Why Higher Wages Alone Won’t Solve the Supply Chain Labor Shortage

Higher wages aren’t necessarily the answer to solving the supply chain labor shortage – at least that’s what employers today are hoping.

Dan Johnston, chief executive officer of WorkStep, a vendor of software for worker hiring and retention, believes recent wage increases are forcing businesses into a “dangerous cycle” of boosting pay in order to compete in a tight job market. He says supply chain employers cannot afford to be compensating at the forefront of their hiring strategies.

What’s wrong with obeying the capitalist law of supply and demand when it comes to labor? Plenty, says Johnston. The big problem is worker retention.

“What’s becoming increasingly clear is that [while] wage creates power for bringing new talent in, it doesn’t create the same power for keeping the talent, ”he says.

Employers, Johnston adds, need to take a deeper and more nuanced approach to the labor conundrum, especially in warehousing and distribution. That means following another law of labor relations: listening.

“What we’ve seen across a million or so frontline workers is that 89% are more likely to stay if they feel that organizations encourage and listen to their feedback,” he says.

Two-thirds of surveyed workers want the opportunity to provide input to employers once a month. Companies that are most successful in amassing stable workforces are those that prioritize elements such as career growth and mobility.

“Broader workforce satisfaction is what give workers reason to stay when the warehouse across the street is advertising higher wages,” Johnston says.

One might wonder how many opportunities a warehouse offers for mobility and career advancement. But Johnston believes they exist. “Linear” paths can take a worker from associate to supervisor, manager, shift lead or even general manager. But the companies scoring the greatest success in worker engagement and retention today are the ones offering “diagonal” advancement, providing training to become a technician, or even opening doors to executive positions.

A typical warehouse environment “isn’t always about 100 workers and five management positions,” Johnston says. “There are plenty of other roles within broader supply chain-centric companies.”

The labor retention issue is especially knotty at the new-hire phase. The typical company sees as much as half of its new workforce turning over within the first 90 days of employment. That means companies are wasting valuable resources on training workers who end up bolting at the first sign of a better opportunity. What’s more, the high rate of turnover saps morale among the remaining workforce, threatening overall productivity levels.

Fueling the dilemma is, of course, the current imbalance in labor supply that favors the prospective employee, and no amount of coddling of workers can solve that problem in the short term. With the demand for consumer products soaring, the need for warehouse labor is greater than ever, prompting employers to encourage “incentive hopping” by dangling thousands of dollars in hiring bonuses.

Such offers are a short-sighted approach to the crisis, Johnston believes. He suggests that some companies do not fully understand the price of losing a frontline worker. “When you add it all up,” he says, “the most sophisticated companies tend to see that losing a less-skilled employee can cost from $ 5,000 to $ 10,000 fully loaded, while in a more skilled, high-velocity manufacturing or transportation environment. it can cost upward of $ 45,000. ”

In the end, Johnston says, the best way to control overall talent acquisition expense is to reduce turnover. “The way to survive in this massively competitive market is to need less from that market in the first place.”

Successful companies, he adds, “are investing in making their businesses a great place to work, and then evangelizing their employees as referral nodes for the broader organization.”

And when the warehouse across the street offers a higher hourly wage plus a $ 5,000 sign-on bonus? Companies can only hope that their internal labor policies are secure enough to keep workers from being tempted. Inflation, after all, is a major concern today, and is likely to continue putting pressure on wages.

“We expect to see another double-digit increase in worker compensation in this space within the coming year, as demand continues to grow and supply continues not to keep up,” Johnston says. “However, it’s not the full picture of what makes a worker happy over the long term. Those companies that think wage is everything and that people only quit to make 25 cents more across the street – those are the ones that are getting left behind. ”

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