Another Big Month (and Year) for Jobs

In December, the unemployment rate fell again, and 2022 was the second best year ever for job growth.

Good Morning!

Here are today’s highlights:

• The FTC considers banning noncompete agreements.

• Who’s winning the battle between RTO and WFH?

• The IRS offers important new guidance on PPP loans.

• As spending on pets continues to increase, more companies are adapting products originally intended for humans.

REGULATION

The FTC targets noncompetes: “The proposed rule would ban provisions of labor contracts known as noncompete agreements, which prevent workers from leaving for a competitor or starting a competing business for months or years after their employment, often within a certain geographic area. The agreements have applied to workers as varied as sandwich makers, hair stylists, doctors and software engineers. Studies show that noncompetes, which appear to directly affect roughly 20 percent to 45 percent of U.S. workers in the private sector, hold down pay because job switching is one of the more reliable ways of securing a raise.”

• “Other studies show that noncompetes protect established companies from start-ups, reducing competition within industries. The arrangements may also harm productivity by making it hard for companies to hire workers who best fit their needs.”

• “Defenders of noncompetes argue that employees are free to turn down a job if they want to preserve their ability to join another company, or that they can bargain for higher pay in return for accepting the restriction.”

• “Proponents also argue that noncompetes make employers more likely to invest in training and to share sensitive information with workers, which they might withhold if they feared that a worker might quickly leave.”

• “The public will be allowed to submit comments on the proposal for 60 days, at which point the agency will move to make it final. An F.T.C. document said the rule would take effect 180 days after the final version was published, but experts said it could face legal challenges.” READ MORE

HUMAN RESOURCES

U.S. job growth remains solid: “U.S. employers added 223,000 jobs in December, a sign of continued strength in the labor market. The jobless rate moved down to 3.5 percent from a revised 3.6 percent in November. The December payrolls numbers are a slight decline from November’s revised increase of 256,000, the Labor Department said Friday. For all of 2022, U.S. employers added 4.5 million jobs, the second-best year for job creation on records back to 1940 after 2021, when the labor market rebounded from the pandemic-induced shutdowns and added 6.7 million jobs.”

• “Hiring was resilient throughout 2022 despite an economy that is slowing alongside the Federal Reserve’s aggressive pace of interest rate increases intended to bring down inflation.”

• “However, some recent data and a wave of tech and finance industry layoffs suggest the labor market, while still vibrant, may be starting to lose momentum and gains could reverse in the year ahead.” READ MORE

Meanwhile, small business hiring declined: “U.S. small business owners dialed back hiring plans for a third-straight month in December and a smaller share had unfilled positions, as firms continued to face high labor costs and a lack of qualified candidates. A net 17 percent of small companies planned to add workers, down 1 percentage point from the prior month and the fewest in almost two years, according to data out Thursday from the National Federation of Independent Business. “

• “Some 41 percent of firms had open positions they couldn’t fill, down 3 points from November. While openings have fallen since matching a record of 51 percent last year, they’re still historically elevated.”

• “Some 44 percent of small business owners boosted compensation, an increase from a month earlier and a share that remains well above pre-pandemic levels. Labor quality was cited as a top labor market concern by 23 percent of small firms, up 2 points from November.” READ MORE

OFFICE SPACE

As we begin 2023, what’s the latest on RTO vs. WFH? “2022 can best be categorized as the year where no one workforce model reigned supreme. WFH Research found that in the summer and fall of 2022, 57 percent of employees in the U.S. were on-site full-time, another 29 percent were in a hybrid arrangement and 14 percent were fully remote. Flexibility is also becoming an important selling point for companies looking to recruit talent. According to a poll from Gallup, nine in 10 employees prefer some degree of long-term remote flexibility going forward and nearly eight in 10 expect it from their employer going forward. Going into 2023, there are several key issues that employee experience leaders will likely need to address.”

• “A Microsoft study last fall found 85 percent of leaders lacked confidence that their remote employees were being productive. Furthermore, 49 percent of hybrid work managers stated they struggled to trust employees to do their best work, compared to only 36 percent of in-person managers.”

• “This is despite the fact that data suggests otherwise. The Fall 2022 Pulse Report from Future Forum found that workers with schedule flexibility reported 29 percent higher productivity scores than those without.”

• “Despite the popularity of remote work and schedule flexibility, many employees are still eager for some amount of office time. Seventy-four percent of desk workers surveyed in Future Forum’s Pulse latest report said the main reason to go into the office is to collaborate with coworkers and build camaraderie.” READ MORE

Remote work is poised to devastate American cities: “All this translates into plummeting demand for commercial real-estate, which translates into plummeting property values, which translates into plummeting tax receipts. A recent study from New York University’s Stern School of Business found that office values fell 45 percent in 2020, and are likely to remain 39 percent below pre-pandemic levels for the foreseeable future. If that projection proves true, it would wipe $453 billion in property values off American cities, thereby slashing a critical source of municipal revenues.”

• “In New York City, property taxes are the single largest source of public funds, supplying one-third of the city’s tax revenue. Office buildings account for one-fifth of that sum. The declining market value of Manhattan’s major office districts alone cost the city $5.24 billion in revenue.”

• “Enable suburban commuters to work from their dens several days a week, and you transfer all manner of smalltime commerce — lunch orders, after-work drinks, etc. — from the urban core to its periphery. And lost transactions mean lost sales taxes.”

• “U.S. cities expect their sales tax revenues to decline by an average of 2.5 percent in 2022, according to a survey from the National League of Cities. Last year, New York City Comptroller Scott Stringer estimated that remote work would cost the city $111 million in sales tax receipts annually.”

• “The great danger for cities is that these trends could become self-reinforcing.” READ MORE

TAXES

Ami Kassar reports that the IRS has published new guidance on PPP loan forgiveness: “The guidance confirms that when a taxpayer's loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness from income and must include in income the portion of the loan proceeds that were forgiven based upon misrepresentations or omissions. Taxpayers who inappropriately received forgiveness of their PPP loans are encouraged to comply by, for example, filing amended returns that include forgiven loan proceed amounts in income.” READ MORE

BANKING

In Denmark, bank robberies have become a thing of the past: “Criminals have found it no longer pays off to walk into bank branches in search of a bag of crisp notes, as falling cash use in society has pushed banks to trim costs by pulling cash services from most branches. In 2021, Denmark only had one bank robbery, according to data from Finance Denmark, the country’s largest industry group for lenders. That’s down from 222 just two decades ago.” READ MORE

BUSINESS MODELS

More companies are adapting products intended for humans for use by pets: “Hilton Worldwide Holdings is adding hundreds of hotels where animals can stay the night. It offers virtual ‘pet expert teams’ to address health and behavior issues they might have while traveling, teaming with Mars Inc., the parent of veterinary operator VCA and Purina pet foods. Snack-bar maker Clif Bar & Co. this summer started selling a line of jerky treats for dogs. Global food giant Mondelez International took over Clif in August. More pets and growing demand for all-natural dog food prompted the move, a spokeswoman said. Petco Health & Wellness gets dozens of proposals from companies looking to adapt their products to animals, said Chief Executive Ron Coughlin. Not all the ideas are fully baked. He passed on bringing acupuncturists to the company’s stores.”

• “Although some consumers struggling with inflation are cutting back on nonessentials, they don’t seem to put pet stuff in that category. Spending on pet food was up more than 18 percent in the last year, and spending on supplies rose 8 percent, according to Jefferies Research Services.”

• “Mr. Coughlin of Petco is confident the spending will continue as Americans become ever closer to their animals. ‘If you look at 100 years ago, pets were in the wild. Forty years ago, they’re in our yard, and 20 years ago in the house,’ he said. ‘Now they’re in the bed.’” READ MORE

LOCATION, LOCATION, LOCATION

With global trade patterns shifting, the streets of Laredo are booming: “The more trade expands, the greater the opportunities for Laredo, a sprawling city of over 250,000 people that has long been the dominant land port on the meandering border between the United States and Mexico. Now, it is poised to become an even more vital component of the global economy. American companies sobered by the supply chain upheavals of the pandemic and alarmed by the animosity between the United States and China are reducing their dependence on factories across the Pacific by shifting production to Mexico. Already, about $800 million worth of products, from auto parts to clothing to avocados, pass through Laredo every day.”

• “‘Everyone’s been growing around here — 10, 20, 30 percent every year,’ said Pablo Garza, 30, head of strategic planning at Akzent Logistics, which owns two warehouses in Laredo and is nearly finished constructing a third. ‘It’s a hectic town. It’s astonishing the amount of movement that the city sees in terms of freight.’”

• “But the exhilaration comes tinged with anxiety as businesses and city leaders fret that the existing infrastructure — a pair of commercial bridges spanning the Rio Grande, traffic-choked roads and a hive of warehouses — could be overwhelmed by an influx of cargo.”

• “Some two million square feet of warehouse space is under construction in Laredo, according to Prologis, a real estate investment firm. That amounts to a 5 percent increase in space. But with warehouses more than 98 percent occupied, the new facilities may be quickly filled.” READ MORE

STARTUPS

Vytal is offering rentable containers to make takeout more sustainable: “Founded in 2019 and led by Sven Witthoeft, Tim Breker, and Fabian Barthel, Vytal currently reports having 3.5k+ partner restaurants across Germany and a handful of other countries.  The startup has created a range of packaging to fit all types of establishments. It currently offers reusable bowls, coffee mugs, pizza boxes, trays, and sushi packaging. Each container, which is made to the restaurant’s specifications, has an unique QR code that can be scanned before the packages are dispensed to customers.”

• “Takeout enthusiasts can download Vytal’s app and order directly from participating restaurants. Each user gets their own QR code in-app, allowing the restaurant to link the packaging to the eater by scanning both parties’ codes.”

• “Opting for Vytal’s container is free for customers as long as it’s returned within 14 days (the company reports a return rate of 99.3 percent). Eaters don’t need to clean the containers, and they can be returned at any participating partner restaurant.” READ MORE

THE 21 HATS PODCAST

The business case for employee ownership: This week, Jay Goltz explains how he got interested in selling a percentage of his business to his employees and why he quickly lost interest once he started reading books, attending seminars, and talking to accountants and lawyers who specialize in employee stock ownership plans. To Jay’s ear, they all made ESOPs sound expensive, complicated, and risky. This was not something he needed to do. So why go to the trouble? Why take the risk? But he kept asking questions, and over time, he sensed that many of the problems he was being warned about didn’t have to be problems. As of now, he’s pretty much concluded that an ESOP could help him secure retirement for his employees while generating more profit for his business. In fact, he says, “I'm confident I can make more owning 70 percent of the company than I am now owning 100 percent.”

But he still has a few lingering questions, which is why we invited Corey Rosen to join the conversation. Corey helped draft the legislation that created ESOPs, he's the founder of the National Center for Employee Ownership, and he wrote the book on how the plans work. All of which led to an inevitable question for both Jay and Corey: If ESOPs are so great, why are there so few of them?

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren