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Home Publications Blogs Beat the Press That Shortage of Skilled Manufacturing Workers is Really a Shortage of Employers Willing to Pay the Market Wage

That Shortage of Skilled Manufacturing Workers is Really a Shortage of Employers Willing to Pay the Market Wage

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Saturday, 24 November 2012 08:53

News stories have been filled with reports of managers of manufacturing companies insisting that they have jobs open that they can't fill because there are no qualified workers. Adam Davidson at the NYT looked at this more closely and found that the real problem is that the managers don't seem to be interested in paying for the high level of skills that they claim they need.

Many of the positions that are going unfilled pay in the range of $15-$20 an hour. This is not a pay level that would be associated with a job that requires a high degree of skill. As Davidson points out, low level managers at a fast-food restaurant can make comparable pay.

It should not be surprising that the workers who have these skills expect higher pay and workers without the skills will not invest the time and money to acquire them for such a small reward. If these factories want to get highly skilled workers, they will have to offer a wage that is in line with the skill level that they expect.

Comments (17)Add Comment
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written by bmz, November 24, 2012 8:35
Communist!
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written by Mark Jamison, November 24, 2012 8:39
There is another factor that is related to the unwillingness to pay workers and that is an unwillingness to train workers. Businesses no longer seem willing to invest in worker training, preferring instead that workers acquire training,including training that may be applicable to a specific firm at their own expense.
Implicit in this view is that government or someone else should bear these costs; perhaps another example of the contradictions inherent in some of the Right's dogma about small government.
The current models that focus solely on shareholder or owner value, that thrive on the idea that the cost of all inputs should be reduced as much as possible - essentially a Wal-Mart model - creates a descending spiral that is self-defeating. When profits become solely contingent on cost reduction, as opposed to growth, then profits have finite limits which certainly seems self-defeating.
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written by Adam, November 24, 2012 8:59
Agreed that employers don't want to pay a fair wage to skilled workers. And even if the workers would get said training if they previously were paid a lower salary for another lesser skilled job, the salary offered would likely be comparable or slightly more than their last job. Employers will often not give new employees more than a few % more than they made in the past. This sticks people in a lower salary situation for a longer period or even the entire length of their employment with the company. The incentive to go out and get the training especially on a workers own dime is not there.
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written by Paul Meyer, November 24, 2012 9:32
Dean (or anyone else for that matter),
I've read this point many times in this blog and take it to be true but it makes me wonder what exactly are manufacturers doing by listing positions at inadequate pay levels. Are they trying to bid down the going rate? Are they simply testing the market? Is the intention political, i.e., a scam to encourage government to foot the bill for training in order to ultimately depress wages for skilled work? Any ideas?
Partial answer to Paul Meyer
written by wkj, November 24, 2012 9:57
Isn't a part of the answer that sellers of tradable goods (e.g., manufacturers) face more competition than sellers of non-tradable goods or services (e.g., fast food). A fast food vendor is competing with other food vendors of various kinds within a relatively small area, where local labor supply/demand conditions will affect wages. A manufacturer may be competing in a nationwide or world-wide market and thus may not be able to support more than fast food wages, even for skilled jobs.
Are we not seeing the great equalization of wages at work?
written by John Wright, November 24, 2012 10:09
I'm skeptical the USA will be able to maintain higher relative wages for those in other than some protected industries such as defense, finance and healthcare.

The world wide networking and excellent world wide shipping services have lowered the cost of transporting work services and finished goods anywhere in the world.

So the tendency is to outsource jobs overseas that can be outsourced.

And the USA's de-facto relatively open immigration policy has increased the supply of workers for jobs that must be sourced in the USA.

There are some frictional costs associated with customs clearance that do have the effect of increasing costs and delay goods transport, and if these are removed, overseas manufacturing will be even more attractive for USA companies.

Increasing energy costs will make it more costly to ship heavy, low labor content, finished goods.

And the USA military attempting to make the world safe for commerce has also tended to allow more jobs to be done overseas, dropping wage rates in the USA.

So we may be seeing a great equalization of world wide wages as "the law of one price" is working with global wages.

And I don't believe the last 12-15 years of the USA allocating resources to various financial bubbles, misguided wars and denial of climate change and evolution offers great hope for the USA's future.

As far as employer training, I remember one case where it was done. An electronic technician told me that when he was being laid off from a USA high-tech firm, because his job was being transferred overseas. he was given an option. He could leave immediately, or get two more weeks of paid employment to train his visiting overseas replacement. He took the two additional weeks to train the replacement worker.

So companies DO provide job training, but perhaps not always the type of training a USA based employee prefers.
Another Partial answer to Paul Meyer
written by Nassim Sabba, November 24, 2012 6:07
Could it be that these employers are unconsciously point out the problem of free trade in low skills but not in higher skills? The imbalance in trade agreements between higher and lower skilled people is creeping into the news.
One can only hope that this creep will continue to much higher levels and finally bring home the point that the globe is not "global" yet, and that we are different countries with different internal conditions and our trade agreements have to reflect those conditions, perhaps until centuries from now when there may be global equality and perhaps then we can have 100% free trade like we have between states within each country.
We should annul all existing agreements and start a partial free trade. That is a fraction of all areas, say 5% of all trades in good AND services would be free, a decade later, we shift it to 10%, and so on, until all societies slowly adjust to the eventual global free trade. But that is too much to ask from a species that carries 2.5% of neanderthal genes in its global DNA.
Business is supposed to pay for the lawyers, the accountants, the health insurance ... and give decent takehome to the workers too?
written by Rachel, November 25, 2012 9:46

Does anyone remember the statement, by Jon Gruber and Co. to the state of Vermont, that one of the prerequisites of a health care policy is that doctors become no less wealthy? Maybe not. It's not something NPR bothered to cover.

In general, it seems that neither policy-makers nor the people at NPR, wish to treat all people, doctors as well as factory workers, as equals, as if they were entitled to the same exposure to, or protection, from market forces.

In fact, our doctors and others in health care are overpaid to the tune of $800 billion a year in total, but the consultants of the politicians, as well as the politicians themselves, and the folks at NPR, all seem singularly averse to noticing that in public.

We also have a very difficult, and expensive, legal environment. And in California, we are rapidly boosting the price of energy, an undertaking that is very profitable for some. (NPR likes that part.)

All these burdens on the market must come at the expense of others. Like factory workers.

But don't expect politicians or NPR to acknowledge this.



Adam Smith thinks otherwise
written by Paul, November 25, 2012 9:48
Just coincidentally saw this today. Perfect timing.

From Adam Smith's "An Inquiry Into The Nature and Causes of the Wealth of Nations".

"The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty both of the workman, and of those who might be disposed to employ him. As it hinders the one from working at what he thinks proper, so it hinders the others from employing whom they think proper. To judge whether he is fit to be employed, may surely be trusted to the discretion of the employers whose interest it so much concerns. The affected anxiety of the law-giver lest they should employ an improper person, is evidently as impertinent as it is oppressive."
flawed frame of reference
written by dd, November 25, 2012 1:09
when a customer won't pay the asking price is the customer at fault for slow sales? perhaps the price is too high. "But they used to pay that price before the economy was slow," some might retort. The market sets the price. Period. Buy lower quality goods and they require cheaper overseas labor. That means fewer manufacturing jobs here for the same number of manufacturing skilled labor. To clear the market requires fewer workers (lower demand by redirecting into other trades) or lower price (increased supply by lowering wages). Blaming employers for acting in accordance with market forces is a silly waste of time. Trying to force them to pay above market rates or not react to changing market conditions - like the conditions unions impose - gives you hostess....business fails, lots of people lose their jobs.
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written by Eric377, November 26, 2012 9:16
Employers are usually quite pragmatic with hiring people. If they are unwilling to pay what some outside observer thinks is a good enough wage to perform certain tasks, they probably have a very good reason - in their estimation. Yes, the actions described do not seem consistent with an absolute need of certain skills that are available at higher wages, but that's not a very important distinction to make here. If a skill set is valuable and needed it won't just sit there unused. So employers who report that they can't find those skills either don't need them so bad or are harming their own prospects. Certainly the later happens, but, in aggregate, probably not enough to negatively impact people who have specific valuable skills. I a lot of people are unable to demand higher wages for their skills it is much more likely that their skills are not as valuable as hoped for.
I guess it's about perspective...
written by Paul Broni, November 26, 2012 10:24
A company is willing to pay $20/hour. A potential worker -- presumably unemployed -- considers that too little money for the effort. The article suggests that it's the employer who refuses to blink and that the employer should pay more. That's one perspective.

My perspective, however, is "bollocks."

If I am unemployed, the opportunity to make $20/hour should be very appealing. Assuming even a modest amount of overtime (all but assured given that it's still cheaper for the company than adding an FTE), it's easily conceivable that the worker will earn $50,000/year, not including the value of benefits.

This is right at the median of household income for 2012.

IMHO, there is something fundamentally wrong with a system where someone who has no job prefers to remain unemployed when an opportunity to earn the media income is staring him in the face.

I'm open to being swayed, so what am I missing?
Phony Capitalists
written by FoonTheElder, November 26, 2012 10:44
The only Socialists in this argument are the businesses who expect everyone else to pick up the expenses of wages and training of their employees.

The businesses are all for cold hard capitalism when supply holds down wages. When it comes to a situation where the employee has an advantage (like in professional sports), they fall all over themselves to create a socialist system where someone else pays for their expenses.

Add collusion into that system and you have a bunch of phony capitalists who only care about the amount of money they can stuff into their pockets. It's a shame we no longer have any truly enforcable labor laws in the US.
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written by liberal, November 26, 2012 11:02
dd wrote,
Trying to force them to pay above market rates or not react to changing market conditions - like the conditions unions impose - gives you hostess...


No, hostess appears to have failed because of the fecklessness and corruption of management.
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written by liberal, November 26, 2012 11:08
Paul Broni wrote,
If I am unemployed, the opportunity to make $20/hour should be very appealing.


LOL. So this would apply to anyone who's unemployed? E.g., an unemployed executive?
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written by Jay, November 27, 2012 9:05
Most of us here know the real story is aggregate demand needs to increase to generate more jobs. If anything some employers are discriminating against applicants (i.e. unemployed more than a few months) and only looking for the super applicant at lower salaries because there isn't enough demand to compel them to establish reasonable expectations.

The hundreds or thousands of qualified applicants for each opening give them no incentive to hire without seeking to use the lack of bargaining power against employees. Employers want to hire currently employed people. Why should an employed person incur the transaction costs of a new job with less information about the culture or financial condition of the company without an increase in pay to account for those risks?

There are unemployed people that can fulfill these positions but firms even anticipate employees that will seek wage increases and preemptively screen them out. It's all about money not skill.
Electronics Technician
written by Jeff Nyberg, December 02, 2012 9:10
I work as a skilled worked in manufacturing. Have noticed a lot of jobs posted and the ones that don not pay a good rate have their posting on and off of career builder every month. The companies that do pay well seem to have no problem filling their positions plus they can pick and choose from the cream of the crop ans far as techs go.. So these employers who refuse to pay either don not really need the positions filled or if they do they are probably losing money by not filling the positions. My take on it is i refuse to sell my skills for cheap labor rates. I will find a different career.

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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.

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