Why raising wages alone won’t solve your labour shortage

by Emily Atkins

Good staff are hard to find, and Canadian employers are struggling to recruit and retain enough people to keep business going.

Going into 2022, after two years of the Covid-19 pandemic, the labour market is in upheaval. The unemployment rate, as reported by Statistics Canada in December 2021, was 5.9 percent, the lowest it has been since before the pandemic began. The economy created 55,000 new jobs that month, partly as a result of the economic growth seen just before the Omicron variant swept across the country, forcing new business closures and job losses.

Statistics Canada also reported hourly wages were up by 2.7 percent on average, over 2020. That’s partly because of minimum wage increases in 2021, including every province and territory except Alberta, Nunavut, and Ontario (the latter raised its minimum wage to $15 on January 1).

Making matters more complicated, the prognosis is for more increases in the coming year. “Average salary increase budgets in Canada are more robust than expected, rising from 2.9 percent before the summer to 3.3 percent this fall, excluding salary freezes,” said Darcy Clark, Normandin Beaudry’s principal, compensation. “This variation is big and clearly indicates that organizations are trying to respond to the current context of high inflation, the ‘Great Resignation’ and labour shortages.”

Clark added that 40 percent of the companies Normandin Beaudry works with are planning to carve out an additional one-time increase budget of 1.2 percent, on average.

For many businesses the combination of higher wages and fewer employees means they cannot stay afloat. According to a recent report by the Canadian Federation of Independent Business (CFIB), more than half of small businesses (55 percent) cannot get all the staff they need for current operations or to meet new demand, while another 16 percent were able to face the challenge, but at a significant additional cost.

For those businesses that are short-staffed, 63 percent said they can’t find job applicants with the right skillset or experience, while 52 percent reported a lack of any candidates at all.

Small businesses are planning on spending even more on wages than Normandin Beaudry’s estimates. According to CFIB, small businesses with labour shortages expect to increase wages by 3.7 percent over the next 12 months, above the national average of 3.1 percent. More than 80 percent of businesses affected by staffing shortages have already raised wages, but the success rate is a mere 31 percent, according to CFIB’s analysis. In fact, 60 percent of those who raised wages but did not find it helpful in attracting workers said that they received no qualified applicants or no applicants at all.

So, if higher wages don’t necessarily work, what are the solutions businesses can use to solve the labour crisis? Answers range from augmenting workers with automation, to competitive benefits, to new work formats and styles, and bringing in new sources of labour by allowing foreign workers to bypass outdated requirements.

Is automation the answer?

Particularly in the logistics sector, the pandemic has accelerated the adoption of technology. McKinsey found companies have speeded up the digitization of their customer and supply-chain interactions and of their internal operations by three to four years.

“Digitalization is already fundamentally changing the way we live and do business. The pandemic only accelerated the execution of plans that companies had envisaged,” said Thomas Ogilvie, chief human resources officer at Deutsche Post DHL Group.

“We assume that 30 to 35 percent of all activities could be automated by 2030. Nevertheless, we firmly believe the majority of our value creation will still be provided by people. There is no doubt that certain jobs will change, but the work will remain.”

CFIB reports that a third of its members have adopted automation in an attempt to alleviate labour pressures. And it’s a tactic that can work in logistics environments. Distribution centre operators are increasingly adopting both physical automation –
in the form of robotics – and process automation. Goods-to-person robots, robotic palletizers and put-away systems help eliminate wasteful movement and reduce the need for human labour, while back-end process automation helps to streamline repetitive tasks like updating spreadsheets.

“Productivity increases with the robots,” Kristi Montgomery told Inside Logistics. “People don’t want to come in and do a job where they’re just doing repetitive menial tasks. So how can we help the job be a much better place for them?”

“Businesses should do everything they can to make jobs – corporate supply chain and in the warehouses themselves – more attractive,” said Sean Henry, co-founder and CEO of third-party logistics specialist Stord.

Henry offered two tips – beyond better pay – for supply chain employers. First, make warehouse jobs less gruelling. He suggested that implementing more automation and robotics can help businesses find efficiencies, such as reducing the distance workers have to walk each day.

Third, create more skilled jobs. Incorporating robotics will allow humans to let go of repetitive, draining tasks and shift their focus to more strategic and meaningful tasks, improving the overall human experience, he asserted.

Recruiting and retaining

Providing a better place to work will be key in recruiting and retaining workers in the current environment. With the acute shortage of available talent, companies will need to work on becoming employers of choice if they want to have a workforce.

Even if they offer good wages, money will not be the key to hanging on to talent. “It’s one of the tools in the toolbox, but companies also have to think about what kind of employee value proposition they offer. Why would someone want to work there?” Clark said. “The pandemic has really changed people’s points of view on the concept of work.”

It’s not just a job that people are looking for now, he added. It’s about work-life balance and lifestyle. Prospective employees are asking, ‘Why do I want to work for you?’ and ‘Prove to me why I should work for you’, he said. And in an employee’s market, they can afford to be choosy.

Demographic changes are contributing to this approach to job hunting. Millennials and Generation Z look for the logistics industry to deliver sustainability, diversity and inclusion, employee well-being, and tech-forward environments, according to DHL’s new report, “The future of work in logistics”.

In a survey DHL conducted for the report, it found that most respondents said they want to work in the office anywhere from part-time to full-time, with 60 percent of operations workers wanting to work remotely at least once a week, compared to half of office workers. “Supply chain organizations must consider ways to make flexible work more accessible through new HR policies and technologies like teleoperation,” the report suggested.

“It’s important to ask employees how they feel and what they want. We rely heavily on this feedback to introduce more flexible schedules and environments, and develop new, technology-
enabled ways of working. We also focus on people practices, so employees feel cared for both functionally and emotionally,” said Sabine Mueller, CEO of DHL Consulting.

Unilever has figured out that most employees, especially in the Millennial and Gen Z demographics, are not looking for a standard 40-hour work week, said Caroline Chumakov, a senior principal analyst in Gartner’s supply chain practice. “They want flexibility,” she said.

In response, Unilever came up with U-Work, a model where employees have no fixed job or location, work on a monthly retainer on varying assignments, and have access to a suite of tailored benefits. Chumakov said this is a good example of disruption that other organizations might be able to modify for their own operations.

CFIB believes that an overlooked area is the recruitment of temporary foreign workers (TFWs). While only a small numbers of companies have tried to bring foreign workers in, they tend to experience success in doing so. The criteria, complexity and cost of the TFW program limit which businesses can apply, CFIB noted in its report, but there is a success rate of 52 percent among those who used it. “The low utilization to high success rate ratio suggests that TFWs could be a promising solution for Canada’s labour shortages,” CFIB concluded. The organization is lobbying the federal government to expand the program.

Warehouse jobs

According to Chumakov, supply chain organizations face particular challenges in giving hourly employees the conditions they want. Because physical locations are at the heart of their operations, it is difficult to create work-from-home options.

Severe shortages of labour and huge attrition rates (at 80 to 140 percent in some areas) intensify the need to create a more amenable work environment. Chumakov points out that both salaried and hourly workers seek flexibility in terms of the work they are doing, but only a quarter of organizations offer it.

She suggested organizations look at giving workers with physical jobs the autonomy to swap shifts and roles within the warehouse. “Flexibility improves frontline performance,” she said. “Not just when people work, it could also apply to where in the DC they are, who they work with, and what they work on.”

Chumakov also recommends companies look at expanding benefits and services traditionally only offered to salaried employees to include hourly workers. These could include paid family leave; tuition support; an open dress code; meals; profit sharing; childcare; participation in innovative pilot projects; stipends, tickets and voucher giveaways; and concierge service. She likened the latter to a “Walmart greeter on steroids”, someone who is well versed in the benefits programs and could handle personnel emergencies.

Another facet of extending benefits to hourly workers is career development. Clark pointed out that employers have traditionally “not really put a lot of thought into career development for warehouse workers.”

Companies would just bring people in and not even consider career progression for them, while for salaried employees it was the norm, he said. “Why do we have two different approaches? I think we need one approach for all these types of roles.”

Ultimately, every company will have to figure out the combination of wages, benefits and employment styles that work best to attract and retain workers. “Business owners are in a tough position and have to balance the expectations of job seekers with their own ability to remain competitive,” said Laure-Anna Bomal, research analyst at CFIB and author of their report. “We’re seeing a lot of creative and flexible solutions emerge as a result, but more needs to be done to support them as they face this incredible long-term challenge.”