On Wednesday night, five of us had dinner at a restaurant here in town. A member of our party told a frustrating story about going to the dentist, where the dental hygienist did everything but mop the floors. Unfortunately, when managers ask associates to do many disparate things, they don’t do any of them very well. Such was the case here, to which the put upon worker said “we just can’t find anyone to do this other stuff.”
Indeed. How many of us have said something similar over the last couple of years? Or have wondered it?
At the risk of waxing nostalgic like a grumpy old man, which I do and am, it does seem the competency of the overall workforce has fallen over the last several years. When I said as much, everyone in our dinner party agreed, with one slight exception. I actually said competency levels had fallen over the last decade or two, and one person corrected me with:
“John, it hasn’t been that long. It has happened since the pandemic.”
At this point, our server had arrived at the table to tell us about the night’s menu. Now, the owners of this particular restaurant train their staff exceptionally well, exceptionally. The attention to detail is, or has been, impeccable. So, it was something of a surprise when the young man struggled his way through the process, seemingly unprepared.
Scratch the word seemingly. It was weird.
Please don’t construe this as me venting my spleen. The service was still very decent, and the food was delicious. However, the former was definitely down a notch since the last time I had been there. Interestingly enough, that would have been around 3-4 years ago, at least at this location.
So, what gives?
If I could definitively answer that question, I would be a very rich man. The most important men in town would come to ask me to advise them like Solomon the Wise. If you please, Mr. Norris. Pardon me, Mr. Norris. Posting problems that would cross Jay Powell’s eyes! And it won’t make one bit of difference if I answer right or wrong. When you’re rich, they think you really know.
The more mental gymnastics I do on this issue, the more I come to a basic conclusion:
Employers simply aren’t paying enough to attract the necessary talent.
While perhaps an oversimplification, it reminds me of when someone takes their house off the market, say, after several weeks. The answer they give is always “we just couldn’t sell it.”
The truth is they could sell their house if they really wanted to do so. Of course, they would have to drop their asking price, potentially by a significant amount. So, a better way of explaining why they took their house off the market would be “we just couldn’t sell it at a price that made sense to us.” Fair enough. However, few people actually say it that way. Perhaps they think it makes them sound greedy or something.
I don’t know.
The thing is, that dentist from the earlier paragraphs probably doesn’t want to spend, say, $35/hour for a receptionist and/or file clerk. Who would in central Alabama? That would either take money out of their pocket or potentially alienate patients with higher prices. Unfortunately for them, insurance companies are only going to reimburse so much for their services.
The same thing could possibly be said about the server from this past Wednesday night. While I have no clue what the restauranteurs pay as an hourly rate, I imagine the real money is in the tips. To that end, I left a pretty nice amount, arguably more than the true value of the service. Again, it wasn’t bad, but probably just not worth the hourly equivalent of the tip.
But, what if the proprietors were willing to take home less? What if they increased the price of the entrees by a few bucks, and effectively pass the increase on along to the staff? Would (or could) they attract better talent? Or take the additional time to better train the talent they currently have?
These are difficult questions for small business people to answer. After all, no one wants to take home less money. Further, it is the owner’s name on the lease and their signature on the line of credit. Essentially, where the rubber meets the road, it is their capital at risk, not the wait staff’s.
What to do? What to do?
If my experience is indicative of a larger trend, it seems the price for a certain caliber of worker hasn’t reached the market equilibrium.
Basically, whether employers realize it or not, they have imposed a type of price ceiling for high performing hourly workers. This is a problem, as price ceilings almost always lead to shortages.
As such, either the cost of labor has to go up to increase its supply, or the demand for it does. It simply can’t continue as it is indefinitely.
Therefore, the following will happen, just as sure as the nose on my face.
- First, expect to do more of the work yourself. We are already seeing this with things like patient portals, online check-in, self-service kiosks, robotics and the like.
- Second, we will likely have fewer options in the future and fewer substitutions. If you don’t like the pickles on your Big Mac or Chick-fil-A sandwich, take them off yourself or pay up for the change. To that point… menus of all types are likely to shrink.
- Third, businesses that can get away with it will charge higher prices. Those that can’t will charge the same price for lesser quantities or service. Shrinkflation is the term for the latter, and you can find it everywhere. The 30 oz. “quarts” of mayo and 1.5 quart “half-gallons” of ice cream are perfect examples.
With this in mind, I fully expect the proprietors of Wednesday’s restaurant to eventually raise their prices. They have largely kept them same since the pandemic, and you can find any number of lesser places in town which charge more. Shoot, they could jack them up 10-20%, apply the difference to finding better talent and the clientele wouldn’t think twice about it.
Seriously.
In the end, many things in life come down to economics, and there are few things in the business world which you can’t solve with money and time.
As for the shortage of workers, businesses are either going to have to pay more, replace that capacity with technology of some sort, charge more or reduce service.
To be sure, the end consumer might not like. However, it seems they don’t like the type of service and/or competency we are currently experiencing. To that end, I guess the old adage is true: “you get what you pay for.”
Laughingly, if the boss of the person who coined that phrase had paid more, they might have found someone who didn’t end sentences in prepositions.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this any every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.