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It's So Hard to Get Good Help

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Written by Dean Baker   
Wednesday, 22 February 2012 13:29

There is a growing chorus of sophisticated types telling the country that we could have millions more jobs in manufacturing, if only we had qualified workers. This claim has the interesting feature that it places responsibility for the lack of jobs on workers, not on the people who get paid to manage the economy (e.g. the Fed, Congress, the White House).

As they say on Wall Street, talk is cheap. It is easy for an employer to claim that he/she would hire lots of people if only he could find workers with the right skills. However economists claim that we look at what people do, not what they say.

If it really is the case that employers have job openings, but can't find workers with the necessary skills, then we should be able to find evidence for this fact. The first piece of evidence that we might expect to find is a surge in job openings. In other words, if manufacturers are unable to find workers with the necessary skills, then there should be a lot of vacant positions.

Well, the good people at the Bureau of Labor Statistics (BLS) keep data on job openings in manufacturing.

Job Openings in Manufacturing
(click for larger version)

Manu-jobs Source: BLS.

The chart does show a recovery in the number of job openings, but we are still just getting back to the level of the middle of 2007. We are still far below the peak of the last business cycle and down by close to 40 percent from the January 2000 level, the first month in which the survey was used.

There is other evidence that we would expect to see. If firms want to hire but can't find available workers then we would expect that they would work their existing workforce more hours. The folks at BLS also have a series on average hours in manufacturing.

 

Average Weekly Hours -- Manufacturing
(click for larger version)

man-hours

Source: BLS.

This measure does actually show a big rise the last three months to 41.9 hours in January, but this is a level that we saw before in the mid-90s, the last time that the manufacturing sector was consistently adding workers. At that time, the length of the average workweek was not widely cited as indicating a skills shortage. It will be interesting to see if hours remains at this level going forward, but getting back to the mid-90s level for average weekly hours is not especially compelling evidence of a shortage of qualified workers.

Finally, if there is a shortage of qualified workers then we should expect to see rapidly rising wages. The story here is simple. If an employer wants to hire qualified workers and can't get them by offering the current wage, then she offers a higher wage in the hope of luring qualified workers away from competitors. This is known as "supply and demand." Those of us who believe in markets think that if demand exceeds supply, then price of the item should rise. In this case, an insufficient supply should mean that the wages of manufacturing workers is rising rapidly. It turns out that BLS has data on this one also.

 

Average Hourly Wage in Manufacturing: Production and Non-Supervisory Workers
(click for larger version)

manu-pay

Source: BLS.

The chart shows nominal wage growth over the prior year. In principle we would like data for real wage growth, but the rate of inflation has not fluctuated that much over the last two decades, so nominal wage growth gives us a reasonably good picture. (And, I'm too lazy to deflate the numbers and make my own chart.) We can see that there was a sharp drop in nominal wages at the trough of the recession in 2009. Wage growth then surged in 2010, presumably making up for lost ground. Since then, wage growth has been moderating, with the average hourly wage rising by around 2.5 percent over the last year. This is certainly less than 1 percentage point in excess of inflation, meaning that real wages are rising by less than 1.0 percent annually.

This hardly looks like the sort of wage growth that would be expected if there is a shortage of qualified workers. If employers are really desperate to find people with the right skills we might expect real wages to rise at 4-5 percent annual rate, or even faster. Employers lose money if they can't fill demand due to a lack of workers. If this is really the problem that they are facing, then they should be prepared to pay higher wages to alleviate the shortage.

In short, while there may be many businesses that complain about being unable to find workers with the necessary skills to fill manufacturing jobs, the data provide no evidence that this is a common problem. That doesn't mean that there may not be some businesses that actually do face problems finding skilled workers, however the data indicate that such problems are likely restricted to relatively narrow occupational categories or to specific regions. Skills shortages are not sufficiently widespread to affect the national labor market.

In other words, we should not be blaming the workers. It is always good for people to have more skills so that they can be more productive wherever they work, but the reason that so many people are out of work is not because they lack skills. The reason that they are out of work is that the folks who run the economy lack the necessary skills. That's not my opinion, it is what the data show.

 

Comments (1)Add Comment
Here's The Data In Inflation-Adjusted Terms
written by JSeydl, February 22, 2012 4:10
Dean is absolutely right. I went ahead and deflated the earnings data with the core PCE deflator. Here’s what we get: http://img607.imageshack.us/im...rnings.png

So earnings growth the in manufacturing sector is actually negative in inflation-adjusted terms right now. That doesn’t bode too well for the whole skills-shortage argument. Maybe in the late-1990s, when real earnings in the manufacturing sector were increasing close to 2 percent in year-over-year terms, that argument would fly, but it’s beyond nonsensical at this point – which means that we will probably continue to hear this argument for the foreseeable future from the likes of the WAPO, WSJ, etc…

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