Higher wages cure labor shortages

Corporate and political leadership continue to complain about the inability to find workers in the skilled trades/mid-skill jobs. Their solution is to go back to tracking kids––almost certainly others, not theirs––into vocational programs.

One problem: if there are labor shortages, and many doubt there is, the prime cause is not an education system that over emphasizes four year degrees, but employers unwillingness to raise wages. As we have explored previously, in market economies––which we all claim to believe in––price is what brings supply and demand into equilibrium. In labor markets price is wages.

So if there is more demand for workers in an occupation than supply, the way you get more supply is by raising wages. (And other ways to make the job more attractive to job seekers: better work conditions, better benefits, not hiring through temporary agencies, more job security. etc.) Yet in most of the occupations where politicians and employers are complaining about labor shortages wages are not going up.

We have written previously about a Manufacturing & Technology News article entitled “MIT Drills Into The Manufacturing Skills Shortage And Finds That It Doesn’t Really Exist.” Bloomberg Businessweek recently published an article on the tech industry entitled “The Tech Worker Shortage Doesn’t Really Exist”. Both articles cite the absence of rising wages as evidence of the non existence of labor shortages.

Manufacturing & Technology News writes:If a shortage of skilled manufacturing employees did exist then, in a market-based economy, the wages of workers in demand would be rising. But they are not. Potential workers viewing career options understand principles of supply and demand and would start training themselves for the hundreds of thousands of open positions in manufacturing. But they are not.” (Emphasis added.)

Businessweek writes: “There’s no evidence of any way, shape, or form that there’s a shortage in the conventional sense,” says Hal Salzman, a professor of planning and public policy at Rutgers University. “They may not be able to find them at the price they want. But I’m not sure that qualifies as a shortage, any more than my not being able to find a half-priced TV.” For a real-life example of an actual worker shortage, Salzman points to the case of petroleum engineers, where the supply of workers has failed to keep up with the growth in oil exploration. The result, says Salzman, was just what economists would have predicted: Employers started offering more money, more people started becoming petroleum engineers, and the shortage was solved. In contrast, Salzman concluded in a paper released last year by the liberal Economic Policy Institute, real IT wages are about the same as they were in 1999.

Two recent articles on labor shortages in West Michigan make the same point. The first from MiBiz entitled “Manufacturers struggle to find talent, yet resist push to raise worker pay”. They write: Although many companies have developed innovative training programs and established relationships with community colleges, they still have trouble finding qualified workers to fill positions ranging from assembly to engineering. One reason, according to experts: stagnant low wages. While the boom and bust cycle of manufacturing has dissuaded some employees from entering the field, low wages remain one of the main causes for manufacturers’ talent woes — particularly when it comes to worker retention, said George Erickcek, senior regional analyst at the W.E. Upjohn Institute for Employment Research in Kalamazoo. 

In a recent article MLive quotes Birgit Klohs, Right Place Inc. President and CEO, on the topic this way: That means employers will have to start handing out raises, said Klohs, who said her economic development agency nearly eclipsed its 3-year growth targets in the current year. “West Michigan happens to be on the very low end of what we pay,” Klohs said. “If we don’t pay, people will go elsewhere. If we want to have talent, we’re going to have to pay for it.” (Emphasis added.)

What happens when an employer is willing to pay higher wages? The MiBiz article continues:

But not all manufacturers have experienced the same challenges when it comes to sourcing and retaining talent in West Michigan. When California-based SolarBOS Inc. launched production in Walker earlier this year, it opted to pay its Michigan workers the same wages that it offered its workers in its home state, which traditionally has a higher wage structure than West Michigan, as MiBiz previously reported.

The manufacturer of power management systems for photovoltaic solar arrays and other electrical systems starts temporary assembly workers at $17.50 per hour, while assembly workers can earn close to $23 an hour as they move up within the company. That compares to a rate of $13 per hour suggested by local staffing agencies when the company first moved to the area.

“When you’re willing to pay the wage, you’d be surprised at how many people become available,” CEO John Hass told MiBiz at the time. “You get what you pay for in life.” (Emphasis added)


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