Employers can fix labor shortages

Terrific Dustin Walsh column in Crain’s Detroit Business entitled Businesses have key to labor shortage — higher wages. This is a position we have laid out many times before (see here) that markets solve supply and demand imbalances through price. In the case of labor markets price is wages and benefits. If there is more demand than supply the way you get to equilibrium is wages and/or benefits go up. The mystery is if there really are labor shortages why aren’t wages going up.

Walsh writes:

On the skills gap and labor shortage, it’s time for business to put up or shut up.

Business executives have lamented since 2010 that workers, skilled and unskilled, are hard to find. Yet they hold the key to open their doors to hiring — and it’s hiding in the record profits most Southeast Michigan industries have been churning out in the post-recession economy.

Pay more in wages and pay more in training.


Too many employers seem to have come to believe that they are entitled to the workers they need at below market wages and benefits. Their solution seems to be to get government to steer people––except for their kids––into those occupations and to organize the education and training system to train employment-ready job seekers as well. May be a good deal for them––although government almost certainly won’t be very good at either steering people into or preparing people for specific occupations––but it sure isn’t a good deal for Michigan households who need wages and benefits to go up.

I wrote a column on this topic, earlier this year for the Grand Rapids Business Journal, raising the question why aren’t wages going up if there really are labor shortages. I got an email response from Josh Szymanski, Chief Strategy officer of Owens-Ames-Kimball. A West Michigan construction company. He wrote:

This is the most succinct version of the explanation I’ve been attempting to communicate within the construction industry for years.  I couldn’t agree more with your assessment, and thank you for writing it.

Supply and demand economics says these skilled trades workers will show up if people really (really!) need them.  The fear seems to be that it takes 3 – 5 years lag to train them, but I’ve watched this play out in nursing, airline pilots, and other professions with similar training. There’s still some seasonality and lag between supply and demand in construction trades, but if demand is high enough, wages will follow and supply will rise to meet the demand.

We seem to have become accustomed to ample or even oversupply of labor in recent years and are now spending copious hours of meetings, summits, conferences, and other activities trying to advertise our profession to new entrants while lamenting how little we all pay in labor rates.  The market will sort this out!  Thank you for publishing this editorial.

Once again, exactly!




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