This is a continuation of the opportunity series. Here I will be discussing opportunities found in the US jobs report. The most recent jobs report showed that, in the USA, over 900,000 jobs were added in the last period. That's huge. We went through a period where we were only adding a fraction of jobs in a period and then 900,000 jobs in this last period. In the US we have what's called the labor participation rate, and the labor participation rate measures how many available adults are actually gainfully employed -- which is different from the unemployment number. Pre-pandemic, the labor participation rate was at a historic 72 percent. Typically, the US will hover in the mid-to-high sixties, but at that time we were at an unprecedented 72 percent -- meaning that 72 percent of all working-age people are getting jobs and we are getting well beyond full employment. Post-pandemic it appears that we are on pace to achieve and exceed our previous historic high. We actually have a robust economy, so I want you to think about what that really means. What does it mean for corporations to add 900,000 non-farm-labor jobs in a period?
need to travel backwards a bit as I'm sure you've seen this in the news. The issue
in the news is typically about companies “reducing” their labor force. We hear
of layoffs or reductions in labor. Why is it that there seems to always be a
knee jerk-reaction to let people go in an economic downturn? You may ask “why
does that happen?” It's a simple reason. People drive costs.
Let me say it one more time. People drive costs in any business, and more so the bigger the company. Depending on your industry, one person can cost their employer anywhere from 50-to-250-percent of their pay, so let's just make the math easy. If you're paying them 10 dollars an hour, they can easily cost your company internally 15 dollars an hour -- up to 30-to-35 dollars an hour. This means you need to have a minimum revenue of $15-$35 per hour to cover the cost of that employee. This does not include any other direct costs or any profit. This is just the one employee.
Now you may wonder “what's all in that number”? Well, let's analyze what's all in that number. What's in that number is direct benefits. You have to pay people above and beyond their paycheck, so you have what's called statutories - which include a social security tax and a government tax that the employer pays above and beyond what is paid to the employee. These are known as payroll taxes. Depending on the country, the numbers are even higher if the government mandates that the employer has to pay for healthcare and retirement and all those other kinds of things above and beyond what somebody makes in their base wage. Additional expenses of labor include what you are paying for buildings and for computers and for other services that the company offers – including HR.
If you're just hiring one person, it's probably not so bad, but if you hire 100 there's a host of things that you have to have in place to support having a company with 100 employees. When you get to 1,000, 10,000, 100,000, you can start seeing that internally what you have to pay just to have people on the payroll has absolutely nothing to do with what you're paying them. What does it cost just to hire people? When you start hearing companies say that they have overhead and additional corporate costs, those numbers really and truly are real. Those are not soft numbers.
We can get into a separate argument around whether those costs are being optimized and whether people have way too many internal costs based on the amount of labor they have. I'll cover that in a subsequent blog, but the point is that the cost really and truly is real -- whether a company is top heavy or not top heavy. When companies announce that they are letting employees go, like General Motors announced towards the end of 2018, they're saying that they need to take some costs out of their North American operations because they aren't profitable. They didn't see enough revenue coming in in their domestic production to support that level of people cost.
By the way, that reduction in cost is almost immediate. Truth be told, when you start letting people go and you start turning the lights off where offices were, and you start taking people off the computer network, and you start letting go of the healthcare costs and all those other kinds of things, the cost reduction is actually realized rather quickly.
get to the opportunity portion of this topic, which is on the flip side. What
does it mean if you have employers hiring 300,000 employees in a period? It's
the exact reverse of what we just talked about. If they're hiring that many people,
you can go into the US Bureau of Labor Statistics website and you can look up
which industries are hiring. This will be all non-farm-related information because
farming is a bit more seasonal.
Typically the Bureau of Labor Statistics and the US Department of Census go through and look at the non-labor portion because that's more of an indicator of what's really going on in the economy. In this case, what it tells you is what’s going on with the Fortune 500 companies. Their hiring practices will be a big component, although probably not 100 percent of all that growth. Small business really and truly has been a huge driver of a lot of labor growth, but big companies also will participate in that. What will be interesting is to look at the BLS (Bureau of Labor Statistics) and see which industries are hiring. If you go to some of the job websites -- Glass Door, Indeed.com, etc. you will start seeing, once you zero in on those industries, which companies are hiring and in what positions the employees are working.
Are they hiring blue collar or white collar? Are they hiring managerial or specific skill sets and expertise? That knowledge should help you figure out what opportunities are available to your company based on the addition of people. People drive costs, period. You cannot have a business that hires people and does not spend money. It's impossible. If they're hiring people, they're spending money. Kind of like your business. If you're hiring people, you're a) making money, but b) you're spending money. By definition, as soon as businesses bring somebody on, they’re spending money. If they're spending money, they're engaging suppliers at a greater rate. They've got to buy some more stuff: they have to buy more office equipment; they have to buy more technology; they have to buy more training; they have to buy more consulting. They have to buy more just from the mere fact that they're hiring.
So, in this
case, when you start looking at these jobs reports, a bell should be going off
in your head. Well, are they hiring in my sector where I'm strong? If they're
not hiring in oil and gas, where are they hiring? Where did some of the people
that you used to work with tell you that they're going? What industries? What
companies? Where are they telling you that their children are working? When you
start hearing these kinds of things you should focus on “where's the
opportunity there for your business”? Where can I go to build my pipeline, and
what does it mean when folks announce that they're hiring? What additional
costs are they going to incur and how is it that my company can help them to get
more productivity out of every single dollar they spend? Can I help them to
onboard their people? Can I help them train their people? Can I help them make
their people more productive? Can I help them provide technology or processes
to their people that allow them to get things done more efficiently, more productively?
Can I help their people with the process geared towards some
strategic outcome that the company has identified they want to pursue?
Stay focused, but also recognize how all of these gifts that don't appear to be directly geared toward your business help you to achieve your focus. I am not saying stop doing what you're doing right now and go chase this, that, or the other. I’m saying that in the process of building your business, recognize that there are opportunities falling out of the sky coming to you from every direction. It's a matter of taking that opportunity and integrating it into your plan so that you continue to always have opportunities and have a future for your business.
What I want you to take away from this is the understanding that people create opportunity. They always have. They always will. Even as we talk about automation replacing people, remember that at some point somebody is creating that automation. Until we get robots creating robots - which is a separate issue – we have people that are manufacturing all of the components and equipment and technology that go into automation. Yes, at some point or another, this all originates with a person somewhere who is making all this happen. When you know where that's occurring -- if the addition of people creates opportunities for what you offer to the marketplace -- you can then see the potential for your business.
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