A labor shortage in this country has left 10 million job vacancies, yet 10 million people are without jobs. The economy is sending a hodgepodge of conflicting signals that are confusing everyone, including the Board of Governors of the Federal Reserve System.
The Federal Reserve is the central banker of the country. Congress has charged it with maximizing employment, stabilizing prices, and moderating long-term interest rates. The Fed, as it is lovingly called, is focused on interest rates that control inflation, stabilizing prices. The Fed also considers employment, but at the moment believes too many jobs are being added, increasing inflation. So in its ultimate wisdom, the Fed is raising interest rates. The rate of inflation has slowed somewhat, but unfortunately so have other things.
House sales and new business construction for example. Both are highly sensitive to interest rates. As borrowing becomes more expensive, fewer people are willing to buy a house. Equally important, the increase in the cost of money slows all forms of construction, not just housing. Businesses are forced to downsize, postpone, or cancel projects. That is just one of the challenges businesses are experiencing. Getting goods and materials delivered on a timely basis has improved, but not all of the supply-chain issues have been resolved.
Slower delivery times also increase the cost of construction and, of course, the cost of the services and products that will be produced in the new buildings. The cost increases are passed on to customers via price increases. Another tactic that grew out of the pandemic is “shrinkflation”: reducing the amount of product within a container — fewer tortilla chips, less dishwasher soap, and thinner slices of bread, for example.
Casinos have no simple way to raise the price of their core product. Which means margins decrease, making casinos built under these conditions less profitable.
Another issue affects not just construction, but every other facet of business: a shortage of employees across the board. It may be the most challenging economic issue of the time, and not just for casinos. There are shortages of airline pilots, doctors, nurses, accountants, construction workers, firefighters, and many other professions. The pandemic seems to have been a partial cause of the shortage, as businesses attempting to return to normal operations found it difficult to hire the necessary staff. Initially, that was not always a bad thing, at least for the casino industry.
When casinos reopened after the COVID restrictions, they often had less capacity than before. There was more than one reason for the changes. Operators were uncertain about the level of business to anticipate and therefore chose a conservative strategy. That strategy was aided by a lack of staff, when not all former employees wanted to return. However, the trimmed operations were much more profitable than in pre-pandemic times. It was a good strategy, but not long term. Casino operators were shocked at the record-high volume of business they experienced. And while the trimmed-down model was more profitable, it could not take full advantage of the opportunities. As 2020 progressed and government-imposed restrictions on capacity were lifted, casinos were free to return to full operations. In general, casinos were eager to take advantage of the opportunity.
The problem that faced casinos attempting to ramp up was and is a labor shortage. There simply are not enough people to fill the jobs. In fact, the problem is much bigger than just the casino industry. It is a national and international problem. In the U. S., as mentioned, an estimated 10 million jobs are unfilled. The unemployment rate has risen slightly in the last couple of months, but it is still under four percent. That means 10 million people are without jobs. The tight market favors the unemployed and those wishing to change jobs, who have their choice of jobs.
The competition for employees has led to some expensive policies. Wages have been going up in all service industries, which includes casinos. Prospective employers are offering $5,000 even $10,000 sign-up bonuses for some highly sought-after positions. Employers are also offering finders fees for those who recommend a new employee. Increased wages and bonuses are not enough sometimes, especially in hard-to-fill categories. For casinos, the hard-to-fill jobs can be found at both the top and bottom of the organization chart. Accountants, managers, and chefs are on the top side, while bus people and housekeepers are at the bottom. Both impact service and profitability.
The housekeeping positions have had a very large impact. Hotels have moved to changing sheets and towels on room turnover and routine cleaning for stayover guests is put on an every- other-day or even longer schedule. That has led to union complaints and articles that claim the dirty rooms are leading to an increase in bedbug infestation. The bedbug issue is not a bad metaphor for our times; trying to operate without enough employees is unhealthy.
The problem exists in other countries too. Japan has always been reluctant to allow foreigners to work in the Land of the Rising Sun. But that has changed. Japan needs workers at all levels, including in restaurants. The Cabinet has just approved a significant expansion of the jobs that qualify for foreign workers. It is an issue even in China and Macau. Macau allowed the number of its foreign workers to increase dramatically in May for the same reason.
It is a policy change that this country may be forced into considering. It won’t be easy in the current political environment, but it might become necessary. We have already seen a willingness to ease employment restrictions. In Illinois, convicted felons can work in casinos. Ten states have lowered the employment age. Some are even permitting underage employees to serve alcohol.
Raising interest rates is not a solution, nor is it any healthier than bedbugs for most of us.
