Low unemployment rates are generally regarded as a good thing. After all, people working equals people earning paychecks and money flowing into the economy. It also means less government money being spent on social programs designed to support the unemployed.
If low unemployment is generally good, is it always good for businesses as well? Yes and no. Low unemployment is actually a mixed bag when you consider both a company's bottom line and its hiring needs. This post will discuss some of the implications of low unemployment from both business and hiring perspectives.
Business is Booming
The best place to start here is understanding why unemployment rates are historically low. For the record, Bureau of Labor and Statistics (BLS) numbers for August show that unemployment remains at a historic low of 3.7%. The data also shows wage growth of 3.2% over the last 12 months.
What is behind the good numbers? A booming economy. When the economy is strong, businesses offer more services and make more products. They need more employees to do both. In short, hiring increases as the economy grows and strengthens. And right now, business is booming.
In this sense, low unemployment rates are good for business. They are an indication that the economy is strong and production is high. This translates into greater revenues and, hopefully, more profit.
Keeping Wages in Check
While a booming economy that facilitates increased hiring means companies are producing and earning more, employers still have to be careful to keep wages in check. The goal is to participate in wage growth strategies that aid in recruiting and retaining top talent. But employers must also do what they can to keep wage growth from getting out of hand.
If wage growth exceeds the rate of inflation by too much and for too long, an employer risks a situation in which their jobs do not produce enough to cover wages. Such a situation ultimately results in trimming the workforce in order to bring wages more in line with production.
A Shrinking Talent Pool
Providing production is up and wage growth is kept in check, low unemployment generally means good things for business. It doesn't necessarily mean good things for hiring. How so? Because low unemployment rates equate to a shrinking talent pool. More people working means there are fewer people remaining to be hired.
This is bad for hiring in the sense that a shrinking talent pool gives recruiters fewer choices to work with. A company that does not respond well to a shrinking labor market may find itself without access to top talent. Instead, they have to settle for people who may not be qualified or who otherwise do not fit company culture.
Hand-in-hand with a shrinking talent pool is difficulty retaining employees who are being courted by competitors willing to pay them more or offer better benefits packages. A highly competitive market makes it more difficult on companies and their HR departments to come up with compensation and benefits packages that will give them the edge.
It is interesting to note that all of what has been discussed here is actually good for employees. When unemployment is low, workers are in the driver's seat. They have more leverage to seek higher pay, better benefits, and anything else they feel is important.
Yes, low unemployment is generally a good thing. But there is nothing in this life that is all good or all bad. Most things are a mixed bag. Low unemployment certainly is but, thankfully, it is weighted more heavily toward the positive.