The crummy labor market is yielding a 'tenure dividend' for corporations 💰
The economy isn't working for everyone, but it's working for the stock market 📈
The latest batch of economic data confirms that the labor market continues to cool.
While this is bad news for workers seeking new jobs, it appears to be cooling in a way that’s benefiting corporate profitability.
SGH Macro Advisors’ Tim Duy explained in a research note on Tuesday (emphasis added):
Firms are reducing labor input, due in part to federal policy uncertainty, higher rates and slower demand growth. Labor input is being reduced primarily through attrition and fewer hours worked rather than layoffs. Output has been maintained despite weaker labor utilization, producing a second productivity surge that reflects operational optimization rather than cyclical expansion.
A key feature of this phase is a “tenure dividend.” With hiring and quits rates near post-GFC lows, firms face minimal training and onboarding costs. Business survey responses to the Federal Reserve Bank of Atlanta indicate it takes roughly six months for new hires to reach full productivity, but a meaningful tail of roughly 15-20% of firms report ramp-up periods of 12 to 18 months. The current workforce is therefore skewed toward fully onboarded, experienced employees, mechanically boosting output per hour worked…
This is something we’ve discussed before. Anyone who has ever managed people or started a job at a new company understands it. No matter how qualified the new hire, it takes time to get into the groove of things. It takes time to master the company’s tools and get familiar with its jargon. It takes some experience to understand how internal politics work. And it takes a few lunches to figure out where to get the best burrito bowl.
