The Force Awakens
I have a confession to make: Ten years ago I was dead sure technology was going to trigger job losses. I spend my time spotting trends and making investments accordingly, and jobs, I thought, are going to be a problem. C’mon, self-driving cars and trucks? Fulfillment centers with no moms and pops? Robot-repairing robots? Nope. Unemployment never rose.
Academics point to various reasons for the paradox, the most compelling being that technology leads to different jobs, not fewer jobs. I still can’t quite wrap my head around that idea, but I’m duty-bound to follow evidence where it leads, and history plainly shows that tech creates work. This time is no different. Not only do workers have jobs today, they’re also leaving those jobs in record numbers. Last month 2.7% of our workforce up and quit, the largest percentage since records began more than 20 years ago. The quit rate was much higher, close to 5%, for workers at hotels, restaurants, bars, and retailers.
According to a Prudential Financial survey released this Tuesday, about half of the 2,000 employed adults polled are reconsidering their jobs and are willing to learn new skills to work in a different industry. 24% said they planned to look for a new job at the end of the pandemic. Of that slice of eager job-seekers, half of them said compensation was the primary reason.
No wonder: Workers are getting ripped off. The chart above shows that the slice of our economy going to workers has dropped from 58% during the ‘70s to 54% today. And it’s not like corporations are getting squeezed and aren’t able to raise wages. Below we see that productivity has been steadily rising since WWII, but wages have basically flatlined since the ‘80s. Productivity is the amount of output given a unit of input. There are lots of factors that contribute to its rise, one of them being increasingly experienced employees.
But wages aren’t the only reason for the current job malaise. Some workers prefer remote work and aren’t eager to return to the office now that vaccines make that possible. Others are burned out from working overtime during the pandemic. Still others did some soul-searching during the Covid disruption and decided they wanted to do something more in line with their goals and priorities. Whatever the reasons, the labor force is forcing management to make changes in order to retain staff. Turnover costs and business disruptions are complicating the calculus of compensation.
For workers, the willingness to walk away from jobs is paying off. The winding down of Covid and the multi-trillion dollar stimulus packages are adding to the demand--and opportunities--for labor across the board. Employers are having to pay up to retain their workers and hire new ones. In the hospitality industry (hotels, restaurants, bars), the sector of the economy with the highest quit rate, wages are up 10.4% from 15 months ago, just prior to Covid.
What does all this mean for most of us with no intention of changing jobs? This: The realignment in worker compensation may put pressure on the stock market, particularly since stock earnings multiples are so high. The portion of the pie that goes to workers vs corporate earnings is a zero-sum game. When a corporation pays an employee an extra dollar, that’s one less dollar left for the bottom line. The last time we saw the sort of wage/profit gap like we have today was 2007, and the ensuing period was a rough one for stocks.
Just to be clear, this isn’t a bearish forecast for stocks, though we do think the upside--the juice--is limited at best. This wage/profit ratio is only one of many data points we consider when evaluating markets. For our money, the next bear market, if and when it comes, will be triggered by a rise in inflation and interest rates. If the current bout of inflation is “transitory,” as the Fed likes to say, stocks will most likely grind slowly higher. That “if,” to paraphrase Fed head Powell, needs to be taken with a huge grain of salt.
Stephen Morton is an investment manager and co-founder of Inyo Capital. Like this article? Read more in the latest issue of "Market Sleuth." It's free, issued weekly on Saturday mornings. Click here for this week's full edition.