Tight labor market starts to drag on Austin economy


Kerbey Lane Cafe’s newest restaurant will employ an assistant general manager recruited from Florida when it opens this year — but not because the homegrown chain wanted to add geographic diversity to its leadership ranks.

Instead, it’s simply having trouble finding employees locally amid an extremely tight Austin labor market that is straining businesses from retail stores and restaurants to software developers and construction firms.

The widespread hiring difficulty is starting to slow the growth of Austin’s long-booming economy, recent data from the Federal Reserve Bank of Dallas indicates.

“It has never been easy to hire (in Austin), but it is more challenging today than it has ever been,” said Mason Ayer, Kerbey Lane’s chief executive.

The upshot for Kerbey Lane has been a nationwide hiring search ahead of the planned November opening of its eighth outlet, which will be in the Mueller development. Kerbey Lane’s new assistant general manager, who is from Miami, is the first staff member for any of the company’s restaurants proactively recruited from out of state, Ayer said, although she likely won’t be the last.

“We’re putting more work, effort and money into this hiring round than ever before,” he said.

The Federal Reserve Bank of Dallas recently revised downward its measure of the region’s annual growth rate — called the Austin Business-Cycle Index — to an average of about 4.7 percent through the first six months of 2018 from a preliminary estimate of about 6 percent. For July, it pegged the annualized growth rate for the metro area at 4.3 percent.

While the latest figures still are considered strong and signal economic expansion, they show a significant cooling from what the Dallas Fed views as the Austin-area’s long-term average of about 6 percent, as well as its highs above 10 percent in portions of 2014 and 2015. In addition, the July number for the Austin area trailed the statewide annualized growth rate of 5.2 percent in the Dallas Fed’s Texas Business-Cycle Index.

Christopher Slijk, an assistant economist at the Dallas Fed, said the tight labor market is a primary culprit in the Austin area’s slowdown. He said the issue isn’t the result of the “demand side” — meaning the willingness of residents to purchase goods and services — but instead appears to be caused by constraints on the capacity of local businesses to produce them.

The region “is almost a victim of its own success (because) the area has grown so quickly that it can’t bring in enough workers for businesses to fill the positions that need to be filled,” Slijk said.

The Austin-area unemployment rate has been scraping near 20-year lows throughout 2018, most recently coming in at 3.1 percent for July, its lowest nonseasonally adjusted rate for the month of July since 1999 — the height of the dot-com boom.

The region’s civilian workforce has climbed by nearly 30,000 people over the past year, but the influx hasn’t been enough to keep pace with the need for workers as the economy has surged. Postings for job openings by local employers numbered about 45,700 last month, 10 percent more than in August 2017, according to the Greater Austin Chamber of Commerce.

William Mellor, vice president at Austin economic consulting firm Angelou Economics, said the labor market has been a problem in Austin for some time, but he also noted that many major metro areas throughout the United States are experiencing similar issues amid low unemployment nationwide.

Immigration reform could help ease the situation by enabling more foreign workers to fill open positions, Mellor said — and increases in what generally have been stagnant wages could also boost labor-force participation.

The three-month average of hourly earnings in the Austin area was up 2 percent in July, compared with the year-ago period, according to the Dallas Fed’s latest report on the local economy. Mellor said he expects that figure to accelerate as employers in the Austin area continue grappling with the tight labor market.

“Growth can only occur if there are the people to make the products and perform the services,” Mellor said. The Austin area “is constrained by how many workers the private sector is able to employ.”

For Kerbey Lane, bucking the constraints will mean finding enough employees, whether locally or through its nationwide search, to open its new Mueller location in November as planned. The restaurant chain will do so, Ayer said, although it’s taking a major amount of effort.

“The labor market is tighter right now than any other time when we have opened a restaurant,” Ayer said. “And any (Austin business owner) I talk to — whether it’s restaurants or landscaping or software — it doesn’t matter. It’s the same story.”

He said Kerbey Lane has raised pay significantly over the past few years — albeit keeping in mind “the really, really thin margins” in the restaurant industry — and it also has been spending about $15,000 a month on training and recruitment, nearly double the amount four years ago.

Even companies that aren’t facing any hiring deadlines say the labor shortage in Austin is notable.

Home Depot, based in Atlanta, announced in April that it planned to hire up to 500 employees for its Austin technology center. But the company left the precise short-term time frame for the new jobs intentionally vague, spokesman Paul Mayer said.

“We knew that we had to be flexible — that’s why we said ‘up to 500’ people,” Mayer said. “A lot of the same folks with the talent that we’re hiring (such as software engineers and product managers), you’ve got everyone in town looking at the same type.”



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