Christopher Helmrath: Wanted: Skilled workers — who won’t leave

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It was the big headline recently: The U.S. unemployment rate fell to 3.5 percent, its lowest level in 50 years, according to the Department of Labor.

For those affected by the labor supply, it was unsurprising news that inspired me to return to a theme I mentioned briefly in my last column — that labor shortages are the No. 1 threat to growth and profitability in the economy right now, and this predicament promises to remain for years to come.

This situation does present an opportunity — and a new consideration — for a group in particular: investors in the M&A capital markets. At SC&H Capital, we perform the research and follow-through to arrange successful mergers and acquisitions. I am already seeing an increasing number of prospective investors/buyers asking themselves the question, “If I make this acquisition, can I maintain the current key employee base and can I add more of these skilled workers?”

This current paradigm changes some of the past logic on the driving forces for mergers and acquisitions: Buying may not be just for cash flow or market reach, but for something whose value has suddenly shot up: the employee base.

Qualified employees

There are some flaws in how the Bureau of Labor Statistics counts bodies in these employment surveys and reports. The way the department counts doesn’t reflect the many Americans who have simply given up looking for work or are underemployed with a part-time job. That number has actually increased since 2000. Real employment as a percentage is lower than it was 15 years ago, even though the population has increased.

Those apparently invisible people probably cannot be a solution for companies short-staffed in a tight labor market. It isn’t a question of not being able to find a body for an open position, it’s about finding a qualified person.

Any discussion of full employment has to accept some politically incorrect facts: There’s a certain percentage of the potential workforce that is essentially unemployable — perhaps because they choose not to work, they have health issues, or they have a track record of criminal behavior.

I talked recently with the president of Ohio’s third-largest bank about the issues facing his customer base, and he said the top concern among his clients is the labor force. If businesses can’t attract people to do the work they need done, they can’t survive, let alone grow.

Keeping their trained employees is another problem. As a result, companies are trying to sweeten the pot, outside of wages, for the employees they have, offering things like better perks, profit-sharing, and tuition reimbursement to build on employees’ skills. But people can still jump ship at any time.

STEM fields

Employers have been complaining about a skilled worker shortage for some time, particularly workers with advanced degrees in STEM fields. But according to a recent study in the Los Angeles Times and data from other sources, nearly every industry now has a labor shortage. The twist: Employers are having a harder time filling blue-collar positions than professional positions that require a college education.

For example, home health care aides, restaurant workers and hotel staff, and skilled labor, including mechanics and plumbers, are a dying breed. More Americans are seeking the degrees they need to take professional jobs, while blue-collar, working-class baby boomers are retiring en masse.

But what about the historically healthy stock market? Unfortunately, it’s pretty meaningless for the larger economy. Gains on Wall Street benefit only a small percentage of Americans in a society with increasing income inequality.

Productivity is up, right? No, actually it’s down. Despite the dubious means of measurement, even the government admits to this now. U.S. worker productivity slowed in the second quarter as productivity in the manufacturing sector declined by the most in nearly two years.

More companies are realizing that productivity should no longer be the holy grail of metrics. After Walmart thinned its staff in the name of profitability, store performance suffered, so it reversed course and started hiring more people to offer better service. The result? The customer-satisfaction outcome was better and sales and profits rose.

What other strategies are there to address the labor problem? Should a company move to a location to escape the STEM staff shortages on the two coasts or the lack of building contractor workers in the South?

That’s easy enough for services industries, which can operate from anywhere (think of all the call centers or payment processing firms in North Dakota), but not for manufacturing, which can’t afford the millions of dollars it would cost to relocate machinery and shipping terminals.

Until there’s a solution, we’re going to see a game of employment musical chairs. The bottom line is that the entrepreneurs who figure out how to overcome this challenge will be the winners, and they may very well be those savvy M&A buyers.

Christopher Helmrath is the managing director of SC&H Capital, the investment banking and advisory practice of SC&H headquartered in Sparks.