Talent Turbulence / Employing people in a time of high inflation (pt. 1)
As I've said in two previous pieces, the world appears to be moving into a period of high inflation, brought by the double-blow of a global pandemic and a war in Europe. This is coming at the same time as a period of stagnant growth, or even recession.
That pushes us towards a return of stagflation, the phenomenon not seen since the early 1980s. Though the current expert consensus it probably won't be as bad as it was in the '70s, as the data changes opinions change — even as I'm writing this, the Bank of England has published its latest forecast for the UK economy:
Simultaneously, the Great Resignation shows no sign of coming to an end any time soon. As a result, virtually all advanced economies have tightened labour markets, with fewer people to fill more open roles. Some have, such as the US, significant talent shortages. In addition, analysis the most recent International Monetary Fund (IMF) World Economic Outlook Update report (January 2022) suggests that workers may be unwilling to accept roles in which they feel overworked and underpaid. That is felt most keenly in other sectors than the creative agency and professional services world (such as leisure and hospitality), but is a significant factor across the board.
Agencies eager to attract the top talent will want to offer highly competitive salaries as part of a rounded and appealing package. But in an era when client rates are being eroded by high inflation and a spluttering economy, a ballooning salary bill can quickly put an agency into a very perilous position.
These two dimensions — high inflation with stagnant (or worse) economic growth, and a tight labour market in which people have altered expectations — are super-charging each other and making it a particularly tough time to be an employer.
Before we look at how agency leaders can respond as employers, it's important to understand the causes and effects that are reducing the talent pool.
What's driving the talent shortage?
There's no single root cause of the tightening labour market. Rather, there's a series of factors in play that are making it harder to find, attract and retain talent in the agency world. I'll try to outline the obvious and less-then obvious ones here.
Re-evaluated priorities and work–life balance
The pandemic has prompted a fundamental shift in priorities for many people — some for reasons external to themselves, such as griefs in the family; others have seized the moment to take stock and re-evaluate.
- Some have decided to take early retirement, and so been removed from the workforce.
- Family commitments have often changed, though challenges with arranging childcare or caring for loved ones with griefs or health issues arising from a coronavirus infection.
- Some have taken the moment to change sectors, no longer in the talent pool for creative agencies or professional services businesses.
- A substantial number have taken the plunge into a long-considered venture, and branched out into self-employment.
Long tail of the pandemic
The pandemic is not over, despite the assertions of political leaders and a media blackhole on the subject. Indeed, the reality that the vital genetic sequencing has been scaled down or stopped in virtually all countries (South Africa being the noted exception) is seeing the pandemic's tail extend even longer.
"In many countries we are essentially blind to how the virus is mutating. We don’t know what’s coming next."
Dr. Tedros Ghebreyesus,
Director-General of the World Health Organisation (WHO),
4 May 2022
This is having a huge ongoing effect on the workforce in advanced economies.
- Particularly affected are those who are clinically vulnerable or clinically extremely vulnerable, who have difficult choices to make when others are not helping.
- As infections continue, the prevalence of 'long covid' is increasing. The long-term health effects of multiple infections is unclear.
- Infection with the omicron variant appears to reduce the antibody response, escape antibodies from earlier infections, with the sub-lineages doing so even more easily, raising the likelihood of repeated reinfections.
- Many people are living with enormous challenges in their home life and family context — as covid infections spread in schools, childcare issues keep resurfacing; many are providing care for loved ones who are infected or living with long covid; and with many countries having hundreds of thousands of deaths, large numbers of people are coping with painful griefs.
- There are ongoing concerns about covid infection rates, especially as covid healthcare measures and testing are scaled back, so those with disabilities and clinical vulnerabilities are increasingly isolated by social and political choices. Healthcare protection measures in workplaces vary widely, often making a work environment problematic for the clinically vulnerable, as is traveling and transportation, etc.
Cost of living pressures
The cost of everything's up — food, fuel, consumables, white goods, everything. And it's extremely unlikely this is going to be a small bubble that will deflate in time — it will persist, with more price increases already on the horizon, in the September and October in particular.
- People are moving jobs in part to find higher-paid roles, as they feel their wage packet is having to stretch further and further.
There are now so many open vacancies, and employers are often trying to outdo each other to attract people to their open positions, especially in more senior positions. Frequently, closing deadlines for roles are pushed back as employers struggle to draw suitable candidates into applying. As a result, there's more to be had for people if they shop around.
The numbers bears this out. Wage data from the Atlanta Federal Reserve indicates that people who have shifted jobs have had a higher median pay rise (5.1%, measured as a three-month moving average of median wage growth) than those who stay put (at 3.7%).
The common response of employers of raising salary offers to find, attract or retain talent exacerbates the wages arms race and gives further impulse to those feeling the job-hopping urge.
Struggles with adaptation to remote working
In recent years, workplaces have been slowly adapting to accommodate remote working options. Some agencies are far ahead in those stakes, more often digital agencies or those with a technological dimension to their core work. Others, though, have been slow to embrace the move.
The pandemic changed all that.
As a result, often businesses have struggled to adapt to remote/hybrid working, especially those who had a preference for or presumption of in-person interactions backed into their workplace identity. The sheer pace of adaptation to hybrid or remote working that the pandemic threw on people did not allow those businesses to make the cultural changes necessary for that change to work well.
Certain types of people are affected in distinctive ways. For instance, in a report in March 2021 based on a study of over 30,000 people in 31 countries, Microsoft said that some 60 per cent of Gen-Z respondents (those in the workforce between the ages of 18 and 25, currently) said they were “struggling” at work.
- The social skills needed for remote working, with digital-first inter-personal interactions, are markedly different. They take time to learn, and are best spread by osmosis — by slowly absorbing them over time from more-experienced practitioners of digital-first working.
- Workplace tensions rise more quickly when most interactions are digital, text-based, asynchronous, or with video calls — often many of them, short and long, throughout the day, etc. Tensions need to be spotted earlier and dealt with more thoroughly. Where possible, more work is required on interpersonal interactions to prevent tensions arising in the first place — more discussions with your team, more often, in groups, and especially one-to-one.
Now, in the long tail of the pandemic, many people have discovered the advantages of home-based working — time recaptured from commuting; lower personal expenses — and want to retain them. That means that these remote-first working skills and practices need to be deeply embedded, now more than ever.
That leads directly to the next topic …
Whilst digital technologies have done much to enable Twenty-First Century agency life, there are no doubt some huge downsides to the huge reduction of time spent together, in person. The most notable is so-called digital burnout. With such an overwhelming number of interactions being through digital tools, text- or video-based, many people are getting exhausted with technology.
- People often say it's harder to feel connected to their immediate team, much less build meaningful connections in the wider business.
- This slowly growing sense of isolation and a loss of networks often manifests subliminally in ways that may exacerbate the problem. Many eschew digital interactions — shortening or skipping video meetings, keeping cameras off, etc. — as a symptom of a sense of burnout.
Frustrations with workplace culture
There's a general trend in society of people tolerating less and existing with shorter fuses. This has become just the same in the workplace.
Frustrations with aspects of the culture of their working environment are boiling much more quickly. Frequently, though not always, these scenarios draw in colleagues and the grievance is allowed to grow.
Whereas previously there was more grace given, more benefit of the doubt offered, especially when there was more time spent together, in person, people are now not suffering fools, gladly or otherwise.
As a result, people are voting with their feet more often, even before effective efforts can be made to listen and respond to or address either the apparent or underlying issues.
Pay is a lower priority than you'd expect
There is no doubt that pay issues are a substantial factor in job choices for talented people. And it's certainly becoming more of an issue as the cost of living crunch develops towards a crisis.
Although an appropriate rate of pay is important, the pay packet is usually lower down the list of priorities than employers think, and its effect in retaining or motivating people is remarkably short-lived.
Upping the pay offer is one of the easiest measures to take, so it's often the first thing that employers do to attract and retain the most talented people. Ironically, and as we've already mentioned above, this can exacerbate the job-hopping trend … and it's something that you'll always lose to those with deeper pockets (venture-backed start-ups, or big bluechips, for example).
There are a number of externalities, particularly in the area of public policy, that are having a tightening effect on the labour market, and unwittingly are conspiring together to pull it ever tighter.
- Anti-immigrant policies. The slow but insistent rightward shift of the Overton window across the world in the last few decades has seen a greater prevalence of anti-immigration policies everywhere. A vibrant labour market requires workers from outside the nation's borders: immigration is a vital boost to economic growth. Policies that limit immigration, or indeed create a hostile environment intended to deter migration, the opposite is inevitable.
- Public healthcare protection policies. As we have already described, the coronavirus pandemic is persisting, despite political assertions. The dramatic reduction or removal of testing and protection measures, the world is essentially flying blind on covid. New variants will continue to appear, making people ill, impeding production and productivity, shipping and supplies, and so on. The global economy will undoubtedly remain in flux as a result.
- Slow (or late) response to ballooning inflation. The natural tendency of many central banks in our current era on interceding in the economy is to err on the side of caution. That's all well and good in normal times. However, when it comes to inflation central banks are primarily tasked with keeping a close eye, and who are peculiarly equipped to respond as inflation rises. Slow responses, as with the Federal Reserve in the US and the Bank of England in the UK, mean that when intervention is required they are larger than they might have been, and have more of a wrench on the economy at large.
- Slow (or late) response to cost of living pressures. As the cost of living spirals, some of the issues, such as energy prices, are so large it takes national governments to put a brake on the most damaging effects. In the UK it was revealed recently that the government's work group tasked with addressing the issue did not meet for six months, from November 2021.
What can agency leaders do about it?
The issues above are not trivial ones. Indeed many of them are outside the realm of things that any agency leader can influence directly. As a result, it's easy to feel that you are at the mercy of these huge, inhuman forces, without any room for manoeuvre.
There are still things that you can do, though.
In part 2 of this blog post I'll look at a range of things that you can do and actions you can take as an employer, with responsibility for so many salaries, as you work to look after the agency, your team and yourself in a time of high inflation.
In the mean time, it is valuable to understand what you can do as an agency leader to find, attract and retain the top talent for your agency.
Earlier this year we asked the Agency Senate exactly this question, and the report on what they had to say is now online. Free access members can see the summary, and full access to report is for 'instant access' subscribers and those on any one of our service plans.