BUSINESSWEEK ONLINE : MAY 22, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY Wooing the Worker Inflation makes a comeback as bargaining power shifts to labor For Alan Hirsch, the long-running economic expansion has been a mixed blessing. The owner of Dilworth Mattress Co., a small mattress maker in Charlotte, N.C., saw his sales jump 13% last year. But with the jobless rate in this Sun Belt boomtown now below 2%, Hirsch finds himself perpetually scrambling to come up with 10 workers to keep his small assembly line running. ''People ask, 'Do you require a drug test?' I say 'No,' because I'm afraid that if I did I might not have anybody,'' Hirsch jokes. What Hirsch has done is dangle a steady stream of perks, including a new $50 biweekly bonus to workers who have perfect attendance the prior two weeks. ''It's a scary situation,'' he sighs. ''If I were to lose someone now, it would be a big problem.'' Hirsch isn't alone. With the economic boom pushing the national unemployment rate down to 3.9% in April--the lowest peacetime rate since 1957--mattress makers and mortgage bankers alike find themselves competing for workers like never before. Up to now, Corporate America has kept the good times rolling by expanding the workforce--bringing in everyone from welfare recipients to retirees--and using computers and other technology to make these workers more productive. But now, employers are having unprecedented difficulty in finding labor. The percentage of the population now working--64.9%--''is the highest in history,'' notes First Union Corp. (FTU) economist Mark Vitner. ''We're just running out of people.'' The shortage is taking a steep toll on employers: In the first quarter, wages rose at an annualized 4.2% rate, the fastest pace in two years. With the pool of available workers--the working-age population currently not employed--dipping below 10 million in April, many economists expect wage gains to hit 5% later this year. And with the University of Michigan's consumer survey in April showing a rise in public expectations of inflation--from a 2.3% rate last November to 3.2%--some economists believe that the seeds of a wage-price spiral may be taking root. ''It looks like wage inflation is here,'' says Morgan Guaranty Trust Co. economist James O'Sullivan. ''Frankly, I'm surprised it took so long because bargaining power has shifted to the workers.'' MAID SERVICE. That may be news to Wall Street, but not to employers forced to use a host of creative measures to recruit--and retain--workers. Matrix Group International, a Web design firm outside Washington, will soon offer maid service to employees. Xerox Corp. (XRX) now gives first-time homebuyers up to $2,000 toward a down payment. In Minneapolis, some law firms are dangling wardrobe allowances and concierge service to law-school graduates. And signing bonuses are quickly becoming de rigueur: According to the National Association of Colleges and Employers, 56% of companies recruiting on campus now offer signing bonuses to some new hires. That's prompting the Bureau of Labor Statistics to include sign-up bonuses in their wage surveys. Indeed, even maid service isn't always enough these days. Many employers now find that they have to hire people the old-fashioned way, by offering more cold cash. In New York, publisher Random House Inc. is raising the pay of all entry-level jobs by 20%, to $30,000, effective this July. Temps are getting in on the act, too: Milwaukee-based Manpower Inc. (MAN) has raised hourly pay for manufacturing workers by 8.2% and is offering signing and retention bonuses equal to a week's pay, says Terry Hueneke, the company's executive vice-president. Similarly, the Minneapolis law firm Merchant & Gould--which specializes in intellectual property law--is raising the starting pay for its incoming associates by 37%, to $115,000. ''We couldn't ignore what other law firms were doing in Silicon Valley and New York,'' notes managing director Randall King. ''To attract and retain the kind of employee we want, we had no choice.'' In perhaps the ultimate irony--given the clamor among the rank-and-file for highly prized stock options--some companies whose stocks have been in the ditch are now giving their employees the choice of taking more cash in lieu of options. Coca-Cola Co. (KO), whose stock is down 40% from its 1998 high, will soon let workers choose from a menu of pay plans with varying amounts of cash and options. So far, many employers maintain that they've been able to fork over higher pay without damaging their bottom line. In early May, when the Starbucks Corp. (SBUX) chain faced rising wages and rents, it decided not to tamper with the ''Starbucks experience'' and instead raised the price of a cup of coffee by 5 cents to 15 cents in San Francisco, San Diego, and several other California markets. ''We're not lowering our customer standards just because the cost of hiring continues to rise,'' says Starbucks spokeswoman Helen Chung. Other companies are simply making more demands on their higher-paid workers. Merchant & Gould, for instance, is raising the billable hours required for each associate, from 1,725 to 1,825 a year. CALLING FOR HELP. Other companies say they're able to keep a lid on labor costs by better scrutinizing whom they hire in the first place. Home Depot Inc. (HD)--which plans to add 200,000 new workers over the next three years--launched new TV ads last January promoting the chain as a place to work and has added kiosks in its stores where prospects can take on-the-spot employment tests. By subjecting applicants to more rigorous screening, ''we have reduced turnover by 11.4% in the tightest labor market,'' says Alan Frost, the retailer's director of management development. Corporate lobbyists are also appealing to Washington for help. Congress is expected to help high-tech companies by opening the spigot for immigrants with technical backgrounds. Low-tech employers such as hoteliers and restaurant owners already got relief in April with the repeal of a Depression-era law capping how much retirees can earn before losing their Social Security. That new law enabled Washington restaurateur Zed Wondemu to bring aboard some older workers as summer help for her Ethiopian restaurant. And she ended her search for a manager of a small apartment building she owns by hiring a 69-year-old tenant who had previously rebuffed her offers because of the Social Security cap. ''Thanks to science, our life expectancy is longer and people have the energy to work. So why not hire them?'' asks Wondemu. Still, there are times when neither pay nor perks is enough. Dana Corp. (DCN) recently closed a profitable auto-gasket factory in Marine City, Mich., because it couldn't find enough skilled workers and managers to operate the plant. ''You can't run this factory like a restaurant--where if you put too much ketchup on a burger it's no big deal,'' grouses Gary Corrigan, a Dana vice-president. ''You're working a quarter-of-a-million dollar piece of equipment. If you cut something too short in a factory, it messes things up all down the line.'' Most companies don't pay that kind of price for the worker shortage. But they're finding that the price tag--and pay stub--is ever more expensive. By Dean Foust, with Daniel Northington, in Atlanta, Michelle Conlin in New York, Carey Wallace in Ann Arbor, Mich., and bureau reports _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Wooing the Worker CHART: As Unemployment Shrinks...Companies Offer Workers More Who'd Catch Pneumonia If the U.S. Sneezes INTERACT E-Mail to Business Week Online

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