HR and the Unemployment Crisis

by Sharlyn Lauby on July 21, 2011

A blogging friend of mine, Shennee Rutt, recently started a really good debate on how to end the unemployment crisis.  As I’ve been putting together my own thoughts on what can be done, it occurred to me the first step is understanding what’s happening with the economy.

Then I saw this video from former Secretary of Labor Robert Reich called “The Truth about the Economy” (in less than 2 minutes, 15 seconds).

My two takeaways from the video were (1) the key to economic recovery is marketplace spending by the largest group of people – i.e. the middle class BUT (2) compensation for the middle class has not kept up with the rest of the marketplace.

Quite the Catch-22.  This leads me to wonder if what’s really happening right now is what has been predicted for years – the elimination of the middle class.  And if that’s the answer, can anything be done to stop it?

What I find interesting about the wages and spending discussion is the absence of conversation about human resources.  When we think about the department that’s responsible for making sure employee wages are in alignment with the marketplace, well…that’s human resources.

Now, I do understand a company’s ability to pay factors into the decision as well.  But if organizations are making record profits and employee wages aren’t keeping up with the market, then on the surface it appears to be perpetuating the concept of the haves and have-nots.  Something I’d like to believe HR pros have an opinion about.

I don’t know that I have all the answers here so I’d love to hear your thoughts.  The middle class appears to be shrinking.  My question is, are companies talking about it and the implications as the gap widens.

{ 9 comments }

Stephen Lynn July 21, 2011 at 8:43 am

Interesting point of view and question. On the surface I think it makes a lot of sense. I have always been bothered that executives are rewarded really well when their companies do well, but they don’t pay an equivalent penalty when they have bad years. I know you can make the argument that they can get fired, but the combination of their severance packages and what they made in the good years easily makes up for it.

Having said that, there are a couple of reasons it isn’t as easy as it might seem to deal with what appears to be a widening gap between the success of companies and their middle class employees. First, management is ultimately responsible to make decisions that benefit the owners of the company, the shareholders. It isn’t in the shareholders’ best interest to increase pay just because the company had a great year. They have to take into account market factors and the competitive field. Second, if they had a bad year I wouldn’t expect the workers’ pay to be cut.

I think companies talk about the subject superficially when they discuss the satisfaction of their workplace and maintaining staff, but I doubt they address your question directly.

BTW, I happen to be a CEO.

Suzy July 21, 2011 at 9:24 am

Thanks for posing a great question which I’m sure will spur much discussion!

The widening of the middle class is not an active discussion topic in the Manager circles I roam around in, but certainly one I’ll be listening closer for. I’m sure there some company cultures would support this conversation better than others.

From a business perspective, it’s strictly about creating value for shareholders. Employees are rewarded for a company’s successes through an employee profit sharing plan and on the flip side they suffer through wage cuts, decreased benefits and reductions in force when the company is not profitable.

I can’t quite picture what it would be like to engage in a conversaion in the workplace about increaseing compensation for the middle class without being labeled as liberal HR, giving the farm away while foregoing returns for shareholders.

Karla Porter July 21, 2011 at 10:01 am

This is such a very large topic.. This is what I talk about all day long, every day – it is my profession (economic and workforce development). It is like an onion, there are many layers, each can be peeled away to discover generations of poor decision making by government and corporations. This is hindsight. I go back to the view I blogged about 2 years ago on the future of the workforce. In my opinion, our success lies in a 1099 workforce and co-op health care / reform. It would stimulate job creation, cause companies to be more competitive for labor – therefore increasing workplace standards and improving internal culture, cause an increase in educational attainment and boost innovation. Things this country is in dire need of. Thanks for letting me let off some steam Sharlyn. XO
Karla Porter recently posted..It’s Payback Time!

TNS Employee Insights July 21, 2011 at 11:37 am

Really enjoyed this post and got me thinking a lot! Thanks for posting!
TNS Employee Insights recently posted..What NOT to Do When Job Searching

Kay Blake July 21, 2011 at 12:29 pm

Great topic to discuss Sharlyn. I often wonder if we’re in the paradigm shift of redefining the term “employee” and “company”. Individuals now have to learn to brand themselves and align with “larger brands” unlike before “working” for a company taking on its brand. I find the show “Undercover Boss” fascinating because it shows how critical “employees” are to the success of the company and shareholder profit. Companies cannot always recreate the loss of an employee that brought their own personal “brand” of work skills and ethic to the company.

How would HR’s role change if they had to negotiate a “brand/marketing” contract along with an “employment” contract for new-hires? Will it come to the point where companies will have to compensate the Next-Gen worker to wear the company-brand polo? Play in the company soft ball team?

If salary is tied to shareholder profit, will employees submit ROI’s? What will lessen the salary gap between Executive and middle-class workers and what role will HR play?

Sharlyn Lauby July 21, 2011 at 1:13 pm

@Stephen – Thanks for the comment. Agreed, it’s not an easy fix. I can’t help but wonder if we stay on the current course if our workplaces will become the same – companies of haves and have-nots. If that’s true, this creates a whole boatload of questions about how to attract, train, engage and manage a workforce of people who each view money in a very different way.

@Karla – There is such a need for human resources to get involved in the economic and workforce development conversation. What will be interesting to watch is, as our workplaces take advantage of the benefits technology can bring, how that impacts global talent. Companies can cast a wider net and employees will compete on a global stage. I’d be shocked if this doesn’t contribute to the shrinking middle class dynamic. Thanks for sharing your thoughts!

@Suzy – Thanks for your note. I am totally for value and profits. I’m wondering though if we are kicking the can down the road when it comes to wages and the cost of goods. Ultimately, companies need to also attract and retain talent to keep the good profits coming. It’s a balancing act for sure.

@TNS – Thanks for the comment! I’m sure there will be more to come on this subject.

@Kay – You bring up an excellent point. How employees react to these changes will have an impact on our work as HR pros. I hope we are able to have more discussions about what this means for HR and the supervisor – employee relationship. Thanks for adding to the conversation!

David Lee July 27, 2011 at 10:23 am

I watched my brother lose his job after 20+ years with his company. His boss was trying to improve the earnings for his division and the fastest solution was reduction of high earning employees. My brother was well liked and those that worked with him reported the reign of terror that followed. If they weren’t happy they could always leave…he knew the economy was in his favor from a revolt happening. Although the service to their customers declined…the division profits increased. The boss was promoted.

This goes beyond HR…this is a leadership failure! When companies see a lack of value in their people the performance of the organization will decline. This is a very short sighted view and one that good leadership would not allow to prevail. It’s time for executives to realize that although Wall Street looks at quarterly earnings, their stock holders typically invest for the long term. Executives should make this same long term investment in their people!
David Lee recently posted..The Declaration of Independence Social Media Campaign

Mark Hornung July 27, 2011 at 12:26 pm

Part of the problem lies with the short-sightedness of American managers. They typically have a three-month horizon, i.e., quarterly results. They are compensated on how well they meet their “numbers” and will do whatever it takes to achieve that. Henry Ford didn’t didn’t start paying his workers the princely sum of $5 a day out of charity. He was building his own market and advertising by paying the workers enough so they could buy a Model T of their own. He was taking a long-term view. American businesses– especially multi-national ones– don’t care what happens to the American middle class because they are focused on the Chinese and Indian middle classes. As long as we are going to revise the tax code (or at least that’s what they’re saying on the Hill), why not make it so that long term results are valued more than quarterly ones? People follow the money, so let’s start there if we’re going to change things.

Sharlyn Lauby July 27, 2011 at 3:29 pm

Thank you both for the comments. I believe you’re both talking about the same things: (1) the relationship between people and profit and (2) short-term versus long-term success. In some ways, it’s equal to the chicken and egg concept…which is why this matter is so complicated.

We need people to generate profits but we also need a certain amount of profit to keep paying people. Just like we must have long-term gains for our businesses to sustain but we need those short-term successes to keep our operations running. The bottom line is all of these dynamics have to be balanced.

Comments on this entry are closed.

Previous post:

Next post: