Trying to Alleviate Your Own Worker Shortage

 Construction trades has been struggling for a long time with a shortage of new entrants into the workforce. 25 years ago I was on a local school district's tech prep committee to encourage students to get into the trade tech classes in high school. This year, it was reported that one HVAC/plumbing/electrical installation and service company has developed their own trade school for 45-50 students/year. They modified a space for $500K to accommodate the training.

Besides the modification, which can be amortized/depreciated over several years, they are investing in instructors' wages and benefits, materials and equipment. They might have a vicarious lock on graduates but it's still quite an undertaking. Some estimates place the cost of recruiting at 15-25% of a person's wages, plus there's the average time (opportunity loss) of 27 days...and if the new hire doesn't work out or doesn't like your work/company, then you've lost 30% of wages on attributed benefits (FICA, PTO, etc.) if they quit before you've recovered your hiring costs through productivity. 

Let's say you have a net margin of ten percent (10%). If you pay a tradesperson $50K (for easy calculations, roughly $25/hr), then you need $500K in revenue to pay for the wages, $660K for wages & benefits. And an additional 8% or $40K for lost opportunity in the one month you are short a worker, and even more if you paid overtime to current workers to make up for lost capacity.

We're at nearly an additional $750K in revenue to cost of acquiring the new worker. Gens-Ryan might be able to offset some of the recruiting costs through their school. But they've added the school costs as well. Still they seem to be counting on nearly $30-50 million in additional revenue. And that's a pretty hefty lift for a company estimated to have $20-50 million in revenue.

Recession in 2024? Not If Our Innovation Continues

 Recently I've seen two conflicting reports on the probability of a recession in 2024. In one, they cite that infrastructure spending has been spread out. Capital investments, such as needed for the CHIPS Act for semiconductor manufacturing, haven't started and waiting for inflation to stabilize. Perhaps waiting for supply chains to stabilize as well. Employment is still high. A key factor in keeping unemployment elevated is a lack of day care so one parent stays home or is limited to part-time work. Relative birth rates from five years ago to this year will determine if more parents re-enter the full-time work force than depart it. 

Another (see figure below from Pitchbook) is predicting a recession in the first or second quarter of 2024, based on historical trends. Look closely at the chart. Really close. It plots a "smoothed" probability of a recession in the next 18 months. Note that when recessions occurred in the last 45 years, it was when the probability dropped. A recession did not occur at the peak probability nor 18 months after. A recession seems to appear within 12 months of the peak or longer. Now look at all the peaks above 40%, 50%, even 60%. There were seven/eight such peaks, and only 5 have recessions afterwards. That's an 60-70% accuracy rate. 

Consumer spending is still strong and businesses may be struggling to provide all the goods/services we demand. Hence tight labor market and supply chain strains. Logistics firms are staffed below capacity needs. As long as demand keeps pushing, the economy will keep growing as all of us business leaders figure out creative ways to meet the demand.