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Home Publications Blogs Beat the Press Thomas Friedman Again Demonstrates the Skills Shortage for NYT Pundits

Thomas Friedman Again Demonstrates the Skills Shortage for NYT Pundits

Saturday, 20 April 2013 22:36

The NYT has difficulty finding pundits who can write knowledgeably about economics. Thomas Friedman made this point in his Sunday column. At one point he quotes Gary Green, the president of Forsyth Technical Community College, in Winston-Salem, N.C.:

"'We have a labor surplus in this country and a labor shortage at the same time,' Green explained to me. Workers in North Carolina, particularly in textiles and furniture, who lost jobs either to outsourcing or the recession in 2008, often 'do not have the skills required to get a new job today' in the biotech, health care and manufacturing centers that are opening in the state.

"If before, he added, 'you just needed a high school shop class or a short postsecondary certificate to work in a factory, now you need an associate degree in machining,' a two-year program that requires higher math, I.T. and systems skills. In addition, some employers are now demanding that you not only have an associate degree but that nationally recognized skill certifications be incorporated into the curriculum to show that you have mastered the skills they want, like computer-integrated machining."

Actually there are simple ways to identify labor shortages. First and foremost we should be seeing rapidly rising wages. If employers cannot get the workers they need then they raise the wages they offer to pull workers away from other employers. This is how markets work. (We should also see longer workweeks and increased vacancies.)

In fact there is no major sector of the economy where wages are rising rapidly. This shows rather conclusively that workers do not have skill shortages although it may be the case that many managers are so ignorant of markets that they don't know that the way to attract better workers is to raise wages. Of course that would suggest the need to better train managers, not workers.

At one point the piece tells readers;

"We need to reform Social Security and Medicare so they can support all the baby boomers about to retire. ....

"As Bloomberg News reported on Monday: 'Typical wage-earners retiring in 2010 will receive at least $3 for every $1 they contributed to the Medicare health-insurance program, according to an Urban Institute study.' That’s unsustainable."

It would have been helpful if Freidman had also mentioned that the same Urban Institute study shows workers already paying slightly more into Social Security than they get back. Yet Friedman wants to cut benefits.

The main reason that the Medicare benefits workers receive are more than they pay in taxes is we pay more than twice as much per person as people in other wealthy countries for our health care. This is due to the fact that we pay close to twice as much for our doctors, drugs, and medical equipment. It is not due to the fact that we get better care. This might suggest the need to reduce payments to health care providers rather than cut Medicare. Of course health care providers are a powerful lobby that Friedman apparently does not want to anger.

Comments (20)Add Comment
written by Merciless Time, April 21, 2013 2:09
Of course that would suggest the need to better train managers, not workers.

What with poorly educated higher ed presidents like Green, one can't hope to have managers able to suss that low wages hurt them, too, especially when the pressure its to maximixe profits despite strangling the goose that laid the golden egg.
When There's a Surplus of Acorns, Even a Blind Pig Will Find More of Them
written by Last Mover, April 21, 2013 6:55
Thomas Friedman is like the student in an intro econ class with a low attention span who couldn't sit past the graphs of supply and demand curves that show how prices correct a surplus or shortage.

The only part that stuck was the equilibrium part, where supply always equals demand at some price. At that point, if more units of supply became available they did not drive the price lower, nor did less units of supply available drive the price up, because in each case the addition or deficiency of units in question were conveniently interpreted as "structurally" incompatible with the other units of supply and demand that maintain equilibrium at the going price.

This made it much easier to explain how free markets always work to reach full employment equilibrium at the going price and when they don't, it's always explained as the fault of a mismatch between worker skills and those who hire them. It's never explained as the fault of markets that can fail from lack of demand itself as Keynes explained can happen in the aggregate.

Even a blind pig like Friedman can find more acorns when there's a surplus of them because to him, they all look alike at the same price. After all, nature would not have supplied them had they been structually different.
Rules of the game
written by A Populist, April 21, 2013 7:02
@ Merciless Time:

Let me define "Fordism" here as unilateral decision by a company to pay workers more (either because one has monopoly power to still maintain profits, one believes inequality is bad, because of the need to contribute to aggregate Demand, PR, worker morale, or some other reason).

While one might consider Fordism a laudable practice, it is not a natural result of the capitalistic system, and can certainly result in the failure of a company that practices it, particularly in very competitive situations.

That is why we need minimum wages (as one tool) to prevent a race to the bottom, where employers who pay a living wage, make less money, or may be eliminated from the market.

In an economy with sufficient demand to create very low Unemployment, minimum wages could be seen as unnecessary. However, the only periods in recent decades when we have had sufficient demand to create anything close to full employment have been due to "demand bubbles", such as Reagan's deficit spending, Clinton's stock bubble, GWB's housing bubble, etc. Even with the added demand from these unsustainable bubbles, regular workers have been getting an ever-smaller share of the pie (low wages).

I am not sure that a higher minimum wage (by itself), is enough to raise demand enough for full employment. But it seems to me, that it would be difficult to maintain wage levels among the working class (and probably middle class as well), without a minimum wage, unions, or something. I am not anti-union, but I think that the hit-or-miss nature of union bargaining power (in the 1960's and 1970's, some unskilled workers made *much* more than engineers, in many cases, for example, while other union workers were much less well-paid), makes a higher minimum wage a better option.

written by medgeek, April 21, 2013 8:21
Economists wrote papers in the '30s depression that unemployment was "structural." Then when WWII came, all these workers with deficient skills managed to create all the sophisticated machinery needed to win the war. Plus ça change, plus c'est la même chose...
If it was only just Thomas Friedman
written by Jennifer, April 21, 2013 8:55
It's so easy to pick on Friedman but this is just the latest example of this idea-that there are jobs out there but people just need to train themselves for them. As Dean points out it's easy to see this is not true, employers just don't want to pay people. But this basic story gets repeated at least once a week, in various media outlets, and you don't have to go far to find people who think its true.
Again with the ability of businesses to raise wages.
written by Bill H, April 21, 2013 9:58
"If employers cannot get the workers they need then they raise the wages they offer to pull workers away from other employers."

Economists are very fond of this idea, while anyone knowledgable in business knows that it is not always possible. One factor is that there may not be other employers in the area from whom you can steal employees, second is that the competitors from whom you stole the employees can retaliate in a number of unpleasant ways, and third and most important is that you may not be able to raise the price of your product to cover the higher cost of those increased wages.

An area such as North Carolina, where new industries are moving in to replace older dying ones presents andothe case in point. Employer A raises wages and steals from employer B, who raises wages and steals from... Well, who does emplotyer B steal from with his higher wages? They could engage in a circular exercise in wage raising and have incredibly rich employees, but there would still be a shortgae because all they are doing is stealing employees back and forth from each other.

Unless Friedman has a point and there is a surplus of untrained employees and a shortage of trained ones. The answer is not, then simply "rais wages to steal employees from other employers," but how to train more employees and who will pay for it. Those are questions which need to be asked and answered, and the answer is not the economists simple "raise wages," because those technical jobs already do pay higher wages. The issue is training and how to get it done.
The Forces Of Supply And Demand
written by Jeffrey Stewart, April 21, 2013 10:30
Bill H.,

Dr. Baker's point is that if quantity supplied exceeds quantity demanded of a particular type of skilled worker, capitalists must raise wages to signal their desire for these workers. Once they do, then unemployed workers with these skills will migrate toward the jobs with the higher wages, whether they come from other capitalist enterprises in that area, another area or are new entrants to the labor force.

The point is that capitalists can't signal their desire for more of a particular kind of worker unless they raise wages. This isn't happening and therefore, this evidence for structural unemployment is missing. And the evidence isn't missing just in N. Carolina where Mr. Friedman seeks to prove a larger point by a single example, it's missing economy wide.

It's worthwhile noting Mr. Friedman engages in the hasty generalization logical reasoning fallacy as "evidence" for his economy wide structural unemployment conclusion. This is one of his favorites. In fact, he'd be at a loss for columns if not for it.
written by Jeffrey Stewart, April 21, 2013 10:34
If quantity demanded exceeds quantity supplied of a particular type of worker.
To A Populist
written by John Q, April 21, 2013 3:40
[While one might consider Fordism a laudable practice, it is not a natural result of the capitalistic system,...]

The WSJ certainly didn't think so. It described Ford's raising his workers' pay as "an economic blunder, if not a crime."

[I am not sure that a higher minimum wage (by itself), is enough to raise demand enough for full employment.]

Australian minimum wage is around $16/hr. Unemployment rate there is around 5.4%

written by A Populist, April 21, 2013 5:13
@ John Q:

I actually believe that raising the minimum wage will increase net aggregate demand - and is probably he best way to do that, since it is more sustainable than deficit spending. And if the amount of "demand deficit" is on the order of $1Trillion annually, we would need a stimulus much larger than anything we could remotely hope to achieve politically. And we would need to maintain that stimulus indefinitely, unless somehow that stimulus resulted in some qualitative long term change in the economy.

My comment that a higher minimum wage might not do the whole job of getting us to full employment was just an expression of a lack of certainty - not arguing that it *wouldn't* do the job all by itself.

My other point about "Fordism", is more of a defense of businesses trying to be competitive. Business is business, and, given that the "rules of the game" right now are that it is perfectly legal to pay wages which are not a "living wage", then I find it hard to fault businesses for paying as little as they can, because you never know when you will be undercut on price from some new competitor. The fault, is that, given that unregulated capitalism tends towards gilded-age inequality and high unemployment, it is the place of the government, to raise minimum wages, to prevent that from occurring. In otherwords, the government must establish rules of the game, which will prevent employers that wish to pay their workers a living wage, from being driven out of business.
Supply and Demand
written by JParks, April 21, 2013 5:18
The Australian example supports the concept. There is a great demand for workers. Even taking cost of living into consideration, mechanics there are being lured to the mines with salaries in excess of 100K/year + bonuses. The Au government has even created special workers permits for immigrants to come in to help with the labor shortages. This has hurt some smaller business who previously employed those mechanics. These businesses have scaled back and are doing their best to wait out the boom as they can not compete with those kind of wages.
Supply and demand
written by Bill H, April 21, 2013 5:38
"Once they do, then unemployed workers with these skills will migrate toward the jobs with the higher wages, whether they come from other capitalist enterprises in that area, another area or are new entrants to the labor force."

If they come from from "other capitalist enterprises in that area" or from "another area" you have not reduced the shortage, you have merely shifted it from one employer to another. If they come from "new entrants to the labor force" why do you need higher wages to do that? Are they going to choose not to work otherwise? They will not draw unemployment if they are new to the labor force.
To Bill H. - Problem is lack of Demand
written by A Populist, April 21, 2013 5:43
Well, if you start with the premise that a lack of Demand in the economy is impossible, and reject any explanation that lack of demand is the problem...

If it were true that "you may not be able to raise the price of your product to cover the higher cost of those increased wages." - the lack of pricing power is a sign of a lack of demand, compared to supply.

During WWII, businesses trained and hired "Rosie the Riveter" to meet the massive demand. In the housing bubble, as manufacturing jobs moved to China, workers retrained as real estate agents, construction workers - whatever it took. Unemployment was low. American workers are more educated than ever before. Whenever there are sufficient customers and orders, businesses hire.

When there is sufficient Demand in the economy (Demand for Goods and Services) which cannot be met due to lack of trained workers, the prices of those Goods and Services goes up, which then allows suppliers to pay more to attract or train those workers. This free-market, supply-and-demand stuff is actually very efficient. Except when an overall lack of Demand screws it up.

It is amazing that people think that the free market is perfect, but then implicitly assume that it cannot deal with a skills shortage, even though history shows that it can do so magnificently.
written by The OutSourced One, April 21, 2013 6:41
Years ago if you wanted to hire lots of software developers you needed to open up offices near where software developers already lived. Then you needed to hire them away from their current employers. To do this you enticed them with higher salaries and better benefits. This meant that a portion of the economic gains from increased productivity that would have flowed to the bottom line “leaked out” as a higher standard of living to those who had taken the trouble to learn a valuable skill, and to pay the price of living in a high cost area where those types of jobs were available.

Today if you want to hire lots of software developers you find a semi-rural location in a low cost state that will rebate back to you the state income taxes that you deduct from your employee’s paychecks as well as a wavier on property taxes for at least the next 10 years.

Then you hire a lobbyist to convince the local congressman and the two US Senators from that low cost state that what America really needs today is “Comprehensive Immigration Reform”. Then you fill your new office in this semi-rural location with indentured guest-workers here on visas.

It also helps if you rent the new offices in the semi-rural location from a relative of the local congressman.

This is the new model for corporate software development and technical support in the US.

The shortage of STEM workers only exists because the offices are being built in locations where American software developers don’t live, have never lived, and don’t want to live; and for salaries that are throwbacks to 1995. Look at the states where the members of congress who are pushing hardest for more tech visa hail from; South Carolina and Utah.

The real tragedy here is that our entire economy is alive today only because of the actions of Federal Reserve and the super low short-term interest rates they have successfully engineered. The Congress has done nothing to make things better since the day they passed the stimulus bill and has only made matters worse by their tantrums over deficit spending and debt limits.

The problem with the Fed’s monetary stimulus is that its impacts are felt unevenly, note the housing and credit bubble caused by the Greenspan’s low interest rates after the blowup of the tech bubble.

Now the very businesses that are doing (artificially) well because of today’s low interest rates - notably banking and finance, venture capital funded start-ups, and recently IPO’d tech firms - are the same ones pushing to undo the Fed’s work by bypassing Americans for the jobs that were created by the low interest rate environment that was engineered specifically to put Americans back to work.
Labor either meets the price of there is no job.
written by morgan warstler, April 21, 2013 7:17
There are custom manufacturing jobs that require real skill but ONLY work at sub-$12, bc over that and customers buy non-custom from China.

So labor meets the $12 mark or NO job. This is simple basic micro, stop wasting time fighting facts. China exists. We are free traders.

We CAN take care of every American citizen, but wages is NOT the way to do it...

Many people simple are not able to produce enough to have what we consider that they need.

We should ACCEPT this fact, not get mad and cry about it:


A Guaranteed Income with a job auction / job board works.

read up!
Re: Match Lowest world-wide wage, or no job:
written by A Populist, April 21, 2013 8:03
Why should we let China decide that our workers should be paupers?

How low is low enough? $5 per hour? $1? What is to stop wages from going that low, if Unemployment is high? Certainly not the free market - with insufficient Demand in the economy.

Why should it be necessary to make paupers out of our workers?

Australia has minimum wages more than double ours - and very low unemployment. Funny how when you pay workers a decent wage, the economy as a whole is vibrant. That was the secret to past US success. Ideologues hate that idea, and say that we had the best economy in the world *despite* a well-paid working class. The reality, is that the well-paid working class was a huge factor *helping* our prosperity through the 40's, 50's, 60's, and 70's. Funny how the more we cut worker pay, the more dysfunctional our economy becomes.

If we let floating exchange rates work, then our trade deficit with China should lower the dollar until we are competitive at the minimum wages WE decide our workers need to survive.

The central bank of China buys up dollars, keeping the dollar high, and Chinese goods cheap in the US.

Allowing that, is a policy choice which benefits those at the top, while causing low wages and high Unemployment for the workers. It also reduces demand, slowing the overall economy. Cutting our way to growth is not the answer. Europe has been trying that. Not working out too well.....
Pay me enough and I'll come work again
written by jumpinjezebel, April 21, 2013 8:07
If the price was right and their HR departments would get out of the way there would be millions of retired people that would come back to work in these high tech firms. Of course HR would say we're overqualified (of course they couldn't just say you're too old) LOL!
written by Merciless Time, April 21, 2013 11:38
Fordism really was Hoover's idea (an interesting history worth reading about). But my point was (and is) that the excuse given by the capitalists that worker skills are lacking is false. The employers who complain about the skills shortage are like people who think that that they can buy a car with all the features they want, but for base cost. Ridiculous. Now if they don't have the cash to afford the right workers without remaining competitive, then they can blame that on the "free trade" rules that opened up labor competition and drove down the labor costs of multinationals, but they can't complain that US citizens are stupid or undereducated; we're just not saps willing to sell $5 worth of education for a $1.

That said, I do agree that raising the minimum wage does keep the playing field more level for the small (that is, actually small) businessperson, somewhat. But with the free trade agreements, I don't see that solving much.
Stealing workers?
written by SqueakyRat, April 22, 2013 12:20
I find it fascinating that Bill H thinks that offering a worker a higher wage than he's currently making is a form of theft. Does he really think that workers are an employer's property?
written by watermelonpunch, April 22, 2013 12:22

The idea here I guess is that they can somehow encourage people to go into mass debt to get some machining computer degree to get paid a few cents more an hour than an unskilled job position.

Even keeping unemployment high won't accomplish this though. People will always just hope to get the okay paying job with no education, than to go through debt & trouble just to get paid a tiny bitty bit more... It just isn't worth it.
And even if it would be after 20 years if things stayed as they are... who has that foresight & stamina for that kind of drudgery? Most people aren't that pessimistic, they would assume by 20 years their prospects would've improved anyway, or that the economy will have... making this monumental effort for so little, seem very not worth it even if it would be accumulative over the years.

You shouldn't need any economics expertise to figure this stuff out.

You can learn that this theory of a race to the bottom with people scrambling to get higher education just doesn't work - just by having played the game Tropico!!! LOL

One wonders if the people pushing this idea have heavy investments in the for-profit college industry. That's the only reason I can think of for pushing this nonsense.

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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.