The State of This Economy is confusing. The market’s still going up, savings rates are high, unemployment (those who are looking for work) is at the (new) normal level, while 4.5 million people voluntarily left their jobs …. What’s going on?

It occurred to me this morning that I should talk about this. In one of my Profit Power Series lessons, I talk about the ‘Ramp Factor’ in relation to an increasing inventory situation. I point out that, once a business owner funds their inventory, they never get that money back until the store closes and they sell the last remaining items on the shelf. I think a similar concept is in play today for our labor force.

Let me explain. People with opinions work in companies, and people with opinions own companies (through the stock market) looking for a return on their investment, albeit often not the same people. Until recently, many companies have been hamstrung between the opinions of the labor force and the expectations of the stockholders.

Labor and stockholders alike all hear the same news, the same complaints. We’ve spent years listening to workers complain that their jobs were being taken away from them … by foreigners … by robotics … by technology …. And the companies affected by these complaints have spent years paying wages that don’t keep up with inflation.

To respond to stockholders’ complaints, the companies have had to be very careful to avoid layoffs … to avoid employing technology in a big way so as not to upset the social sentiment surrounding the companies. In effect, our complaints have strapped our businesses with enormous inefficiencies. Two people work for the price of one. The Ramp Factor.

Giant corporations with strong balance sheets have been robust through this pandemic, even though they haven’t been able to fill all the jobs that were vacated at the beginning. What happens when you don’t have enough people to do the work? You get REALLY efficient. You are free to employ the robotics and technology that brings higher efficiency. With efficiency comes higher pay. When trying to compete with others for human resources, companies are forced to increase wages. One person works for the price of two. The Ramp Factor in reverse.

We have a great system in this country by which many companies contribute to 401ks and IRAs. As we work, as wages increase, we contribute more to the stock market (ownership of big companies) by contributing more to these accounts. Many of those who had large accounts going into the pandemic and left their jobs have learned how to manage their accounts in the market themselves. Many of the accounts that were formerly managed through their company were invested in bonds, which helped fuel the country. But those funds were then moved by their owners into stocks. The market goes up. The companies become even stronger. Interest rates go down as the government tries to replace the bond funds.

When people are not working, they, too, get efficient. They move back in with Mom. They stop buying things they don’t need. They save gas by not driving. They stop going to movies and restaurants, and they learn to cook. They might even be healthier and become more engaged in raising their children. Savings rates skyrocket. More Ramp Factor in reverse.

So essentially, the government, while giving out money for not working, was creating a situation that might be viewed as a walkout for higher pay, for more efficiency (robotics and technology), for lower stress, for the opportunity to dip into the profits that shareholders get when they invest in the big companies. And possibly, to leave the workforce and live on that profit.

I recently watched a senate hearing with Chairman Powell being grilled by a member of our Congress who strongly suggested that corporations are not behaving properly because they are exhibiting higher profits than usual. Clearly not an economics professor, the congresswoman doesn’t understand that those profits are a result of being able to apply efficiencies that had previously been taboo. The higher profits will be spent on technology, on creating efficiencies, on higher wages, on higher dividends, and on stock buybacks. A win for the labor force as well as a win for shareholders.

But what about the little companies – the restaurants, the theaters, music venues, any place that requires customer presence in a confined space?

If the small business had a strong balance sheet like big business does, they too could become more efficient. One restaurant I am familiar with bought the hotel nearby to house their employees. Many came up with myriad ways to serve outdoors. Those with strong balance sheets were able to employ technology that made the remaining employees more efficient.

While the loss of life is tragic, as well as the failure of many businesses … it’s almost like we’ve finally reset the ability to improve worker pay levels that have lagged 50 years behind the cost-of-living curve. But why do we continue to have businesses that can’t cut it today? For the answer to that, we must go back even further, to a time when Great-Grampa built pianos in his barn by hand, and mentored his children in how to handle customers, vendors, money, quality, and the like.

Today, we have no mentors, no useful training. To get a business license, we need only sign our name. It’s as if to say that owning a business is much less important than driving a car, which requires passing both a written test and a driving test to demonstrate knowledge and practical application of the rules of the road as well as safe operation of the vehicle.

So, with increased pay, higher efficiency, and employees leaving the workforce in droves to become shareholders in the stock market or in their own business, we’re halfway to this new paradigm. All we need now is a way to ensure that the application of the rules of business is taught to those who don’t have the advantage of a practical business mentor. Come visit me at ProfitPowerSeries.com to learn more about my comprehensive mentoring program for small business owners.