The Economy and Wages In 2019: What HR Can Do To Help

In all my years as an analyst and consultant in the world of HR, there’s one thing I’ve learned: the economy impacts workforce strategies more than almost anything else. And this year, in 2019, the economy is more important than ever. Let me give you some things to think about.

First, while the GDP is growing in many companies, productivity and earnings are not.

Consider the chart below.

US Economy Productivity Lags

Workers around the world are working more hours, GDP is going up, but productivity (output per hour worked) is almost flat. Why is this? What my research shows is that digital technologies are not yet optimized in our ability to get work done.

In a study we completed with LinkedIn last year, we found that 27% of employees believe they are spending an entire day a week dealing with emails that are irrelevant to their jobs. Workers spend more than 4 hours a day on our phones (doing what? I’m not sure). And the average company now has seven different systems for communications. We are in a “digital overload” state in most companies, and unless you’re a deskless worker you’re “glued to your computer” all day.

I also believe productivity is impacted by lagging infrastructure in large cities. Commute times have increased by almost 30 minutes a week in the US over the last few years, and this reduces our productivity. Governments seem unable to invest in transit solutions to help fix this, so we spend more time in our cars or hope that our employer can get us a bus to get to work (which lets us work in the bus but doesn’t save any time).

What does this mean for HR? We need to invest in work-at-home solutions, simplify the IT infrastructure (and HR tools), and get rid of all these extraneous communications. Some companies now have “no meeting Fridays” and “no email Wednesdays” to try to fix this mess. It’s all about improving the “employee experience.”

I think we have to spend more time in 2019 looking at the new breed of team management tools (Microsoft Teams will be big) and get rid of all the extra “stuff” that gets in the way. The problem, of course, is that every vendor wants to be your “employee-facing tool” – and most of them just aren’t going to win that battle. I believe Microsoft will (and maybe Google and Slack and Atlassian), so the rest of them have to rethink of themselves as “plugins” and just work “In the flow of work.”

(Employers tell me even their brand new cloud-based HCM systems are not achieving the level of user experience they hoped.)

The second economic issue I want to address is wage stagnation and income inequality.

Despite promotion by the Federal Government that the US economy is doing well, it really isn’t. US wages have barely budged (after inflation) in the last 40 years and for those in the bottom 90%, wages are falling behind.

wages falling behind

The problem in developed countries like the US, UK, and soon China is that all this economic growth is distributed in a very uneven way. Yes, digital business models and new careers have been wonderful to those who graduated from college and have the right skills. But for the 62% of Americans who didn’t get through college or those who studied subjects which have fallen out of demand, the world of work isn’t so rewarding.

college degrees over time

And this disparity has greatly impacted employee sentiment. Deloitte’s Millennial study found that over 2/3 of all Millennials do not believe their standard of living will be as high as their parents, and 15% of them have student loans over $15,000 in size. Many are doing side-hustles, gig work, and living in shared housing (or at home) to get ahead.

And they do understand that the world is getting less fair.

This income inequality is impacting the workforce in many ways. First, it is now “luck of the draw” if you happen to work for one of the very high performing companies in this new “have” or “Have-not” economy. PWC believes that the Gini Index (inequality index) of corporate profits is at an all-time high – in some industries (ie. technology, internet, consumer electronics) over 80% of the profits go to the top ten companies in the market.

income inequality continues to rise

And to add fuel to the fire, US income inequality is getting high relative to the rest of the world. I just finished analyzing this data from World Bank and OECD. It’s not at all what you’d expect: US inequality is on par with many poor Latin American countries.

As younger workers fall behind economically, they now have a greater demand for social purpose at work.

“Ok if I’m not going to make enough money to get ahead, at least I should work for a company I can believe in.”

More than 60% of consumers now say they will not buy products from companies whose CEOs are not taking an active role in political, societal, or environmental change. This has given rise to what we call the “Social Enterprise,” a focus by companies of all sizes to “be good” not just “do well.”

As HR leaders we have to think about this in several ways. First, are we paying people enough? As I write about in detail in the article “Why wages are not going up: it’s not the economy its management,” I believe the real problem is our own business thinking.

management is holding back wages

When we give people small raises we are essentially saying to them “we don’t value you that much.” In today’s economy, where the most valuable jobs are based on creativity, services, and collaboration, paying people well is an investment, not an expense. This year I encourage you to rethink your entire compensation strategy. The companies that outperform in today’s economy are the highest paying companies in their industry – and that’s a signal you should think about.

And make sure you work with your senior leadership on the topic of corporate purpose. Despite the philosophy of Milton Friedman that “all profits are good,” in today’s economy purpose really matters. The best organizations set out to fulfill a mission, and profits are a result (not the goal) of that mission.

(Note: 2019 brings the first-ever UK regulation that requires all companies with more than 250 employees to disclose the ratio of CEO pay to average worker pay. This started in 2018 in the US and the results are somewhat staggering. The average ratio in the US is 311:1.)

The third economic issue is the way the lack of wage growth is being slowly eaten up by “benefits.” Since the year 2000, the percent of payroll spent on “benefits” went up by 32%. Almost half of this is an increase in health care insurance, but the rest includes retirement benefits, wellbeing benefits, and other benefits employees badly need. What seems to be happening in the US is that our government’s lack of interest in healthcare or other workforce benefits has forced the private sector to take over.

One of my clients, a large benefits provider on the west coast, told me he thinks employers are becoming like “parents” to their employees. I think there is some truth to this. As the economic system provides less security, income, and healthcare to employees – we as employers are being asked to pick up the slack.

payroll spending on benefits not wages

What does this mean to HR? We need to continue to invest in wellbeing programs (which have a huge impact on reducing healthcare costs), retirement and savings programs, financial wellbeing programs, and other programs to help employees lead healthy, fulfilling lives. When I entered the workforce in 1978 there was very little of this: it has become an important reality today. And while the global wellbeing market is already over $40 billion today, it has room to grow.

corporate wellbeing market

The fourth economic trend I want to point out is the huge shift in jobs away from “routine work” toward jobs which require digital skills, creative and service skills, empathy and communication skills, and persuasion and team building skills.

These “uniquely human” skills are found in healthcare, software design, sales, customer service, marketing, and just about every other part of business. LinkedIn’s latest study of skills in the San Francisco Bay Area (the city with the biggest skills gaps) found that “oral communications” was the skill in most demand. In other words, we need people to be able to listen, communicate, read, write, and work in a team.

For us in HR, this means spending a significant amount of time and money on employee career development, technical skills development, and overall on-the-job learning.

US companies only spend about $1,200 per employee per year on training yet they spend 3-5 this amount to go out and hire a new person (to say nothing of the cost of onboarding and getting this new person to be productive). We can clearly afford to spend more on employee development.

If you want to help the economy grow and help people reinvent themselves, you have the tools to do it in your own company. Don’t wait for the government or education system to reskill people: we have to do it ourselves.

This is why the L&D market is exploding this year (spending on L&D technology is up 10%) and companies are finally getting out of the way and putting learning right into the hands of employees directly. In fact as the newest research I published just shows, employees who spend more time learning are more productive, happy, engaged, and perform higher than their peers. Make sure 2019 is focused in this area.

Finally, let’s talk about a possible slowdown.

Yes, there is a lot of evidence that this ten-year economic boom may be slowing in 2019. I’ve been through four of these in my career, and let me tell you what I’ve learned.

  • When budgets get tight, your job will be to “do less with less.” In other words, all the extra programs, benefits, tools, and services you’ve been bulking up on in HR over the last decade (HR spending is up almost 2.1% this year) may have to stop
  • If you have to let people go, do it in the most positive way. As I mentioned above, while the GDP and stock market have risen, wages have not. If you have to let someone go, be as generous as you can – they will remember your company their entire life, and at some point, you may want to hire them back.
  • Help your executives learn how to redesign jobs and the workplace to improve productivity. Even today, as the economy grows, most companies are going through a wide range of transformations. This means redesigning jobs, moving work out toward front-facing employees, and shifting organizations toward teams. You can help make this happen, and often reduce costs and improve productivity without laying people off.

There’s a lot more to say about the economy, and I’m going to be writing about this in my Predictions report and many of the speeches I’m planning for this year. But my main message is simple: we in HR have a tremendous amount of responsibility, power, and agency to impact these economic issues in the countries in which we live. Businesses have a responsibility to do the right thing for society (as well as our customers and stakeholders), and you as an HR leader have a lot more power than you may think.

Have a wonderful 2019, much more to come on this topic. Stay tuned for my predictions report coming out in January.