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The Human Factor

By David Smith
President, The Employers’ Association
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What happened in West Michigan this past year, and what is in the cards for the future? Are we in for a boom or are we looking forward to “more of the same” during the coming year? Will we experience an economic turnaround or are we still sinking towards depths from which we might not return?

Last fall when asked how things were going to be in 2010, most responded that it would be a better year (mainly because things could not get much worse!). At this time last year, companies were reducing work weeks, pay rates and generally doing whatever they could to keep their doors open until the economic tide turned.

During 2010, while things are a long way from normal, business has been stabilizing and even increasing in certain sectors. Employers have begun to seek qualified employees (but are not finding candidates that align with the work they have available). It would seem that, as with previous years, in order to predict where we are going we should look at where we’ve been on this roller coaster ride called doing business in Michigan!

EMPLOYMENT

Current status
Michigan has lost its dubious honor of being our nation’s unemployment leader, relinquishing that distinction to Nevada. While manufacturing may be more cost-effective elsewhere, and Michigan’s tax structure is not particularly friendly in terms of attracting or retaining new business, we have seen an influx of employers seeking an opportunity to leverage our skilled workforce to fill jobs within emerging markets and industries.

Further growth within the service sector continues to drive our region’s economy where hospitals, research institutions, educational systems and colleges have become our largest employers.

Smaller companies better able to respond quickly to small production runs and changing customer needs are growing while large manufacturers have ramped up their production capabilities through increased automation and efficiency. Sprawling facilities maintaining large inventories within warehouses staffed by dozens of employees have been replaced by a “just-in-time” philosophy.

While the furniture industry stabilized, the automotive supply business regained strength within our region. Employers remained conservative in the administration of their pay policies as reductions in pay were restored to 2008 levels (but rarely were any moves made to “make whole” employees for the losses they experienced during these past two years).

Specialized service and technical positions continued to replace highly compensated manufacturing jobs within the market, but there was an inadequate labor pool available to meet the needs of these emerging industries. Entry-level positions within all industries were difficult to fill as potential employees within this arena often received enough income through the state’s unemployment system that seeking work was as attractive an alternative as engaging in work. While a great safety net, the continuous extensions may hurt the economy almost as much as they help individuals needing the assistance.

Predictions

• Employment will increase slightly during 2011, led by continued increases in healthcare-related employment, automotive-related manufacturing, technical/engineering occupations and “green” technology jobs. Growth within building “retrofit” should increase slightly but new construction will remain flat – holding down potential expansions within our office furniture industry.
• Smaller organizations will continue to thrive but such growth but will not create a large numbers of jobs. In order to fill emerging service and healthcare jobs, unemployed workers must accept they are not going to return to their previous lifestyle unless they make an intellectual investment into their own future. Workforce development agencies will continue to evolve as they seek to better link education programs with employer needs.
• In addition to health science jobs (nursing, eldercare, medical assistance, etc.), information technology specialists and engineers will continue to be in high demand. Business is gaining efficiency through technology and needs skilled individuals to make the transition. The reliance upon contingency workers hired through staffing agencies will continue as more companies seek slowly enter the waters of growth.

COMPENSATION

Current Status
Though a few employers feel that reduced pay rates constitute a “new normal,” most organizations restored the pay reductions that many workers accepted during 2009. Few workers recovered the pay they lost.

Employees worked more hours as their employers did “more with less” for most of the year. While most local organizations maintained their external competitiveness by continuing to benchmark pay and policies against appropriate businesses practices and adjusting their pay structures, many have retained internal equity by holding back on actual pay increases.

Predictions

• Employers feeling that “having a job should be enough” will probably experience high turnover as the economy strengthens.
• Providing “across the board” pay adjustments to all employees no longer provides a competitive environment. These “equal” adjustments may minimize internal friction but do not adequately address the variance of pay we see for different positions within the region. Most organizations will provide an “average” pay adjustment of around 2 percent during the year, but, depending on market demand, “spot adjustments” will be required throughout the year as the market shifts and grows.
• Though few companies adjusted pay during 2010, benchmark surveys reflect a 4-5 percent increase in average pay (since many low seniority and/or less skilled workers were eliminated during through job elimination or lay-off). In order to attract and retain qualified workers, employers will be paying 1.5-2.5 percent more than in the past.

HEALTHCARE

Current status
Healthcare reform, intended to shake up the system and provide affordable coverage to all individuals, was one of the motivators for the largest mid-term election shake-up in history. While parts of the reform package emerged during the year, most employers see more concern than resolution coming from the legislation. What was a “hold your breath” to see what might come from healthcare reform became a “wait and see” how much will survive or receive funding by the new legislature.

The whole issue of healthcare reform became a huge burden to business and an inhibitor of worker self-sufficiency. Regardless of what it will become, a program that began as a minimal cost benefit has become a significant portion of an organization’s payroll costs (total benefit costs have risen to nearly 42 percent of an individual’s pay in West Michigan).

Predictions

• Healthcare reform legislation will be modified prior to full implementation through review, de-funding and/or potentially repeal during the coming year(s). Though the country has realized individuals not now insured must somehow receive coverage, more study will probably refine the current reform system during the early part of 2011.
• Regardless of legislation, we see more employee participation with healthcare costs and a move towards health savings accounts rather than fully-insured healthcare coverage.
• Currently, employers expect their employees to pay 20-25 percent of their own healthcare coverage and an increasingly larger portion of their dependent coverage (currently 30-40 percent on average). Both individual and dependent care contributions will rise (by 5-10 percent) as healthcare premiums increase by 15-20 percent in 2011.
• More employers will offer wellness discounts to reduce insurance costs if employees participate in healthy lifestyle and exercise programs. Employees committing to wellness programs typically pay less or receive a “richer plan” than those who do not agree to a more active, healthy lifestyle.

IN GENERAL

West Michigan must focus on sustainability — must anticipate the future and act now — if we hope to see continued growth during 2011. We must identify needs that have not yet been met, then use our creativity to develop solutions that have not yet been tried if we are to continue experiencing success that has not yet been achieved.

The new year will bring a slow rebound in the economy, measured and deliberate hiring activity (particularly within the manufacturing and healthcare sectors), an increase in temporary service-type work (more companies will seek to fill jobs in a more fluid manner than previously), and low to moderate pay adjustments for the year.

Organizations wishing to remain viable must provide competitive pay and benefits, good working conditions and include a “new breed” of worker in the decision-making process. They will struggle to attract or retain the high-quality workforce needed to remain competitive if they choose to mistreat or ignore their most valuable asset — their employees. The light at the end of the tunnel is hope – but it could be delayed should anything negatively influence our fragile economic infrastructure during the coming months.

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