Low Unemployment when will it trigger inflation

The Microtech View

On business, the workplace and
employee relations

March, 2007

Labor

In the late 1980s there was a
general opinion that an unemployment rate of around 6 percent was the ignition
point for a burst of inflation The belief was that once the jobless rate went
below that level, labor shortages would crop up and employers would need to
raise wages to keep or attract workers Those higher wages would be passed along
to consumers in the form of higher prices for goods and services

But then the "New Economy" came along in the '90s and the argument was made
that productivity gains through new technology would enable companies to
continue to increase their output per worker, thus affording the wage hikes
through increased sales As the economy expanded, the Federal Reserve cooperated
by not raising interest rates to stymie the growth As you can see in the
accompanying chart, the red bars show unemployment has stayed below 6 percent,
drifting as low as 4 percent on an annual average in 2000, while yearly
increases in the Consumer Price Index, marked by the blue line, have been
small

We mention all this because the national jobless rate today hovers in the
mid-4 percent range and is expected to stay there through mid-year at least,
without any surge in inflation In its monthly survey of mutual fund mangers in
February, Merrill Lynch found a growing sentiment that the economy is in
mid-cycle phase and not closer to late-cycle, as was previously thought

At Microtech we're in the employment business and we're happy when there's a
sustained demand for workers But we're also aware that as the economy has
expanded the availability of qualified workers has declined Certainly strong
economies cause labor pools to grow, as once discouraged workers start looking
for jobs again But the supply of skilled workers does not rise in
proportion

It's critical for employers who work with staffing firms to be aware of their
recruitment and screening programs At Microtech we're proactively attracting
new personnel who can join a company and begin contributing immediately

Employee Relations

Have you thrown
a party recently for a beloved departing employee? What did you do for the last
new hire that came on board? It's not necessary that you break out a cake, but
the steps you take to make that person feel welcomed will go a long way towards
keeping him or her around and maximizing productivity Even people who are
career temporary employees and accustomed to stepping in to unfamiliar
employment situations can still find the first day or two of a new job
difficult Employers can make that adjustment easier with some simple steps:

• Make them feel useful right away Be sure your
  training program keeps them busy and challenged New hires feel silly if they
  have a lot of down time at first They don't know where to go and often don't
  have anyone to speak to
  
  
  
  


• Greetings from Mr Big Depending on the size
  of the business, make sure that key people - from the plant manager right up to
  the president - are aware that a new person has joined the firm When they stop
  by for a quick introduction and a handshake people remember
  
  
  
  


• Give a brief tour Take the new person around
  to find the key spots in the building such as the cafeteria, boardroom,
  auditorium and plant facilities Make introductions along the way Your new
  employee probably won't remember everyone's name, but others will know him or
  her and that helps to break the ice

March Madness The FBI estimates that more than $25 billion is gambled on the NCAA basketball tournament each year, with only $80 million bet legally through sports books in Nevada That leaves more than $24 billion gambled illegally elsewhere - much of it in the workplace Filling out the brackets and following the games is a fun way to get through winter's final month But policies differ among companies In 2002, more than 9,700 human resource professionals responded to an online survey by the Society of Human Resource Managers about office gambling activities The results: · 30 percent said their organizations don't allow betting pools · 14 percent said their organization does allow them · 56 percent said they don't worry about whether betting pools are happening at their workplace Our advice: know your company's rules regarding office pools and don't get fired And if you play for entertainment, look for a 12 seed to upset a 5 seed It happens every year!

Regards,



Joe Donahue

President