US Companies Struggle With Staff Shortages Despite Raising Wages 2021

Some of America’s largest companies are struggling to secure enough staff to handle a surge in consumer demand, despite raising wages to levels that are prompting them to push up prices to protect their profit margins.

Earnings announcements this week spelt out the difficulty that employers from ecommerce warehouses to fast food restaurants are finding in recruiting and retaining workers as heightened consumer spending collides with a historically tight labour market.

Starbucks spoke of “rapid” increases in its wage costs, McDonald’s described a “very challenging staffing environment”, and Amazon predicted that “labour inflation” would add $2bn to its cost base in the fourth quarter.

“For the foreseeable future, our capacity constraint is actually labour, which is new and not welcome,” said Amazon’s chief financial officer, Brian Olsavsky, adding that the shortages were affecting its productivity and service levels.

“The problem is that everybody is rushing to fill the jobs” now that the economy has opened up, said Carol Tomé, UPS’s chief executive. “That’s why you see so much pressure out there.”

Waste Management, the rubbish collection and recycling group, said underlying inflation in its payroll costs hit 8.7 per cent in the third quarter. John Morris, its chief operating officer, attributed the “acute” staff turnover it witnessed to a phenomenon economists have dubbed the great resignation, in which millions of workers are quitting their jobs and rethinking their careers.

Companies from IBM to Sherwin-Williams, the paint manufacturer, said they had adjusted wages not just to attract new staff but to retain existing employees. Retention is becoming “increasingly challenging”, however, said Cynthia Sanborn, chief operating officer of Norfolk Southern, who said the railroad operator had seen attrition accelerating for the past two quarters.

The comments from some of the country’s largest employers come ahead of next Friday’s jobs report, which investors are watching closely after last month’s payrolls data showed that the US economy added just 194,000 jobs in September, well below forecasts.

Employers are responding by offering higher pay packages, with US Labor Department figures released on Friday showing wages and benefits rising at their fastest pace since 2001. The employment cost index advanced by 1.3 per cent between the second and third quarters.

Costco, which had already raised its minimum wage to $16 an hour in February, increased it again to $17 an hour this week, while Starbucks trailed pay rises starting in January which would mean its US hourly workers are making an average of nearly $17 an hour by next summer.

McDonald’s said its franchisees were experiencing wage inflation of more than 10 per cent but some had still needed to cut back late night opening hours because of staffing shortages. Restaurant Brands International, which owns Burger King, said that labour issues had forced some restaurants to close their dining rooms.

“I think it is going to continue to be a difficult environment for the next several quarters,” McDonald’s CEO Chris Kempczinski predicted.

McDonald’s was among companies including Kimberly-Clark, the Kleenex tissue maker, which said they were passing on the increased costs to customers by raising prices. The burger chain expects its US menu prices to be up about 6 per cent this year over 2020, contributing to higher profit margins.

Those increases, coupled with elevated consumer demand, helped power strong profits growth. Third-quarter earnings for S&P 500 members are running 36.6 per cent ahead of last year, according to FactSet, putting corporate America on track for its third-highest year-over-year quarterly growth since 2010.

However, the labour shortages are compounding other challenges, including inflation in commodities from steel to resin and costly disruptions to shipping, trucking and other links in the supply chain.

“In terms of the problems, it’s a bit like Whac-a-Mole: things pop up,” Coca-Cola CEO James Quincey said of the freight bottlenecks and the labour market crunch, which is affecting bars and restaurants where its soda is sold.

Some employers fear that the Biden administration’s pending vaccine-or-test mandate for larger employers will exacerbate their labour challenges. The National Retail Federation warned this week that such mandates “unjustly thrust American employers, including retailers preparing for the busy holiday season, into the middle of a contentious, politicised debate.”

Others said their staffing shortages had prompted them to accelerate the automation of some roles. “We are working to automate a number of roles where we see longer-term challenges to attract and retain employees,” said Waste Management’s Morris, describing the move as “a de-risking mechanism in today’s labour market, where certain jobs simply don’t attract the interest they previously did.”

Leave a Comment

Your email address will not be published. Required fields are marked *