In towns where workers are scarce, employers are boosting pay and perks and stepping up recruiting—all while trying to avoid raising prices.

What will happen when the U.S. unemployment rate falls below 4 percent, which is expected to occur by this summer? One way to tell is to look at cities where joblessness is already lower than that. Bloomberg News reporters traveled to Iowa, Georgia, and Maine. What they saw there is encouraging. They discovered that employers have found ways to cope with tight labor markets and still make money. Businesses have pulled in workers from the sidelines—including retirees, immigrants, and the homeless—and retooled processes to use less labor. Some have raised pay considerably for certain jobs, but so far there are no signs of an overall wage explosion. That should embolden those at the Federal Reserve who want to raise interest rates slowly to give growth a chance.

Portland, Maine: Making Do With Fewer Workers

Population: 66,937

Unemployment rate: 1.8%

Average weekly wages: $924

From polished sea-salt caramel balls to truffles packaged with hand-tied bows, the treats on sale at Wilbur’s of Maine Chocolate Confections in Freeport exude artisanal charm. While that’s a source of pride for owner Andrew Wilbur, whose parents started the business, he’s staring down a dilemma. Manufacturing workers are hard to come by in Freeport, which is 15 miles north of Portland and part of its statistical area. At 1.8 percent, the unemployment rate is the third-lowest in the country. “It’s made me think, Do I go to more mechanization?” Wilbur says from inside his production plant, where three employees are making candy in what look like mini cement mixers.


Employees at Wilbur’s of Maine Chocolate Confections in Freeport.PHOTOGRAPHER: GREGORY HALPERN FOR BLOOMBERG BUSINESSWEEK

Wilbur has raised wages for his 40 employees by more than 20 percent over the past three years, but he’s passed hardly any of his costs onto consumers. Business at his three brick-and-mortar outlets is already unchanged or down, and he would have lost online and wholesale customers if he’d raised prices substantially, he says.

It takes a full year for these employees to get up to speed and five for them to hit what Wilbur, without a hint of irony, calls “the sweet spot.” With inexperienced workers starting at $12 to $14 an hour, onboarding is becoming a major expense. Lowering his voice a little, Wilbur admits that he’s changed some of his packaging to make it less labor-intensive, including doing away with hand-applied labels.

Shipwreck & Cargo, a souvenir shop in downtown Portland that stocks items such as lobster-printed boxers and Maine blueberry tea, staffed its floor with only two sales assistants during the busy summer season instead of the usual three. The supply of workers has dried up just as the tourism industry is on an upswing, says store manager Jennifer Smith. “You want the right people, standing and smiling in front,” says Smith, who adds that the applicant pool has gotten smaller and less qualified in the five years she’s been running the shop.

The leisure and hospitality sector is the backbone of the local economy, but professional and business services have been engines of growth in recent years. Weekly wages in the Portland region have been moving up gradually, climbing in line with the national average through the first three quarters of 2017, the latest figures show. Inflation in the Northeast has been running below 2 percent.

One big reason employers are struggling to fill slots is that Maine’s population growth has leveled off. The state has the highest median age in the country at 44. “Last year, I was unable to get how many people I needed. I was probably short one and a half people,” says Tammara Croman, the manager of Portland’s Pomegranate Inn, whose eight guest rooms are outfitted with exuberant floral wallpapers and works by local artists. She says the operation ran at full capacity last summer, though with too-few housekeepers, it wasn’t able to accommodate as many early check-ins. “We end up having to hire people who we wouldn’t normally,” says Croman, who’s already put out feelers for the summer.

Applicants with no relevant experience are asked to come in for three-week trials, which gives Croman a chance to see if they’re cut out for the work—a mix of housekeeping and customer service. “It allows you to see the person’s work ethic, if they’re showing up on time, if they’re doing a good job,” she says.

The workforce challenges have been “top of mind for a while, and I don’t know if we see an end in sight,” says Quincy Hentzel, head of the Portland Regional Chamber of Commerce. That said, it isn’t all bad. “Businesses are extremely appreciative of their good employees and working really hard on retention,” she says. “That’s wonderful.”

A tight labor market also means that employees can afford to be picky. At Wilbur’s chocolate shop, two store managers left last year because they had better prospects in administrative work. While the business managed to hire replacements, mounting payroll costs are weighing on profit margins. Pointing to a large, hand-painted chocolate Easter bunny in his factory, Wilbur shakes his head. “We probably make a lot of people happy,” he says, “but I’m not sure that we cover the bills.” —Jeanna Smialek

Marietta, Georgia: Casting a Wider Net

Population: 60,941

Unemployment rate: 3.7%

Average weekly wages: $1,139

Lanre Bakare, a 36-year-old Nigerian immigrant, was homeless and had little marketable work experience when he was accepted into a training program run by CobbWorks Inc., a federally funded nonprofit that matches workers and businesses in the construction, logistics, information technology, and health-care fields. Now he earns $40,000 annually as an analyst managing vendors and supplies at residential construction sites in Cobb County, Ga., and the surrounding area. Eleven months into the job, Bakare still marvels at his salaried status and is looking forward to that most dreaded of employment rituals: the performance review. “I’m really excited,” he says. “We’re going to talk about if they are going to increase my job, what are my possibilities.”



CobbWorks has been around since 2000 but has recently expanded its outreach, training people with spotty work histories or criminal backgrounds who employers wouldn’t have considered a few years ago. Companies can no longer afford to be as picky. Unemployment in Cobb County, whose seat is Marietta, a city of 61,000 about 20 miles northwest of downtown Atlanta, was 3.7 percent in December. Weekly wages in the area rose more slowly than the national average through the first three quarters of 2017, the latest figures show. Inflation, meanwhile, has been moving up relatively quickly in the Atlanta area, climbing 3.3 percent in February compared with the nation’s 2.2 percent.

Marietta’s biggest employer, hospital network WellStar Health System, says it’s not feeling the labor crunch because of a decade-long campaign to ensure its pay and benefits are competitive. Attrition at WellStar is below the national average for the sector, according to spokesman Keith Bowermaster. The city’s No. 2 employer, Lockheed Martin Corp., is relatively insulated from local labor trends because the market for aerospace engineering work is national.

But some smaller businesses in the area are scrambling. That’s particularly true in the Cobb Galleria and adjacent Cumberland Mall areas, a few miles south on I-75, where office buildings, hotels, stores, restaurants, and a new ballpark for the Atlanta Braves compete for workers. “We’ve had fast-food restaurants offering bonuses,” says Roger Tutterow, an economist at Kennesaw State University. He’s also seen signs that labor shortages are constraining certain industries, noting that the number of building permits issued last year was half what it was during the boom that preceded the housing bust, even though demand for new homes is running high.

Several Marietta companies report they’re improving benefits to hang on to employees and attract new ones. InfoMart Inc., a 137-person operation that performs background screenings for companies, began paying 100 percent of its employees’ health insurance premiums this year, up from 75 percent. It also rehabbed its office space to make it more “collaborative-looking,” says Senior Vice President Tim Gordon, who’s especially keen to attract millennials. InfoMart also allows its tech employees to work from home four out of five days a week.



Just outside the city limits, Gas South LLC, a natural gas retailer, raised its minimum wage to $15 an hour in late 2016 and now offers every employee—including those in its call center—a one-month paid sabbatical every five years on top of regular vacation time. It also pays its workers’ health insurance premiums and has equipped its call center employees so they can work from home. “We did some research into the cost of living and discovered that some of our people were really struggling,” says Chief Executive Officer Kevin Greiner. “With more money comes less stress. It helps us recruit and keep quality people.”

Paul’s Pot Pies is one of several storefronts lining Marietta’s well-appointed town square, which is outfitted with a gazebo, flowering trees, and boxes of blooming tulips, daffodils, and hyacinths. Its proprietor, Paul Lubertazzi, added $2 to the hourly pay of his minimum-wage workers eight months ago because he says he was afraid he’d lose them to other businesses. A pickup in sales of his frozen pastry pies, which cost $9 to $25, helped pay for the increase. But the cost of many of his ingredients, particularly vegetables, has risen too, which is why he plans to raise prices sometime this year: “I wanted to do it in January, but I’m holding off,” Lubertazzi says. “People do complain.” —Margaret Newkirk

Ames, Iowa: Building an Employee Pipeline

Population: 66,191

Unemployment rate: 1.5%

Average weekly wages: $833

“Join our team,” beckons the chyron in foot-tall red lettering outside the Taco John’s in Ames, Iowa. Across the street, a cactus-shaped sign at TacoTime declares that it, too, is hiring.

“Help wanted” signs are a common sight in Ames, which boasts the lowest unemployment rate in the nation—1.5 percent. From behind the beige laminate cashier counter of the Taco John’s, manager Justin Cornelius says this outpost of the Tex-Mex chain raised pay by 50¢ an hour in the fall. Still, turnover has increased, because workers have more options than they did a few years ago. Cornelius himself is a fill-in; he’s been on loan from a Des Moines restaurant since December. Usually, it takes four to six weeks to find a permanent manager. In Ames it’s been 10 weeks and counting.

Two miles north, at O’Donnell Ace Hardware, manager Tausha Tjernagel says her store has lifted wages every six months for the past year and a half. She’s now starting full-time workers with no experience at $11 an hour, well above the state’s $7.25 minimum. Even so, Tjernagel has had to ask employees to be flexible to fill holes in the schedule. Older part-timers who’d prefer a weekday morning shift are spending their Saturdays ringing up lawn fertilizer or stocking shelves with hammers and nails. But that’s better than letting checkout lines get longer, which is what several town residents say is happening at other retailers. Says Tjernagel: “We make it so that it’s not noticeable to our customers.”



Wait times aren’t the only pain a supercharged labor market is causing in this city of 66,000, home to the world’s largest gnome statue and Iowa State University. The school is Ames’s largest employer, as well as a magnet for companies across the Midwest that are fighting the region’s brain drain. Locals say prices haven’t been picking up rapidly, and inflation in the Midwest as a whole continues to run below 2 percent. Average weekly wages grew slightly faster than national wages through the first three quarters of 2017—though a separate data series on hourly earnings showed a pop in Ames in January, which is early evidence that faster gains may be materializing.

There are other signs the local economy is running hot. A home price index shot up 7 percent in the fourth quarter of 2017. Kellie Mullaney, a career development adviser at Iowa State, recalls that when she and her husband bought their home three years ago, listings sold in a day: “It seemed like the price range we were in, everyone else was in, too.”



To get around the housing constraint, businesses are trying to make it easier for workers to commute in from elsewhere. Mary Greeley Medical Center—one of Ames’s largest employers—is working on setting up a ride-sharing program for employees who live in nearby Story City or Des Moines, where the unemployment rate is 2 percentage points higher.

The Ames Chamber of Commerce has been targeting the 6 percent of the local population that’s underemployed. It’s promoting a community college program in Des Moines that will train people, often at no charge, for jobs in advanced manufacturing. Staffers have been pushing it at local food banks and through local faith leaders, hoping to absorb any labor market slack.

Some companies are trying to snap up workers before they hit the job market. At Iowa State’s College of Engineering, internship postings by Ames companies rose 20 percent in 2017, far exceeding the 2 percent increase in postings overall, says Mullaney.

A collection of modern buildings perched in the middle of a former cornfield abutting the campus is a freshly built monument to employers’ growing desperation. Workiva Inc., a software company that’s referred to locally as the “Google of the Midwest,” expanded its presence in the research park in 2014, and John Deere & Co. opened a “strategic technology office” last year.

The lobby of Vermeer Corp.’s two-year-old office, where 3D-printed art displays hang on the wall opposite minimalist lounge chairs, looks more like a trendy hotel than the outpost of a manufacturer of heavy machinery for the agriculture, mining, and construction industries. Vermeer’s headquarters are more than an hour’s drive away, in Pella, Iowa, but the company enlarged its operation here in part because managers wanted to keep in touch with summer interns, who were getting recruited to other companies amid intense demand. “If we want the top talent, we have to be competitive,” says Sara Hunter, whose job is to build relationships between Vermeer and the university, while strolling through a massive warehouse where students can come to design test equipment. “That pipeline is key.” —Jeanna Smialek

Via Bloomberg