Leading Through The Labor Bubble

Richard Carey had a strange experience recently: After years of using every possible tactic to recruit and retain scarce manufacturing employees, the CEO of Metal Ware laid off a handful of people when a supplier’s aluminum mill went down. Carey’s team ranked its employees and pared those with the shoddiest attendance and overall performance.

“There was somewhat of a fear factor there for employees,” says Carey, whose company, based in Two Rivers, Wisconsin, makes metal items ranging from food dehydrators to candle-wax pitchers. “But overall, it had a very positive cultural impact on the company, producing better attendance in general. It told people that we don’t forget about those who do come in when they’re supposed to, and that’s why they’re still here.”

That sounds like a company chief reflecting on a management tactic from the 1980s. But Carey didn’t come out of a time machine. After three years of coping with a poor hand in a labor-squeezed economy, which followed a decade of gradually deteriorating leverage, companies are seeing that this year’s slowdown may have nudged the pendulum back in their direction.

Daniel Greenleaf felt so strongly about this perceived change of fortune, he went public with a strange sort of victory dance. “Rising inflation and a market downturn guarantee layoffs,” the CEO of Denver-based Modivcare, a $2 billion health services company, recently scolded young workers on the opinion pages of the Wall Street Journal, commenting about the U.S. economy in general. “The days of expecting employers to be grateful for your application will be gone soon.”

Thousands of new layoffs at tech companies, not just the dozen or so at Metal Ware, seem to reinforce this notion. In Chicago, for example, online discounter Groupon recently laid off 500 employees, while Internet healthcare platform GoHealth stripped 800 of their jobs. Meanwhile, in Silicon Valley, Alphabet CEO Sundar Pichai warned staff of the Google parent to work with “greater urgency, sharper focus and more hunger than we’ve shown on sunnier days,” while Meta Platforms CEO Mark Zuckerberg vowed in July that the Facebook owner will “get more done with fewer resources.”

Many companies in the general economy are trimming as well, from Walmart, which quietly eliminated a few hundred management jobs, and Steelcase, which recently cut 180 salaried jobs amid declining orders and other woes, to Ford, which is phasing out thousands of positions. About half of respondents to a PwC survey of executives said they’re planning to reduce head counts.

A recent rail strike threat, along with fledgling and abruptly rising unionization efforts at some high-profile companies, including Amazon and Starbucks, also lend the impression that corporate management now somehow has gotten enough of an upper hand to frustrate employees. Why else would workers be flirting with commercial unions after decades of decline in the labor movement?

“The exuberance that got to a pretty significant level of companies fighting for talent and throwing a lot at that talent—that pendulum is swinging back to people realizing that it doesn’t go on forever, and maybe I should just stay where I am, because it’s less risky,” says Coco Brown, founder of Athena Alliance, a networking group for female CEOs.

Labor Days

But if you’re expecting a quick rebalancing of the relationship between labor and management, you’re likely to be disappointed. The reality is that the newly empowered American employee will remain the newly empowered American employee for some time, even if there is a slowdown in the U.S. economy.

“Lots of folks in leadership have a nostalgia for days when they had more leverage,” says Claire Deason, an employment lawyer at the firm Littler Mendelson. “But it would be a mistake—and a costly one—to assume that even if there are forces in the economy that benefit employers over employees, we will go back in time.”

Soberly, many CEOs seem to recognize Deason’s point even after the onset of a slowdown in 2022. Post-pandemic, pay has already skyrocketed enough to make discussion of minimum wage laws practically moot, but 59 percent of CEOs surveyed by Chief Executive in August said they’re upping employees’ base pay this year anyway, in an effort to retain top talent. Also, 54 percent are increasing access to upskilling programs, and 48 percent are enhancing sales commission rates.

And when it came to cutting spending amid a recession, reducing headcounts ranked as only the No. 3 gambit anticipated by CEOs for the second half of this year, with only 23 percent of them planning such moves. Reducing capital expenditures ranked as the No. 1 planned measure, meanwhile, with 31 percent, followed by expected cuts in travel and entertainment outlays, with 29 percent.

There are several reasons for this less-seismic assessment by CEOs. One is demographics: The overwhelming statistics that led to today’s historic labor squeeze haven’t abated. Approximately 400,000 fewer Americans are turning 18 each year. Meanwhile, according to Pew Research, the ranks of retirees 55 years and older have grown by 3.5 million in the last two years, while during the previous decade that cohort grew by only about a million retirees per year.

Also, in the absence of a uniform and comprehensive recession, as in the early 1980s, many industries and companies will continue to experience insatiable demand for labor even as some other sectors leak employees. That’s part of the continued flywheel of momentum from the overwhelming labor shortage birthed during the pandemic. Pundits talk about the current “full-job recession” in contrast to the “jobless recovery” of 2009 to 2011.

Personal Priorities

Today’s employees are different, as well as scarcer. Facilitated by government financial largess during Covid and freed from former routines by remote technology, workers are increasingly willing to “stick it to the man,” and more willing to bet on themselves for the long term.

“They aren’t necessarily as interested in the career aspect of things,” says Brian Niccol, CEO of Newport Beach, California–based Chipotle, the fast feeder where there have been rumblings of a unionization drive. “Generally, it’s much more like, ‘What’s the job right now?’ And they’re very much into making a living to support their lifestyle and experiences versus making a career.”

Katherine Saunders, executive vice president of Development Counsellors International, an economic-development consulting firm, attributes this to “personal reflection. People are talking about what they really want out of their jobs. They had a moment to pause, and now they maybe don’t want to work 80 hours a week.”

Indeed, American workers seem to be more fragile these days. The American Psychological Association says they’re experiencing levels of stress across races, genders and economic groups that haven’t been seen before in the 15 years of a survey it conducts. “Data suggest that we’re now reaching unprecedented levels of stress that will challenge our ability to cope,” warns Arthur C. Evans Jr., the group’s CEO.

Understanding the mindset of young workers is especially crucial for CEOs.

“Coming out of the pandemic, they were worried about lots of things, and now they worry about civilization changing, with global warming, Ukraine, Taiwan—people are asking more questions about what they are doing that is meaningful,” says Patrick Manzo, CEO of Kazoo + WorkTango, an employee-recognition software platform.

One manifestation this ferment is known as “quiet quitting.” It’s become a huge social-media theme that reflects workplace realities as employees materialize for their jobs but only mail in their performance. More than half of workers surveyed recently by Gallup who were born after 1989 reported being “not engaged” in their jobs, and said they will show up to work and do the minimum required but not much else.

A Union Revival

Unionization is another major arena where some young Americans are working out their angst. For instance, the worker-organized Amazon Labor Union won representation at an Amazon warehouse in New York City last spring and now is trying to unionize other warehouses. And just since 2021, Starbucks has seen employees at more than 200 cafes voting to join the Workers United union, with employees of another 50 cafes voting against, out of 9,000 corporate-owned Starbucks in the U.S.

The International Brotherhood of Electrical Workers recently succeeded in unionizing the 350-strong workforce at Colectivo, an Upper Midwest coffeehouse chain of about a dozen locations headquartered in Milwaukee. Stiff efforts led by CEO Dan Hurdle couldn’t head off the effort.

The sniffing around collective bargaining at these companies underscores one important dynamic of today’s workforce: There is a bifurcation between knowledge workers and transactional workers. The latter haven’t kept up financially, experts say, despite recently fast-rising wages after decades of income stagnation. That exacerbates the well-documented dismay of rank-and-file workers with skyrocketing executive pay.

“People are getting left behind, and on top of that you have inflation that’s significant,” says Prasanth Nair, founder and CEO of Double Gemini, a productivity consultancy. “Years ago they may not have noticed these things, but now in New York City you can’t order a single meal for an office for under $30.”

In their incipient consideration of union representation, young Americans are also showing CEOs the flip side of their embrace of corporate purpose. “Workers are sending the message that they just don’t trust managers,” not just on wages and working conditions “but on a wide variety of issues of the firm living up to its espoused values,” says Tom Kochan, a professor at MIT Sloan School of Management.

Says Jeff Jolton, the managing director of research and insights at human resources and talent advisory Kincentric, “Before, it was, ‘How do I fit the company’s values?’ Now, it’s ‘How are my values being reflected by the company?’ And if the company is making money, they want to make money.”

Generation Z, the source of an increasing share of transactional workers, is more politically progressive than its predecessor, and some experts say its members agitate for union representation following the lead of high-profile liberal politicians such as U.S. Rep. Alexandra Ocasio-Cortez, the Democrat from New York.

“Young workers are more interested in unionization than their older counterparts, and they watch each other through social media and social networks,” Kochan says. “Success breeds imitation.”

Industrial unions used to be the key to the overall success of the labor movement, and Big Labor has made some waves in factories. Nearly 700 workers at CNH Industrial went on strike in Mount Pleasant, Wisconsin, in May after the UK-based maker of agricultural equipment boosted health-insurance costs and cut retirement benefits without increasing wages.

And workers at Kellogg’s Zanesville, Ohio, factory, which produces Morningstar Farms meat analogs, are seeking to unionize, fighting mandatory overtime and other concerns, according to the Bakery, Confectionary, Tobacco and Grain Millers International Union.

But it’s not exactly Industrial Workers of the World days. For example, the United Auto Workers has continued to fail to organize new automotive plants such as those run by Tesla, and Volkswagen’s, in Chattanooga, Tennessee. The vast corruption at the top of one of America’s premier industrial unions hasn’t helped.

Many manufacturing CEOs are attempting to get ahead of concerns about workers, unionized or otherwise, by automating everything they can. Milwaukee Tool, for instance, has been aggressively automating factory operations over the last several years and eliminating low-skill jobs. At the same time, the company has been investing heavily in hiring more engineers and software developers who are helping move the company into a more electrified and connected market.

“It’s because of availability of labor and also [increasing] throughput and the kind of product we get as an end result,” says Steve Richman, CEO of the Milwaukee-based maker of power tools. “The world isn’t black and white. We evaluate where it makes sense to automate from a quality, consistency and performance standpoint, with balance from an operational standpoint.”

As managing partner of GHJ, an accounting and financial-advisory firm based in Los Angeles, Tom Barry is clear-eyed about the employment landscape. “There are lots of opportunities available for qualified folks, and we’re still seeing the market frothy with people moving,” he says. “Particularly in our business, there’s a shortage of qualified candidates, full stop. I haven’t seen the market changing at all.”

Indeed, more than one-third of finance professionals are recruited more than three times a month, says a study by Emburse, with the cream of the crop being recruited seven times or more each month. Those who move on cite lack of growth opportunities as the biggest reason.

So, GHJ continues to bend over backward to accommodate remote work at the same time the company tries to make its required in-office time productive, with opportunities to “come in and learn culture and together build the culture and collaborate,” as Barry puts it. Once a quarter, GHJ requires people to come in for team building and training, flying them in from all over the country. “We make sure we invest in the times we’re together, and we’re intentional.”

It isn’t clear whether CEOs will gain more leverage with their workforces unless the economy really stalls. Elise Freedman, a senior client partner with executive recruiter Korn Ferry, maintains that “quiet quitting” will be hard to do for very long. But Jolton counters, “The job market is still much more open than it ever was. People will have mobility in the short term, and if the recession ends, they will be in that war for talent regardless.”

For tips on how to navigate an empowered workforce and a simultaneous slowdown in the economy, see “10 Ways to Get Labor Leverage.”