Your biggest expense is about to get worse

John O'Connor
John O'Connor

There are growing signs that labor costs will soon be creeping up.

That may be good news for the frontline workers and other staff who literally do the heavy lifting. But it's not so great for those who have to make sure payroll is met.

So what gives me the gall to suggest this coming surge? The short answer is that after some very tough years, our economy is slowly crawling out of the crater caused by the Great Recession. The obvious signs are more companies are hiring, and real gross domestic product is on the rise.

But the real clincher was last week's jobs report. That would be the one showing that the nation's overall unemployment rate has dropped to 5.6%. As things are trending, the unemployment rate will be reduced to 5% this summer, well ahead of 2016 — when the Federal Reserve was expecting that goal to arrive. In fact, the Deutsche Bank is now predicting that unemployment may actually drop to 4.7% by year's end.

And given the “If you give a mouse a cookie” nature of our economy, wage inflation is all but certain to be on the other side of that coin.

To be clear, there won't to be too many union stewards crying on behalf of long-term care operators suddenly facing higher staffing costs. The reality is that such expenses have been moving little if at all in the past few years. And as I wrote recently, many operators have benefitted greatly from current market conditions that have allowed them to keep a lid on labor costs while borrowing money at ridiculously low rates. Talk about serendipity.

But that does not change the simple fact that labor remains the single highest cost of doing business in this field. It's a rare facility where salaries and wages are not at least half of the budget. At many places it's closer to two-thirds. In some communities, it's actually north of 70%. At least, that's what some of the people doing the math keep telling me.

Given that elephant in the room, any hint of higher wages will get heartbeats in the accounting department racing pretty quickly. So please don't shoot the messenger. But I'm here to tell you that wages are going to be going up.

The only real question is by how much.

John O'Connor is McKnight's Editorial Director.

Daily Editors' Notes

McKnight's Daily Editors' Notes features commentary on the latest in long-term care news and issues. Entries are written by Editorial Director John O'Connor, Editor James M. Berklan, Senior Editor Elizabeth Newman and Staff Writer Emily Mongan.

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