Amid a tightening labor market, Washington employers are increasing salaries to attract talent while maintaining their benefits packages, according to a new survey by Seattle-based Kibble & Prentice. But companies risk losing out to competitors if they neglect another key ingredient: workplace culture.

As baby boomers retire and twenty- and thirty-somethings rise in the workplace, employers, to compete more effectively for the best workers, must hire and train the right managers, recognize that work isn't an end in itself, and place having fun on par with being productive.

"Smart companies try to make sure the leadership does a good job, is communicative with employees, and treats employees well and fairly," says Josh Warborg, a Seattle-based regional vice president with Robert Half International, a temporary staffing service specializing in the fields of accounting, finance and bookkeeping. "Smart companies not only try to encourage an employee's productivity, but they also try to encourage positive, productive relationships that keep people coming back."

Joyce Gioia Herman, president and CEO of The Herman Group, a Greensboro, N.C.-based firm that specializes in workforce issues, agrees, adding that the new generation of workers who will succeed the retiring baby boomers strike different attitudes about life at the office. "These young people are not going to wait until they're old fogeys to enjoy their lives," she says. She predicts companies increasingly will offer sabbaticals. "The most important aspect is to have an employee-centered culture," she adds.

It's unclear whether most companies in Washington will embrace this philosophy. What is clear is that they're grappling with a tightening labor market. Kibble & Prentice, an insurance and financial services company, recently conducted a statewide survey of more than 300 employers. Among its findings:

• 30 percent said they increased salaries in response to the current labor market, more than 25 percent reported increased recruiting costs, and nearly 15 percent bemoaned the loss of key employees.
• Nearly 50 percent rated the difficulty of recruiting qualified employees "very" or "extremely" difficult.
• The leading challenge to hiring key employees was "competition from companies like mine," surpassing traditional roadblocks such as salary and cost of living.
• Nearly 50 percent expect the market to be slightly more competitive next year.

The labor market is tightening mainly because of strong growth in the aerospace and technology sectors, which is prompting a healthy search for more workers. The Boeing Co., for example, took in a record 1,044 orders for its commercial planes in 2006. And the aerospace giant has a commercial aircraft backlog worth $174 billion. "Boeing is going to generate quite a demand for labor," Warborg says, and "not just Boeing itself, but all of the subsidiaries in the aerospace industry." And Microsoft Corp., in what has been reported as the single largest office-leasing agreement in the history of the Seattle area, has secured enough space for more than 4,000 workers in Bellevue, preparing to create a major footprint in a second eastside city.

But it's not just Boeing and Microsoft that are growing. Of the respondents to the survey, more than 45 percent said they had increased their workforces by at least 5 percent, while an additional 20 percent said they increased their workforces by at least 11 percent.

Expansions like these are remarkable when you consider where Washington was just five years ago: in a recession with an unemployment rate that, at one point, threatened to reach 8 percent. A job growth-driven recovery is under way and showing few signs of slowing down.

The state's unemployment rate is now 4.8 percent, slightly above the national rate of 4.7 percent. But in areas like Seattle, experts say the unemployment rate may be as little as 3 percent. From January 2005 to February 2007, the state created 155,800 new jobs, according to an analysis by the Washington state Employment Security Department. "We're kind of in a sweet spot here in Washington," says Dave Wallace, a labor economist for the state. "Two years ago, we were just struggling out of that recession and even a year ago we were gaining steam. Right now, we seem to be cruising. Our economy is doing so well."