CUSO Talk
by Phil Love
President/CEO Pactola
6/13/2018

News on the employment front this past week was remarkable. There are more posted job openings than there are people actively searching for jobs. This is a first in the record keeping from the Bureau of Labor Statistics. It also highlighted that there are many positions requiring skilled labor and higher education that are unfilled. 

The challenge is with jobs at the beginning of the employment ladder. Many of these entry level positions are gained by teens looking for summer or after school work. These provide a great entry and learning experiences into the job market. A large challenge to the entry level positions is the $15/hour minimum wage movement. 

I began my career in banking as a part time teller when I was in high school at a wage of $3.25/hour. I worked through college at that position. Doing an internet search, that $3.25/hour equals $7.67 in 2017 to have the same purchasing power. This is approximately half the amount of the current push for the higher minimum wage. 

I know that many of you feel the pressure of higher entry level wages in your credit unions. This has a direct impact on your profitability. It is important to understand these same wage pressures, whether driven by supply/demand forces or regulation, impact your borrower. I watched a segment on CNBC a couple of weeks ago featuring two business owners in Williston, North Dakota. Both stressed challenges they face with finding and keeping employees. Employee cost is often the highest of any operational expenses for an organization. Business disruption because of a lack of employees can be even more dangerous.

The push for the higher wage is also accelerating a drive toward technology. I know that every financial institution operates with a fraction of the teller staff that it did when I entered the workforce. My wife started working in fast food at In-N-Out and Carl’s Jr. The staff needed to run a fast food restaurant is shrinking rapidly. This past week, McDonalds announced it will be replacing all its cashiers in American restaurants in two years. CNBC reported they will roll out 1,000 kiosks per quarter to stores. These kiosks are already fully integrated in McDonalds in Canada, the U.K. and Australia. A patron will be able to custom order his meal at the kiosk or through mobile app. Payment will be handled there which will lower the need for cashiers. The other benefit is customers tend to browse the menu longer with a kiosk and order more.

McDonalds is feeling the pinch of the rising labor cost as payroll rose from 30.2% of sales in Q1 2018, up from 27.8% in the previous year. Some of the cashiers will still be able to stay there as new positions of delivering food on Uber Eats and jobs doing table service will open up. The main drivers for the kiosks are increased employee costs and the improvements in technology which allow this to occur.

A comparison between Minnesota and Wisconsin shows the results of forced minimum wage increases.  In 2014, Minnesota started phased-in hourly increases for each year through 2016. By the beginning of 2018, Minnesota’s minimum wage was $9.65 for large employers and $7.87 for small employers. 

Wisconsin did not follow Minnesota’s example.

From 2010-2014, fast food employment grew at the same rate in Minnesota and Wisconsin. After 2014, fast food employment has grown 4.1 percentage points more in Wisconsin. A 2017 paper released by the National Bureau of Economic Research pointed out how minimum wage increases reduced in the hours working in low-wage jobs. The paper studied the impacts of the steep minimum wage increases in Seattle’s market and found that the jump to $13/hour wage reduced hours in low wage jobs by 6-7%.

The concern is with the push for a higher minimum wage, and the increases in technology, where will the youth of tomorrow find that important entry level position to get them involved in the work place? Many of these “starter” jobs are important to gain initial workplace skills such as scheduling, responsibility, and the work ethic that is needed in all careers, no matter what level they are at. 

Quick Bite:  The stronger than expected May employment report released on June 1, showed an increase in non-farm payrolls by 223,000 in May. This increases the likelihood that we will see a federal funds rate increase at their June 12-13 meeting from 1.75% to 2.00%.  Lenders should be aware of these possible changes in rates as they price loans to better keep their margins intact.  If you have questions, please reach out to us.

Pactola is a subsidiary of Midwest Business Solutions. We are a Credit Union Service Organization that is dedicated to commercial and agricultural lending and serving multiple credit unions and banks throughout the United States with our services. We help our partners increase their earning assets and profitability. By doing so, we help them become a relevant financial force in their community increasing social good through helping businesses and farmers. Visit our website to learn more. You can contact Phil at phil.love@pactola.com or 605.223.5154.

 

 

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