1965 or the 59-to-1 ratio in 1989.”

So there’s proof that some wages are indeed growing at a healthy clip!

Are consulting jobs sucking wages out of the economy?

While economists and analysts blame pathetic wage increases on workers who are too complacent to re-educate themselves for today’s modern jobs, I’ve got another explanation. I think this is part of what Auguste is referring to when he cites “the sorry state of our labor market” and points to the “institutional practices that produce it.”

Here’s the institutional practice that seems to be one of the main culprits behind the “jobs conundrum” CNBC refers to: Temporary, part-time, contracting jobs — which companies are substituting for full-time, permanent jobs — are sucking the wages out of our economy.

We’ve discussed it before: “Why have employers been replaced with middlemen?” Contracting gigs are one of the institutional problems that shift profits to CEOs, investors and employers and keep wages low. Why’s that so hard for economists and the news media to understand?

BenefitsPro spilled the beans to the folks who manage corporate benefits programs in a July 6 article. “Another culprit is an increase in temporary or part-time work, an issue that’s come to a head in Italy, with businesses clashing with the new government over plans to restrict temporary contracts,” Catherine Bosley and Fergal O’Brien wrote.

Is supply-and-demand dead?

BenefitsPro has a graph that puts the U.S. on the same side of the world economic story as Italy.

Source: Organization for Economic Cooperation and Development, with emphasis added by the author

Economists might have an aha! moment if they study that graph side-by-side with this graph from the Bureau of Labor Statistics, which is cited in a July 10 news release.

Source: U.S. Bureau of Labor Statistic, with emphasis added by the author

How could “real average annual wages” be lower in 2017 than over the past 10 years when there are more jobs vacant than there are unemployed people? Is the relationship between supply and demand in the job market really dead?

Where does the money go?

Let’s go back to this quote from the Columbus Dispatch, with my emphasis added: “Typically, wages pick up at this point of an economic cycle because a low jobless rate forces companies to boost wages to find workers…”

Well, you’d think so, when corporate profits are up and employers are paying their CEOs 271 times more than the typical worker. You’d think so, when Congress passes tax breaks that are supposed to trickle down to everyone who works. So what’s going on?

Based on Labor Department statistics, this “Compensation Costs Climb” graph published by Bloomberg in April shows the employment cost index — what companies spend on compensation.

The accompanying text bemoans that “employment costs rose more than expected in the first quarter and a measure of private wages had the biggest annual gain since 2008.”

What Bloomberg doesn’t note is that way over on the left side of that graph, U.S. companies were sharing a whole lot more with their workers. According to that graph, what companies spend on compensation today is still way down from a 2003 high, and current compensation costs still have not “recovered” to even 2007 levels.

(The share of profits that companies spend on workers varies by industry. See my NewsHour column “Which industries are being too greedy to pay you fairly?”)

Where does the money go? When the economy is booming, profits are up, and companies are so awash in cash that they demand the freedom to invest it in elections (see “With Campaign Trail Flooded by Cash, Political Fundraising Post-Citizens United”) — why is anyone at a loss to explain why we’re not seeing higher wages?

“The White House promised ’70 percent’ of the tax cut would go to workers. It didn’t,” NBC News reported on June 26. “The Republican tax reform package that was supposed to raise wages and spur hiring has instead funded a record stock buyback and dividend spree, benefiting investors and company executives over workers.”

If you can’t re-tool your skillset to be a CEO, you could try one of those online investment courses, so you could make a living at your PC — as an investor!

What was your question again?

When I can’t figure something out, sometimes I think out loud in a column and invite readers to help me flesh it out. I cut out articles, data, graphs — and I spread them out on the floor, hoping I can puzzle them up into an answer that makes sense to me. Forgive me if I’ve ranted too long.

But if I threw one or two bits of information up on your screen that gave you pause about this strange economy and job market, maybe it’s worth it.

Let’s go back to the beginning question in this Q&A.

“You’d think simple market economics would mean higher salaries and job offers… Am I missing something or is the jobs euphoria in the news just B.S. cranked out by stoned experts?”

Wages and salaries are basically stagnant, and more people are admitting it. Employers are spending less on wages and salaries because they’re renting temporary workers from “consulting firms.” But the money is out there. It’s just going somewhere (and to someone) other than the labor pool.

So I think the euphoria about “jobs creation” is indeed B.S. because more new jobs during a labor shortage without higher wages is not good news — it tells us something is very wrong. It’s B.S. because what’s being created is a phantom industry of middle-men that suck value out of our economy. (See The Job Monopoly: How companies keep pay low.)

I suppose I agree with you after all that the experts are stoned. They must be, because they keep forgetting about the importance of wage growth, they keep talking in conundrums, and what they say doesn’t make sense.

How long can the economy — which is people, after all (and there are more workers than CEOs) — withstand this scenario? I dunno. Billionaire Nick Hanauer, a staunch advocate for higher minimum wages, says it best: “The pitchforks are coming.”

Dear Readers: Do the “jobs creation” numbers and stagnant wage growth make sense to you? Are workers really so incorrectly skilled that it explains why they’re not getting the jobs employers say they’re dying to fill? I blame some of it on our “consulting economy.” If you study the spaghetti on the wall, what do you see? Is the jobs euphoria justified?

Nick Corcodilos invites Making Sense readers to subscribe to his free weekly Ask The Headhunter© Newsletter. His in-depth “how to” PDF books are available on his website: “How to Work With Headhunters…and how to make headhunters work for you,” “Keep Your Salary Under Wraps,” “How Can I Change Careers?” and “Fearless Job Hunting.”

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