We have been hearing a great deal about the unemployment rate lately as political pundits try to cast blame and gain leverage based upon the current 9% to 10% unemployment rate. For many years it has been presumed that the unemployment baseline was 3% to 4% and during good economic times it would rarely drop below 3%. This dynamic gives some level of support to my personal theory that at least 3% of the US workforce is unemployable and the percentage is only increasing due to higher expectations.
As I visit a variety of closely held businesses with annual sales of less than $200,000,000 I have noticed that sales are down about 20% to 30% depending upon the industry and size. I am a business succession planner not an economist, but you don’t have to wear a bowtie and have a whacky hairdo to recognize this decline in sales. Due to this decline in sales all expenses have been scrutinized and squeezed in an effort to survive 2008 and 2009 when we were slammed with the credit crunch. Now success of closely held small businesses comes through survival by reducing overhead cost including rent, cost of goods, hourly wages and executive compensation. The point is that the drop in sales EXCEEDS the drop in profitability.
In reviewing my client’s Profit & Loss statements I noticed that productivity per an employee is UP approximately 35% meaning businesses are doing more with less. Those who have a job are happy to be working and accept the need for increased productivity. Therefore ownership and management won’t hire anyone that doesn’t immediately impact productivity in a positive way. Inefficiency, waste and entitlement are no longer tolerated. Teamwork is now a non-negotiable, fundamental expectation. There is no excess time or energy for turf wars or silo management.
The body fat of the American small business community is comparable to a world class tri-athlete, lean and mean. So, if we assumed 3% to 4% of the workforce has been historically unemployable, I now contend that another 3% to 4% of the workforce is not capable of impacting productivity. Although this observation may not be politically attractive I contend that the baseline for unemployment has increased to 6% to 8%.
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