CHICAGO — During most of the pandemic, Steven Dyme, owner and founder of floral chain Flowers for Dreams, didn’t need many employees. The biggest and busiest source of business — weddings — all but wilted for more than a year.
Fast forward to the summer of 2021, with half of the country vaccinated, with more people than ever ordering daily flower deliveries for loved ones, and wedding season once again in bloom: demand for floral arrangements was booming. But there weren’t enough workers to fill vacant positions.
So Dyme, like many employers, raised salaries. He bumped pay for both entry-level employees and for people with more specialized skill sets. In Milwaukee and Detroit, Flowers for Dreams increased salaries to $15 an hour. In Chicago, the company has offered $16 an hour since the beginning of the year. People working on wedding floral arrangements saw an average $5 pay increase, too.
“We’ve been battling and competing with everybody to get good staff up front,” Dyme said.
Welcome to the new economy.
Dyme is just one of thousands of employers across the country, large and small, now navigating a dramatically altered labor market bent, bruised and transformed by a once-in-a-century pandemic; an economy in which 9.22 million people are unemployed, but 10.1 million jobs are unfilled, according to June and July data from the U.S. Bureau of Labor Statistics, the most recent data available.
The pay bump made a big difference in the Milwaukee market, where the minimum wage is still $7.25, but a living wage is $14.32 for a single adult and $31.95 for a single parent, according to the Massachusetts Institute of Technology’s Living Wage Calculator. It helped in Detroit, too, where the minimum wage is $9.65 an hour.
In Chicago, because many employers already pay $15 an hour, it’s “more competitive than ever,” Dyme said.
The young business owner is in some cases offering benefits like a 401(k) plan, medical, dental and vision coverage, and even student loan forgiveness plans to encourage new applicants, keep 50 full-time employees and hold onto about 100 part-time seasonal staff.
Economists are split to some degree on the reasons behind the stark mismatch between people without a job and the number of open jobs. Some point to expanded unemployment benefits, others emphasize workers’ childcare roles, living with immunocompromised relatives or health fears.
Others point out the unique circumstances of the pandemic crunch and boom. The service, hospitality and entertainment industries reopened all at once, colliding with pent-up consumer demand: People were eager to get out of the house after vaccinations and savings padded by more than a year of home-cooking, stimulus checks or beefed-up unemployment benefits.
The result was like a shock treatment for parts of the economy gone all but catatonic, and that doesn’t come without adjustment pains.
Companies make big changes
In the new economy, companies are voluntarily offering up things long pushed for by labor activists to compete for a limited pool of job-seekers amid a glut of openings.
In a June survey of 5,000 people conducted by online job search company Indeed.com, Covid-19 is still a major factor for many people not wanting to come back to work yet. So raising the vaccination numbers well above 50 percent of the U.S. population will be a major milestone, according to the Indeed report. Other job-seekers cited caring for family at home and childcare as major reasons why they decided to not reenter the job market yet.
Arindrajit Dube, a professor of economics at the University of Massachusetts Amherst, wrote in late July that there’s also been little difference in employment gains in states that ended enhanced UI benefits compared to states where the boosted unemployment aid is ending in September.
“Overall, the mid-June expirations of pandemic UI seem to have sharply reduced the share of population receiving any unemployment benefits,” Dube wrote. “But this doesn’t seem to have translated into most of these individuals having jobs in the first 2-3 weeks following expiration. However, there is evidence that the reduced UI benefits increased self-reported hardship in paying for regular expenses. Of course, this evidence is still early, and more data is needed to paint a fuller picture.”
Against that backdrop, many companies are hoping that boosting wages will bring people back.
Amazon and at least 16 other major retailers, banks like Wells Fargo or fast-food giants like McDonalds have raised starting salaries for entry-level employees in a bid to attract more workers. According to The Motley Fool, Bank of America announced in May it would increase its starting wage to $25 by 2025; Best Buy announced a $15 minimum wage beginning August 2, the same as Chipotle; Target raised its starting wage to $15; Costco raised wages from $15 to $16 an hour.
Southwest Airlines, Aetna, Ben and Jerry’s, Charter Communications, Cigna, Disney World, Facebook, Fifth Third Bank, JP Morgan Chase & Co., Starbucks, WayFair — they all raised wages too, according to GOBankingRates, a personal finance publication.
At ZipRecruiter, an online job search giant, job postings advertising a $15 starting salary more than doubled since 2019, company labor economist Julia Pollak told the Associated Press.
“Covid was like somebody took a gigantic sledgehammer to the supply chain,” said Charles Ballard, an economist with Michigan State University. “And some supply chains got really badly damaged. Once it gets damaged, it takes time to put it back together, and I think lots of employers were surprised that the rebounding demand over these last few months has been so fast. And they’ve really been scrambling to keep up.”
But even if the pandemic disruption winds down in the months to come, the market adjusting to a new normal, “I don’t think Amazon’s gonna cut pay,” Ballard said. That goes for all the large, public-facing retailers, banks, hotels, airlines and food giants that raised pay too.
“It’s bad public relations … if they’re paying $9 an hour, even if it’s legal,” said Ballard. “I think that the upward pressure on wages — that’s not going to completely reverse. Some of that was going to happen regardless of whether there was Covid.
“I’m hopeful in this regard, because one of my biggest concerns … is the huge increase in income and wage inequality that we’ve experienced in the last 40 years. Anything that appears to go in the opposite direction is OK with me,” Ballard added.
The trickle-up effect
Big companies like Amazon, Target, Chipotle and McDonald’s boosting entry-level pay could have huge implications for smaller companies in the same market.
A study from Princeton University economist Ellora Derenoncourt found that communities where that happens often see smaller businesses matching pay to compete for the same workforce.
Local employers follow the national trend to stay in business when international companies raise the wage floor. To demonstrate that, the study used data from Burning Glass Technologies and Glassdoor.
“Employers who are significantly affected by the voluntary minimum wage match the exact wage level adopted by the major retailers,” the study said. “This implies that they are deciding that the best policy in the face of the announcements is to emulate the large retailer’s wage policy.”
John Dooney, human resources advisor for the Society for Human Resource Management, said pay has increased in the food service and transportation industries by 4 percent on average, 3.9 percent in retail and 2.6 percent in all industries overall in recent months. Many companies also are offering better benefits and greater workplace flexibility, changes Dooney said he expects could have staying power (especially more people working from home at least some of the time).
Tech-oriented businesses and companies that could easily shift to a work-from-home model are having the least trouble retaining employees and filling vacancies, Dooney said. Businesses in other industries that require workers to show up in person to frontline, essential jobs that aren’t offering competitive pay and benefits packages “may find themselves really trying to play catchup as people walk out the door,” Dooney said.
But even with the better minimum pay, people still aren’t necessarily flooding back to work. Close to 90 percent of 1,200 employers surveyed by SHRM reported difficulty in filling job vacancies this summer. The hardest jobs to fill were entry- and mid-level non-managerial jobs in manufacturing, hospitality, food service and health care, according to the survey.
Across the U.S., employers added 943,000 jobs in July (and another 235,000 in August), the latest data available from the U.S. Bureau of Labor Statistics. That’s slightly above June numbers, but still about 5.7 million jobs below pre-pandemic levels, BLS stats show. By the end of June, the number of job openings increased to a high of 10.1 million total, while hires rose to 6.7 million and total separations were 5.6 million.
So companies aren’t making hires yet that match the pace of new job openings and people leaving their jobs. The picture is also further complicated by inflation.
According to Labor Department data, although wages for many jobs have risen, real average hourly earnings have in fact on average declined 0.1 percent from June to July because of a 0.4 percent increase in average hourly earnings combined with a 0.5 percent increase in the Consumer Price Index. In other words, wages aren’t necessarily rising faster than the rate of inflation.
Aaron Sojourner, a labor economist with the University of Minnesota, said that even if companies maintain increased wages for service- and other low-paying jobs, businesses can easily find other ways to cut back on labor costs, whether that’s by holding back on raises next year, making health plans less generous, cutting free lunches or other ways to claw back value.
“I don’t think the gains will immediately be taken back, but I think if the economy gets back to some new steady state … [the effects of the pandemic] hasn’t led to a big shift in worker bargaining power that’s permanent.”
And if prices and employment continue to rise too quickly, the Federal Reserve System has ways of slowing the economy back down, Sojourner said. That usually takes the form of raising interest rates to slow growth, making it more expensive for businesses to expand or invest so that they have to reduce production and growth. That has the effect of increasing unemployment and decreasing prices again.
So the pandemic has been a “double-edged sword” for workers in the new economy, Sojourner said. On the one hand, they’re more in demand in front-line service, production and retail jobs, but inflation is higher too. And the pandemic necessitated much more flexibility for computer-oriented jobs — broadening the number of jobs available to many workers — that also increases the talent pool for employers, potentially increasing competition for the same jobs.
“It’s not obvious to me how this affects the balance of power,” Sojourner said, adding that he doesn’t think the current circumstances of the labor market will last.
Adapt or die
But for now at least, demand is outpacing labor supply in many sectors. And companies are doing what they can to attract workers.
Ed Ura, a business consultant based in Troy, Mich., said businesses — if they haven’t already — will have to change longstanding attitudes about what a reasonable, total compensation package looks, for entry-level positions up through mid-level and top-tier candidates if they’re going to remain solvent in the new labor market.
Companies that refuse to change might be left in the dust, Ura says.
“The fundamental nature of the labor market has changed,” Ura said. “The pandemic really had some impacts of telling people they don’t have to work at bad jobs at bad companies for bad pay. People were sitting around looking at their incomes and recognizing, in some cases, there was no point at working.”
That goes double for people working front-line, essential jobs during the pandemic, enduring health dangers and abuse without much extra pay. Now, many employees feel they’ve had enough and want to come back to something better, Ura said.
“Competitive pay is not going to be enough,” he continued. “(Companies are) going to have to get a better handle on what their own individual markets are and actually react to that. They’re going to need to look at the needs of the employees” — from flexible work schedules and hours, to a transportation allowance, childcare supplements and health care in jobs that traditionally might not have offered such benefits.
Ura advises companies hesitant to offer better benefits or pay to consider the cost of not doing so. He also suggests that offering a more attractive total compensation package could bring in higher-skilled, more efficient workers who end up sticking around longer and potentially saving money for the company in the long run.
Trisha Plovie basically agrees. She’s senior regional vice president at Robert Half in Detroit, a management consulting company and one of Fortune’s 100 best companies to work for.
Plovie said 51 percent of companies nationally plan to add new permanent positions, and 54 percent of companies plan to do so in Detroit by the end of the year. Forty-eight percent of Detroit companies plan to bring back furloughed employees or hire new ones by the end of the year. To entice workers back to the office, nearly half of the businesses surveyed by Robert Half are offering sign-on bonuses. The number is slightly higher in Detroit specifically.
Half of the city’s employers are meanwhile offering more time off or better job titles, too, while many are bending hitherto iron-clad requirements for new hires to have advanced degrees or a certain threshold of job experience.
“It’s across all industries,” Plovie said. “There are more open jobs than candidates to fill them right now.
“It’s a very competitive job market,” she said. “It’s not unusual for a talented candidate to have multiple offers. (Companies) that are winning out are the ones that are having a strong hybrid (work from home, work in the office) model, and the ones that are offering flexibility to their employees.”
Bucking the trend?
That principle rings true for Felicia Taylor, chief of human resources at TrinTech, a Houston, Texas-based software company that streamlines high volume transactions to manage journal-entry processes and ensure regulatory compliance for CFOs to close their books. TrinTech has more than 3,500 midsize and large enterprise customers across more than 100 countries, including a majority of Fortune’s 100 best companies to work for.
Nationally, about 65 percent of workers are actively searching for new jobs, and 90 percent of company executives say they’re seeing higher-than-normal turnover, according to a late August survey from PricewaterhouseCoopers.
But at TrinTech, turnover is actually down for the first half of the fiscal year starting in February over the past three years, Taylor said, “which really surprised me.”
At TrinTech, the highest turnover is for employees hired a year ago. They started remotely and therefore didn’t get a chance to mesh with company culture, Taylor said.
Despite turnover being lower than at many other companies, Taylor said TrinTech is still actively working to fost engagement between employees and rally around company values. From surveying their own employees, the company found people simply want to be paid fairly, have chances to grow their careers and be valued as employees, “and that’s where our focus has been.”
Over two-thirds of TrinTech employees are paid at or above market value, she said. For less desirable jobs with minimal opportunities for career advancement, Taylor encourages employers and managers to really think hard about how they’re treating people who work for them.
“I think what Covid has done, is it has forced transformation in a lot of industries. So I don’t know that the hospitality industry or the food service industry will ever be the same as it was,” she said. “But I would encourage employers … (to) remember how you treated them. They do.”