CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Thomas Friedman Says That Our Economy Is Being Killed By Employers Who Can't Do Arithmetic

Thomas Friedman Says That Our Economy Is Being Killed By Employers Who Can't Do Arithmetic

Print
Sunday, 18 November 2012 06:35

The evidence presented in Thomas Friedman's column today would lead readers to believe that the economy's biggest problem is that companies are being run by executives who are so ignorant of economics that they don't know that the way to attract more workers is to raise wages. The column begins with the story of Traci Tapini, who with her sister is co-president of Wyoming Machine. For some reason Friedman assures us Tapini "is not your usual C.E.O."

According to Friedman, back in 2009, when the economy was collapsing and unemployment was soaring Tapini had to struggle to find 10 welders that she needed to meet an order from the military. She could not find workers with the right skills, which now includes not only the ability to make a good weld, but also a knowledge of metallurgy. Eventually she found a welder who had passed the American Welding Society Certified Welding Inspector exam and was able to train the other welders.

Friedman tells readers:

"Welding 'is a $20-an-hour job with health care, paid vacations and full benefits,' said Tapani, but 'you have to have science and math. I can’t think of any job in my sheet metal fabrication company where math is not important. If you work in a manufacturing facility, you use math every day; you need to compute angles and understand what happens to a piece of metal when it’s bent to a certain angle.'

Who knew? Welding is now a STEM job — that is, a job that requires knowledge of science, technology, engineering and math."

The obvious problem in this story is that Tapini apparently doesn't understand that you have to pay more money to get highly skilled workers. If the minimum wage had risen in step with inflation and productivity since the late sixties, it would be almost $20 an hour today. Back in the late sixties, a typical minimum wage worker would have a high school degree or less. Now, according to Friedman, we have CEOs who think that they can get highly skilled workers at the some productivity adjusted wage as someone who would have had limited literacy and numeracy skills 45 years ago. If we applied the same standard to doctors, they would be averaging around $100,000 a year today (instead of around $250,000). If employers really do have such poor understanding of how markets work then it will certainly be a serious impediment to economic growth in the years ahead.

Friedman continues:

"Employers across America will tell you similar stories [that they can't find workers with the right skills]. It’s one reason we have three million open jobs around the country but 8 percent unemployment."

If the argument is that employers don't understand how markets work Friedman might be right, but if the argument is that there is a skills mismatch, the evidence doesn't support his case. The overall ratio of job openings to positions has risen from the trough of the recession but is still well below its pre-recession level.

Ratio of Job Openings to Employment

jolts

Source: Bureau of Labor Statistics.

While Friedman argues that this means employers can't find workers with the right skills, it is worth noting that we see the same pattern in restaurant employment.

Ratio of Job Openings to Employment:

Accommodation and Food Service  

 

jolts-r Source: Bureau of Labor Statistics.      

The current ratio of job openings to employment in the restaurant and hotel sectors is 2.8 percent (it had been 3.5 percent in the summer months). This is slightly higher than the 2.6 average for the economy as a whole. Unless we think that it is especially hard to find someone with the skills needed to work in a restaurant or hotel, then there must be some other explanation for the rise in the job openings ratio. For example, employers may be taking advantage of the fact that there are large numbers of unemployed workers to be more picky about who they hire.

The failure of wages to keep step with productivity growth would suggest that this is the case. While Friedman tells readers about the rise in the gap in the wages of workers with college degrees and workers without, this was mostly a 1980s story and to a lesser extent a 1990s story. There has been little change in this ratio in the current century. In fact, wages for workers with college degrees have been dropping since 2000.

The evidence suggests that if employers like Traci Tapini really can't find workers with the necessary skills it is primarily because they don't understand that it is necessary to raise wages to attract more skilled workers. If this is the case, we should hope that Ms. Tapini is not your usual C.E.O.

 

Comments (26)Add Comment
Tom's Thumb's On The Scale
written by Jeffrey Stewart, November 18, 2012 8:46
Typical Tom Friedman. No one oversimplifies and generalizes in the service of the capitalist class like Tom. He uses usually weak anecdotal evidence from one company and cherry picked statistics to persuade the unknowing that economy wide unemployment is structural.

I'm still waiting for a comprehensive explanation of why he supports Bowles-Simpson's (BS!) deficit reduction plan.
...
written by skeptonomist, November 18, 2012 9:35
The "small" business organization NFIB has survey data on what employers consider to be their most important problems.

http://www.nfib.com/research-foundation/priorities

The results are very clear in showing that availability of qualified workers is not a serious problem; "Locating Qualified Employees" ranks 32nd in a list of concerns. (NFIB strongly pushes certain issues, such as the cost of health insurance and government regulations, so these things are probably artificially high in the rankings)
Overpriced Welders and Doctors Would Create a Surplus, Not Structural Shortage
written by Last Mover, November 18, 2012 10:07
If we applied the same standard to doctors, they would be averaging around $100,000 a year today (instead of around $250,000).


Apparently another Freudian slip by Friedman in admitting the problem is not structural unemployment but overpriced labor.

Since the cost of health care has exploded doctors must learn to accept lower wages the same way welders do before they can get hired into jobs where welding costs have exploded as well.
...
written by Kat, November 18, 2012 10:59
We need a new “Race to the Top” that will hugely incentivize businesses to embed workers in universities to teach — and universities to embed professors inside businesses to learn — so we get a much better match between schooling and the job markets.

I'm thinking we need a new "Race to the Top" to hugely incentivize newspaper corps to embed opinion writers in the real world so that we get a much better match between what is actually going on in the labor market and what is written about the labor market.
60 Minutes featured a similar silly antecdote last Sunday on structural unemployment
written by Michiganmitch, November 18, 2012 11:01
60 Minutes did a foollish report on an employer last week who complained about the failure of our public schools in preparing qualified workers to be employed in his "high Tech" manufacturing facility. He was so disappointed he began an internship to train possible candidates for employment paying candidates to train for a period of months on a part-time basis. The jobs required workers to be machinists, to program computers to do automated tasks and to and to employ trigonometry to ensure that parts produced met specs. The 2 successful trainees were offered employment when the internship was concluded at an hourly rate of $12 with benefits! With foodstamps and that wage, the workers could now support a wife and 2 kids.
Over-educated workforce demands brought about by HR eliteists
written by jumpinjezebel, November 18, 2012 1:48
This is yet another example of demands being made out of thin air for qualifications of workers to do manual labor jobs. Your local "nothing to do" HR departments are the cause of it - dreaming up longer and longer work position statements/qualifications. No welder needs all that BS to do good qualified work. How about all those welders on the big pipelines - bet they couldn't get a job at Missy's company either.
...
written by PJR, November 18, 2012 2:10
And 60 Minutes recently interviewed a CEO who can't find trained workers. At no time did the CEO indicate awareness that the company can provide training and decent compensation. No, the worker should pay to get trained before applying, move, accept low pay and benefits, and expect to start over again after the owner maximizes and takes the profits and then closes shop for greener pastures.
Lies, lies and more lies
written by Robert Oak, November 18, 2012 2:43
Great call out on the lie, lie, lie "skills mismatch" worker shortage. We have less STEM jobs in this country than over 12 years ago, many more lost in the recession, and millions of American displaced workers with at least a BS in STEM.

Friedman is simply pimping for corporations to obtain more foreign guest workers, more H-1B Visas and turning our educational system into a green card ATM, which in turn will arbitrage Americans for even entry into college. We're going to get a barrage of these obvious lies, including one on 60 Minutes where someone should train, without pay, on their own dime for four months to be "considered" for a $12/hr skilled manufacturing job!

Be prepared for spun statistics, economic fiction and outrageous claims. The lobbyists are gearing up to get unlimited Visas, migration, technology transfer through immigration through Congress under the guise of "Comprehensive Immigration Reform". Corporate tool Friedman is just one of many spinning out a blizzard of digital bit propaganda. There is no worker shortage, there is no lack of skilled, highly educated and trained Americans, none.
60 Minutes Skills Mismatch Segment
written by AntiJohnGalt, November 18, 2012 6:03
The 60 Minutes segment on the alleged skills mismatch actually allowed discerning viewers to catch the lie of the basic premise put out by the small business owner on the show. Later in the segment, a professor debunked the bogus claims made by the small business owner. Of course, the information is presented in a he said/she said format but the professor was rather convincing.
...
written by Art Perlo, November 18, 2012 6:07
There are plenty of HS and even college graduates who can read, write and do basic math who would love a chance at a $20/hr job. 40 years ago, when I went to work in a factory, I learned on the job from the other workers. For more skilled work, the company had training programs. Apparently, this small business has also discovered that it can train workers. There are far too many unemployed people who are perfectly capable of learning jobs of this nature, if given the chance.
...
written by liberal, November 18, 2012 7:50
There is an argument that companies won't train workers---they're worried that if they do, some other company will poach the worker, and their investment in the training will be money down the drain.

IMHO that's not an unreasonable concern. What's unreasonable is to expect the state to educate and train the workers for you, and at the same time refuse to pony up the taxes to pay for that.
Worker training can be constructed to be less transferrable
written by John Wright, November 18, 2012 8:45
In some cases the worker can be trained in such a way that their skills are not directly transferable.

For example, a large company can train someone in a specific task that will not be useful at many other companies. Or the software systems they train the user on are customized enough, and the task they do is narrow enough, the employee is not a direct fit in another company.

Employees are getting wise to this narrow training as a recruiter told me that employees of the hi-tech company I formerly worked for were viewed as too "specialized".

Friedman content: do other people believe that Friedman is not comfortable with statistics or numbers? He mentions 3 million job openings, but doesn't quote the 12.8 million unemployed count that is easily found on the web, instead quoting the 8% unemployment percentage. If he quoted the 12.8 million, one could see the 3 million openings were not nearly enough to employ even 25% of the unemployed.

Maybe Friedman doesn't want the numbers to get in the way of a good story.

But he has a well-paid job that apparently none of the 12.8 million unemployed could do better. Friedman is truly a rare individual.
Why hasn't Friedman been outsourced?
written by Emersberger, November 19, 2012 6:12
Again I ask, why hasn't Friedman been outsourced along with so many other corporate media pundits in the USA? How many english speaking, very well educated people in India would be willing to write the same crap for 1/10 or less of what Friedman charges the NYT? Thanks to the internet, pundits like Friedman must be the among technically easiest people in the world to outsource. The NYT woudn't have to pay any relocation costs.

Lexus & Olive Tree Devoted a Chapter to the Miracle of Securitization
written by John Miller, November 19, 2012 7:39
Thomas Friedman should have been kicked off the NYT editorial pages a long time ago. Among other gems, he was an early champion of mortgage backed securitization, his novel Lexus & Olive Tree was largely a paean to the financial wheeler-dealers who destroyed the global economy.
Free Rider
written by bakho, November 19, 2012 7:50
There is a free rider problem. Companies can train workers which is expensive, then lose them to others who externalize their training costs onto the employer that does the training. This is why PUBLIC education is important. The public benefits from a trained workforce and doesn't worry about the Free Rider problem. A more productive employer earns more, contributes more to GDP and contributes more tax revenue to society.
I love the constant "pay higher wages" argument
written by Bill H, November 19, 2012 9:57
Has Dean Baker ever run a business with employees? A business which operated in a competitive environment? If he had, he would know that employers cannot simply decide to indulge in raising wages at will. There is a formula called selling price - cost = profit. In today's economy, one cannot always raise the selling price so that the business can "simply raise wages to attract workers." Doint that often reduces the sales volume to the point that the employees are no longer needed.
...
written by crosspalms, November 19, 2012 10:02
If there's a free rider problem, surely it's at the top, not at the $20-an-hour level. Companies routinely pay large amounts of money to top officers. One stated reason is to keep execs from moving on. If companies are willing to shell out on the corner offices, they should be willing to shell out on the shop floor, too.
Rate vs Productivilty
written by scott moore, November 19, 2012 10:12
As a former plant manager, we never had trouble getting qualified people. My communication to staff was that they can pay whatever they want, just not more. The translation is, productivity pays for itself, and it does. These business that are not able to hire, are trying to get something for nothing.
Socialism for business, cold hard capitalism for everyone else
written by FoonTheElder, November 19, 2012 11:27
This is just another example of how the Walmartization of the US has destroyed American working people.

When the company has the supply advantage in our supposed 'free labor market' they think nothing of cutting wages. When they have a supply disadvantage, all they want is socialism, where the employees in short supply are supposed to sacrifice for the company.

Part of the problem is that after Walmart and its ilk, practically every industry in the US is an oligopoly. They control not only their employees, but the prices they will pay to suppliers by constantly requiring price cuts, which leads to low wages or job exports.

They big corporations in the US have used Reagan's decimation of the anti-trust rules to become nothing more than manipulators who demand that their employees, suppliers and the government foot the bill for their excesses.

Poached workers?
written by FoonTheElder, November 19, 2012 11:33
If companies are worried that their trained workers will be poached then it's obvious they are not paying them a market wage.

Oh, I forgot, the market only applies when it is an advantage to the company, not the employee.

US business is full of incompetent, hypocritical, overpaid and greedy managers. The puropse of society is not to make a small group of manipulators extremely wealthy.
...
written by Emersberger, November 19, 2012 11:46
Bill H wrote

" There is a formula called selling price - cost = profit. In today's economy, one cannot always raise the selling price so that the business can "simply raise wages to attract workers."

Bill, you missed the fact that wages have not kept pace with productivty growth for decades. And by the way, Adma Smith remarked centuries ago on the hypocrisy of businiess owners who whine about wages driving up prices but ignore when profits do the same.

...
written by Brenden, November 19, 2012 12:26
Thanks for keeping the heat on these scam artists. I hear this argument constantly in the software business - can't find skilled engineers. It's a false argument from employers looking to pay H1B wages.
When do you pay a receptionist $45K
written by danj1, November 19, 2012 4:42
I had a small business client with a receptionist who was paid $45,000 to open mail and answer phones. She was in her 40's and had been working there since she was 17. Each year she recieved fifty cent or seventy five cent raises. This is the perfect example of what happens over a period of time when you give rate increases without taking into consideration market factors.Ultimately she was replaced with somebody making $11/hour.
...
written by Joe Emersberger, November 19, 2012 6:12
Interesting DanJ
According to your anecdote (if true), your SMALL business client was - for almost 3 decades, paying a receptionist a bit ABOVE what the minimum wage in the USA would have been if it had kept pace with productivity since the late sixties.

And we should fear this because????
If there is a problem with retaining relatively low wage workers, cut executive pay
written by John Wright, November 19, 2012 11:11
Gretchen Morgenson of the NY Times had a column on Sept 22, 2012 that discussed how recent research has questioned the pay-them or lose-them CEO pay packages.

Here is the link to the paper she referenced:
http://irrcinstitute.org/pdf/Executive-Superstars-Peer-Benchmarking-Study.pdf

Apparently, CEO's do not have transferable skills that will command high pay at another company, so leaving their current company is more difficult than posited.

If this is the case, the executive team should, in the interest of "shareholder value", lower the pay of company executives until they reach some target turnover ratio.

After all an unnecessary $1 million paid to an executive has an opportunity cost.

But executives seem to be silent on this aspect of improving shareholder value.

...
written by Attention to detail, November 22, 2012 2:56
It's Tapani, not Tapini; and restaurant, not restauarant.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

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.

Archives