Driveway moments reveal economic realities
Sometimes economic lessons don’t come from mind-numbing tables and charts. There are other equally insightful opportunities of investigation. One is what I call “driveway economics.”The first driveway economic story begins with a very courteous doorman at the Beaver Creek Lodge. It was a completely unplanned and absolutely charming exchange. He’s from Sofia, Bulgaria and, with his wife, they have a three-year visa to work in the United States. Just a week earlier I’d met the general manager of the hotel at a meeting where the conversation quickly turned to the chronic problem that many of our hotels face in finding good workers. And it’s not just a problem of seasonal housing, it’s a problem of a dwindling employment pool. Lesson #1: The future of our workforce may have to continue to rely on an international labor pool.The second driveway story is my daily exercise route which passes the driveway (and house) of Vail Resorts’ CFO. The house is empty now as the CFO has moved with the company to Boulder. It represents several troubling trends. The first is the loss of a high-paying job and the second is the loss of a younger family. But, these two “losses” may portend a wider and more disturbing trend.Who will buy this empty home? For the home’s size and cost, I’ll lay you odds it will either be a second-home owner or full-time retired couple. In other words, given the high cost of the home, it will take buyers of means (usually wealth from elsewhere) to afford it. Probably not the kind of folks who’ll be filling high quality jobs or interested in supporting local school initiatives. Lesson #2: The loss of high-paying jobs creates negative ripple effects in our local economy.The final driveway story unfolded just a few days ago on my own driveway where I happened to be engaged by the driver of a regional freight company who had just completed a delivery. He told me that he wouldn’t be on the route any more as he was planning on getting a job that would reduce his daily 115 mile commute (just to work, before deliveries) to 4 miles.I also learned that the company he works for, like other freight companies, is having a tough time finding drivers. Wages have sprung from $13 per hour to $20. That’s a whopping 45 percent increase. Why? Because the explosion of oil and gas exploration on the Western Slope is creating very high-wage job demand. A few weeks ago, the Denver Post reported on a 19-year-old high school graduate in Rifle who was pulling in a salary of $40,000 working in the gas fields. Now tell me, in light of this, how can the ski resorts, hotels, municipalities, construction companies, shops, big boxes and banks be wage competitive? The answer is: They can’t. Lesson #3: A sudden surge in a free-market economy regionally can have adverse effects on our economy locally.In my March 2005 column I wrote: “An oil boom on the Western Slope could have implications on our state and on Eagle County that are difficult to fathom.” When I wrote that, a barrel of crude oil was $55. Today it’s $76 – a 40 percent increase. And it’s absolutely clear that the cost will go higher as world demand for energy increases.I have no doubt that there will be sufficient energy supplies into the future, but it will come at a much higher cost. And that high national demand is already starting to constrict our labor supply by putting us in a non-competitive wage situation.Our major employers are already starting to be buffeted by the headwinds of this economic change as they are finding it harder and harder to fill positions. The effects will filter down into the community, and you’ll see evidence by higher prices in stores (to cover rising labor costs) and poorer service in retail and hospitality as staffs are stretched thin. And, even in the face of “healthy” economy, the pressure is on our local governments to seek new tax opportunities or defer capital projects just to maintain adequate services.In economics there’s a term called “price elasticity,” which is the test of how far you can price a product or service until a purchaser closes his or her pocketbook. This external upward wage pressure is starting to pull much more strongly on our local economy. Frankly, none of us can predict the limit of the “stretch,” but just like a rubber band, it can be broken – and the “snap” is very unpleasant.This is a real problem that won’t be going away and can’t be easily solved. In upcoming columns, I’ll talk about ideas and strategies that many of our community leaders are looking at in the face of this growing threat.Don Cohen is the executive director of the Economic Council of Eagle County. He can be reached at email@example.com
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