Benefits and Compensation, Recruiting, Talent

Downsides to Low Unemployment

In the November 2016 jobs report from the Department of Labor, we saw that the national unemployment rate has fallen to a 9-year low and now sits at 4.6 percent. This reflects multiple factors. We’re seeing that more jobs have become available as the economy grows, but it also likely highlights that some people have stopped looking for work—which will also decrease the unemployment rate as this rate only considers those who are actively looking.

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Either way, with significantly low unemployment figures, employers will be directly impacted in multiple ways. Low unemployment is typically associated with a growing economy, which is usually positive, but there are some downsides to consider as well. Let’s take a look at some of the downsides for employers facing a low unemployment rate in the overall economy:

  • Employees are less likely to stay when problems arise—even if those problems may be short-lived—if the unemployment level is low enough that they feel they can get a new job quickly. This may mean higher turnover rates. It may also mean employees are more likely to give less notice when leaving, as they may feel pressure to start the new job quickly.
  • It can make filling a position take longer, as there are fewer applicants for a given role when fewer people are job searching in general. It may mean it takes longer to find the applicant who meets all of the requirements for the job.
  • Employers may have to spend more on compensation and benefits to compete when labor becomes scarcer and jobs take longer to fill. Looking at the big picture, rising wages that result can influence an increase in inflation rates.
  • Being unable to fill jobs can mean that the business cannot keep up with customer demands and may actually lose business in the long run if it does not find solutions in time.
  • Similarly, it may mean businesses have to turn away customers if they cannot keep up with demand—forgoing revenue along the way.
  • Conversely, it may mean growth is going to slow in the coming months and years. It’s possible that the unemployment rate is artificially low because a lot of people have taken jobs that offer either fewer hours or less pay than desired. This has the overall effect of dampening wage growth (via lower overall pay for those affected), but it can also hamper economic growth over time since these employees (who are also consumers) have less spending ability. Combining that with the fact that a low employment rate means some people have left the workforce means that there may be less consumer purchasing driving the economy in the long run.
  • Employers may have to increase training budgets to make up for the skills gaps that result from being unable to hire individuals with the necessary skills.

What has been your experience trying to hire in an economy with continually decreasing unemployment rate? Are you experiencing higher turnover levels? Are you finding it takes longer to fill vacancies? Or are you having trouble keeping up with customer needs? Are these issues ones your organization is working on addressing for the months and years ahead?