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Home Publications Blogs Beat the Press If Employers Can't Find Workers With the Right Skills Why Don't They Try Raising Wages?

If Employers Can't Find Workers With the Right Skills Why Don't They Try Raising Wages?

Friday, 06 June 2014 05:13

John Ydstie concluded a mostly good piece giving a preview of the May employment report being released today by saying that one reason employment is not growing more rapidly is due to a skills mismatch. According to this story, employers would be hiring more workers if they could find workers who have the skills they need.

While employers and many economists often make this claim the evidence doesn't seem to support this position. If employers were actually having difficulty finding workers with the necessary skills we should expect to see occupations or industries in which wages are rising rapidly. That is how employers attract workers for positions they have trouble filling.

In fact, there are no major sectors of the economy in which wages are rising rapidly. This means that either there is no serious problem of skills mismatch or that employers are completely clueless about basic economics. Given the ineptitude we saw in the financial sector during the run-up of the housing bubble, the clueless explanation cannot be dismissed out of hand, but it is more likely that there really is no issue of a skills mismatch.

Comments (19)Add Comment
There is No More Nobel Sacrifice - Than to Dedicate Your Skills to Your Employer for No Pay
written by Last Mover, June 06, 2014 6:29

This is how communism begins America. It gets its big gubmint nose under the tent, sniffs around and starts proposing to allocate scarce goods and services with prices that ration them efficiently in working markets.

And communism is well on its way to a bastion foothold with the likes of free market fundamentalist Dean Baker, who dares question the sancity and sincerity of job creators from the supply side, the very employers who have sacrificed everything to make a better mousetrap with better skills they cannot find.

Sacrificed everything that is, except a higher price paid to acquire those skills.

As any economist and Fox News knows, if higher wages are paid to attract skilled workers to make better mousetraps there won't be any mousetraps.

What America, you think employers can use their market power to raise prices at will to cover the cost of those skills? You think employers haven't already raised prices as high as possible anyway? You think employers will trade excess monopoly profit for no value added already collected in prices, to pay for more skills instead?

Like any other input factor, prices must cover their cost for business to survive. When they don't sacrifices must be made.

Do your part America to stop communism. Business has already done its part with a good faith search effort for skills that are not there.

Do your part and dedicate your skills to a business employer for no additional pay since they're not worth anything anyway, according to reliable market price signals. You will both be better off for such a nobel sacrifice necessary to advance free markets everywhere.
skills, Low-rated comment [Show]
written by liberal, June 06, 2014 8:09
tom wrote,
Raising the minimum wage will cause inflation and eliminate jobs.

Eliminate jobs? The empirical evidence is that modest increases in the minimum wage will cost few jobs. Moreover, on theoretical grounds, in many establishments it's likely that much or all of the cost will be born by a decrease in the value of commercial real estate, because an increase in wages without a concommitant increase in profits implies less surplus that can be captured by commercial landowners. Since landowners contribute absolutely nothing to the economy, a decrease in the value of real estate is not a negative.

As for inflation...LOL. Right now a good dose of moderate inflation would be good for the economy.
written by liberal, June 06, 2014 8:15
Sorry, increase in revenues.
One of the shortages is in welders, Low-rated comment [Show]
written by Bane, June 06, 2014 9:18
"How high do you think they need to raise that wage to make all of those non-working welders quit sitting on their fannies and go to work?"

High enough to attract the welders or incentivise nonwelders to learn the trade. That is ofcourse if they want to get some stuff welded or not. (Honestly i think the welders refusing to work story is just that ... a story)
written by Tray Bein', June 06, 2014 9:37
Given the ineptitude we saw in the financial sector during the run-up of the housing bubble, the clueless explanation cannot be dismissed out of hand, but ..:

Well played, Dean.
Blame the bloated HR department
written by jumpinjezebel, June 06, 2014 10:10
Can't find workers?? Maybe your bloated HR department has rewritten the job descriptions over and over and unnecessarily raised the standards from what they were 5 to 10 years ago. Afer all they've had nothing else to do during the recent DeSession when no-one needed any new hires. Happened at my company.
Bark Beetles
written by Larry Signor, June 06, 2014 10:25
Dean made a simple economic assertion about supply and demand...basic econ 101. Factor scarcity is addressed via price movement, irregardless of the factor. No price movement, no perceptible scarcity. What about this statement brings out the crazy in people? Is it that this statement addresses labor rather than copper, water, air, lumber or some other production factor? Folks, it is all part of the equation.
jumpinjezebel and bane are right
written by Jurassic Carl, June 06, 2014 11:01
The two issues brought up sum it up perfectly.

--wages rising to the point of incentivizing self-training/learning (because employers just don't train)


-- Purple squirrel job descriptions that are closer to Prince Charming descriptions
(Most people who are in jobs right now could probably not get their own job if they tried to interview for them right now.. and that's IF they got past HR and their online HR info systems)
written by PeonInChief, June 06, 2014 11:12
The only place welders are making $50-60 an hour is in North Dakota. Most welders make $18-23 and hour. Yes, you can make a lot of money working at Bakkan, but housing is very expensive, so most workers have to leave their families at home and pay a lot of money for a bed in a share rental in North Dakota. Rents are so high that the government has to subsidize rents for government workers who live in the oil shale areas, as rent control is banned by state law.
Businesses want welfare
written by jhask, June 06, 2014 1:05
As a commenter noted above, when scarcity increases, the price should go up. Business will respond that you cannot increase wages to draw what is not there--that is, the market is void of the skills they need. So, rather than train people, in my state particularly, businesses want the state to overhaul the education and training systems. Yes, education needs to evolve, but the demands of businesses against the backdrop of the precipitous decline in employment around 2008 would have one believe that the labor market demands has changed like never before.

Amazing though, that academia and biz are both supportive of addressing the skills gap; academia gets tax payer $, business gets tax payer paid training for potential employees.
written by Dryly 41, June 06, 2014 2:02
This is correct again. If you believe that working men and women today are: a) 47% free loaders who prefer to lay in "hammocks" than work; and/or b) lack the necessary skills necessary then you are probably a right wing Republican politician. Funny though, in the 1990's we had 4% unemployment without inflation. No "hammocks" or lack of "skills" then. What happened? Well, Republicans were awarded the presidency by 5 right wing Republican members of the supreme court and did what Republican presidents know to do-kill jobs. These explanations seek to mask the true record which is that 9 of the 11 post-WW II recessions and the collapse of the financial system occurred under Republican presidents.
written by Jurassic Carl, June 06, 2014 2:49
Larry, if by "bring out the crazy" you mean "bring out emotion", yes.

I'm not sure if you're aware, but some people require in proceeds from their labor to survive in this world. Also, you should also know that there was a near cataclysmic crash in the economy a few years ago that resulted in millions of people suffering.

Pointing out the inefficiencies in the job market -stickiness in wages, inefficient/useless HR departments, etc that hurt one's ability to fully participate in the job market is not crazy. Markets are not perfect. Don't they teach that it Econ 101?

I do get that economists and MBAs just see labor as input factors, because it makes sense for the graphs and the math... but it turns out that labor is made of humans.
You left off the punchline, Dean: employers don't see DEMAND that requires hiring more people!
written by Sean Streiff, June 06, 2014 6:48
Yes, the fact that we don't see (much) significant rise in wages strongly suggests that a skills mismatch does not exist. The implication of this conclusion is more important, it seems to me: it suggests that employers simply don't, in general, see an incentive to hire more right now. Absent major recent non-economic changes in factors that impact hiring decisions, the secondary implication is that employers don't, in general, feel that there is sufficient demand for their products and services to warrant (much) new hiring. In other words, AGGREGATE DEMAND IS TOO DAMN LOW!

The implications of that are even more important, from a policy perspective...
A Welder is not a Rose
written by John Parks, June 06, 2014 7:28
False comparison.

I own a welder but I am not a welder.

Welders, like most professions, have degrees of expertise and while a pipeline welder is considered to be top-o-line every weld is still checked and x-rayed for a reason. Even pipeline welders have their elite categories. I know a husband-wife team, both of whom are at the top of the welding profession. They used to be pipeline welders and are now wooed (sp!?) by prospective employers. They and their equipment are flown all over the world on hot-shot special projects and they probably work less than 90 days per year, by choice.

Their rates would rival that of a neurosurgeon.

The hire rates for a recent tech school grad have no relation to the whole profession and certainly do not relate to those with the years of experience required to be new hires in the pipeline welding profession.

A new hire is not a new hire.
Woik woik woik
written by James, June 07, 2014 12:04
Hey Dean. A lot of us are seeing these jobs that almost nobody would possibly qualify for.

Example in my field..
Electrical engineer with knowledge of RF circuitry design, finite element simulators.. (one specialty)

Also knowledge of CMOS RAM circuit design.. (specialty two)

Would help if the person knows package design, C++, writing scripts and PCB design with pads (specialty three and four).

OK. So, you get employers looking for a very rare duck that has multiple specialties in the EE field. I assume when they write these ads, they are looking for the odd genius that does all this stuff and is available OR this is something they trot out to congress or senators to plug for F1B visa guys to come and work at some really low rate.

Personally, I'm the opposite side of you on most things. However, competing for jobs from the servant/slave socialist republics across the ocean isn't a productive way to go.

written by Dan Nile, June 07, 2014 11:55
Only an ivory tower economist would publicly suggest that that employers are turning down qualified applications because they are asking for too much money.

Most private sector jobs are posted with no salary range, and salary is negotiated once a candidate is found. Perhaps Dr. Baker should interact with people in the private sector once in awhile.
Companies experiencing skilled worker shortage unwilling to pay for training
written by Del Pierce, June 15, 2014 11:38
As an old guy who went through General Electric's Machinist Apprenticeship many years ago, I would opine that if companies really wanted workers with skills like these, they would pony up the bucks to restart apprenticeships and training programs. Instead, they publicly whine that they can't find such workers, while they continue to ship these jobs overseas. Unfortunately for G.E and other companies, and maybe good in the near future for U.S. workers, the skills are not always available offshore. Inferior products are then shipped back here with bad results for customers and subsequently, for the U.S. manufacturer. They'll get it when it starts to hurt financially.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.