The Fake Skills Shortage

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Obama Administration

From time to time I hear that employers have a hard time hiring skilled workers, which never makes sense to me. Now we know what the problem is. Via Krugman, see Adam Davidson, “Skills Don’t Pay the Bills.”

Eric Isbister, the C.E.O. of GenMet, a metal-fabricating manufacturer outside Milwaukee, told me that he would hire as many skilled workers as show up at his door. Last year, he received 1,051 applications and found only 25 people who were qualified. He hired all of them, but soon had to fire 15. Part of Isbister’s pickiness, he says, comes from an avoidance of workers with experience in a “union-type job.” Isbister, after all, doesn’t abide by strict work rules and $30-an-hour salaries. At GenMet, the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour.

The secret behind this skills gap is that it’s not a skills gap at all. I spoke to several other factory managers who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. “It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.

Davidson goes on to say that most of the people who are still doing these high-kill manufacturing jobs are in their 50s. Younger people understandably don’t see the point in getting trained for jobs that don’t pay any better than McDonald’s. And at least fast-food jobs are not going to be sent overseas. So the young folks who have the math and computer skills manufacturers need are looking elsewhere, and the fake skills shortage is likely to turn into a real skills shortage.

Krugman writes,

And this dovetails perfectly with one of the key arguments against the claim that much of our unemployment is “structural”, due to a mismatch between skills and labor demand. If that were true, you should see soaring wages for those workers who do have the right skills; in fact, with rare exceptions you don’t.

So what you really want to ask is why American businesses don’t feel that it’s worth their while to pay enough to attract the workers they say they need.

What about the competition of overseas labor? Krugman addresses that, too in an essay he wrote several years ago. As he says elsewhere, this area of the impact of global competition on wages is his “home field.”

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17 Comments

17 Comments

  1. JR  •  Nov 26, 2012 @2:18 am

    I am continuously amazed at just how much effort they put in to do absolutely anything except tell the truth on matters. Are there any demographics they haven’t burned through already by scapegoating?

  2. erinyes  •  Nov 26, 2012 @6:06 am

    I have had this discussion with one of my co-workers, who of course likes to tell everyone he is a conservative. I told him his story makes no sense, if there was a prospective employer who needed 100 machinists (in Detroit), but could not find any skilled workers, he is either not trying, or is offering jobs that don’t pay a living wage.

    This co-worker, BTW, is notorious for going out of his way to avoid work he considers “uncomfortable” to perform.

  3. c u n d gulag  •  Nov 26, 2012 @7:59 am

    Once upon a time, there was a country where over 1/3 of the population were members of unions.
    And the companies, via their unions, used to hire people with certaim aptitudes – and they were called “apprentices.”
    And they were paid a fair wage while they learned. The company and union trained them. And, as the apprentice’s grew in their knowledge, and gained more skills, their wages increased, and they could support their families.

    Now, fast forward a few decades:
    Companies no longer want to deal with unions, and do everything they can to make sure their employees do not become members. Union membership is down dramatically.
    And companies don’t want to pay people while they gain the knowledge and skills necessary to perform the job. The companies want people who already have the knowledge and skills, and pay them as little as possible. And they want either the Federal, or State, government, to pay for the training, at colleges in their community, the people the companies want to hire at the lowest wage possible.
    And the extra-added bonus for these companies, is that they can then bitch about how they can’t “find” skilled people, and infer that people are slothful lay-abouts, who’d rather collect unemployment, or, when that runs out, live with their families in their sibling’s or parents basement.
    These companies. their owners, and CEO’s, and shareholders, need to realize that, in this ‘Race to the bottom,’ there are no winners. And if the people who work in this country, can’t afford to buy their sh*t, the companies, their owners, and CEO’s, and shareholders, will all lose money – eventually.
    Our Galtian Overlords are very, very short-sighted. And sure, they can sell their sh*t somewhere else – in other countries – but if our economy tanks because people can’t afford to buy their sh*t, the economies of the countiries in the rest of the world will also go downhill, and then who will be left to buy their sh*t?
    Beings from Mars?
    Creatures from Venus?
    You can’t pull profits out of Uranuses.

    All of this proves, once again, that there’s no “I” or “Q” in wealth.

  4. moonbat  •  Nov 26, 2012 @10:32 am

    What about the competition of overseas labor? Krugman addresses that, too..

    I don’t really buy it. Krugman is using models instead of real world evidence, plus this is from the mid 90s. Even though his models predict rising wages for third world workers, does this really happen in sufficient amounts and quickly enough to have no effect on American workers? I’m not an economist, but I doubt it. It’s such an important question that I’d like to see a lot more evidence than this.

    I can tell you, that in a field I’m intimately familiar with – computer programming – the rise of foreign programmers has had a hugely depressing effect on domestic wages. Because this is a very dynamic field, I can’t say with authority how much of this is due to foreign labor, but I can tell you that the glory days of the American programmer easily pulling down the big bux are over.

  5. moonbat  •  Nov 26, 2012 @11:10 am

    After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.

    It may be misnamed – a skills gap – but I find it really hard to believe that manufacturers are willfully holding down wages for no real reason. What they’re saying between the lines is that they believe they cannot compete if wages rise beyond the $10 or $15 per hour they’re offering. That’s the claim that should be investigated, whether this is true or not, and why.

  6. maha  •  Nov 26, 2012 @11:23 am

    It’s often the case for the first people to become “expert” at some new thing make out like bandits, and people who come along later don’t do so well. Years ago I worked with a woman who was given a cushy management job mostly because she was the first person in the company who figured out how to use Windows 3.1.

    But I’m kind of halfway between you and Krugman regarding wage competition. IMO outsourcing has been oversold to U.S. companies as a way to save money. I understand that in many cases what companies save in wages is mostly eaten by higher management and shipping fees, plus there’s lower quality control. I hear a larger percentage of jobs done overseas fail to get done, either on time, to specifications, or at all, than is true of the same jobs done domestically. How much this is true may depend on what business you are in.

    But, as many of us have noted many times, those “job creators” often aren’t nearly as smart as they think they are. And the CEOs and bean counters who make outsourcing decisions often are cut off from their own engineering/production/manufacturing departments and don’t actually understand how the gizmos they sell get made. So they are oblivious to the downsides of outsourcing, and if eventually they notice they aren’t saving as much money as they thought they would, they’ll blame middle management.

    So maybe the new higher-skilled manufacturing jobs are not going to get salaries comparable to what a union machinist would have made in 1967, but they sure as hell ought to be able to demand more than what a burger flipper makes at McDonald’s. Like some guy said, if you need the workers, and no one with the right skills will work for you at the salary you offer, then offer a bleeping higher salary or get out of the business. This is not rocket science.

  7. maha  •  Nov 26, 2012 @11:31 am

    I find it really hard to believe that manufacturers are willfully holding down wages for no real reason

    You haven’t worked for most of the people I’ve worked for, then. They’ve never done the work, they don’t respect the work, and they’ve been sold on the idea that the only way to cut costs is to go cheap on labor. If you tell them they’ll never find anyone competent to do the work at the money they want to pay, then they’ll settle for sending the job to someone who isn’t going to do it all that well but maybe nobody will notice the difference. Seriously.

  8. c u n d gulag  •  Nov 26, 2012 @11:48 am

    Back in the day, when companies made a nice profit, they’d reward their workers, as well as the executives. And if the company had tough times, that was also shared by the workers and the executives.
    Now, during times of profit, only the executives are rewarded. And during tough times, the executives lard their own wallets, cut workers and/or their salaries and benefits, and raid their pension funds.
    Why rob a bank with a gun, and face 20+ years in jail, when you can get an MBA, and rob companies you run, and retire early to enjoy your ill-gotten gains for your remaining years/decades?
    Jamie Dimon is Willie Sutton with an MBA and several mansions full of expensive cars and suits.

  9. moonbat  •  Nov 26, 2012 @2:23 pm

    They’ve never done the work, they don’t respect the work, and they’ve been sold on the idea that the only way to cut costs is to go cheap on labor.

    Oh, I know there are people out there like that. But what I can’t believe, is that there are 200 machine shop owners out there all thinking the same way. Some bright bulb in that group is going to figure out that all he has to do is offer a few more dollars to the mass of skilled workers out there, and he can make all the widgets he wants. Problem solved. The fact that this isn’t happening, says that there is some problem in the cost structure that prohibits owners from taking this solution.

    In my experience small operators like this are pretty savvy people – they have to be, because many of them are living right on the edge of profitability or starvation. I give them a lot more credit for having a gut level understanding of the economics of their situation.

  10. maha  •  Nov 26, 2012 @2:57 pm

    moonbat — You have a much higher opinion of the average business owner than I do. But maybe the worst idiots all go into publishing.

  11. moonbat  •  Nov 26, 2012 @3:36 pm

    You have a much higher opinion of the average business owner than I do.

    I grew up in a manufacturing town, full of machine shops, big and small, and spent a lot of years around these guys. Especially for the smaller shops, they were run by extremely practical, hands-on types, and still have a payroll to meet. The ones who wear jeans everyday and have dirt and grease on their hands. They’re the farthest thing from the suit mentality you can imagine. As they get big, the suits come in to manage them, and you see more of the MBA mentality that you describe.

    One more anecdote, and I’ll shut up. Late in the 1980s, I was a programmer at GE. Way back then, GE corporate decided to investigate using programmers from India, who at that time cost about 1/4 as much as an American programmer. Various components of the GE empire came up with small, but non-trivial projects in an effort to try out the field of Indian companies that were offering their skills to America. The whole idea was to come up with a list of companies in India, that passed muster, and would become “certified” for the rest of GE to use as they wish.

    At that time, the internet was nowhere as developed as it is today – email had barely become available to the masses. And so this meant, people from India physically moved to America and worked with us. Everyday, four Indian guys left their temporary apartment in our town, piled into a groaning Nissan 240-Z, and came in to work with us. One of them didn’t wear shoes, and shook his head the wrong way in response to yes or no questions (we could never figure out if he was responding yes or no), and he didn’t last, mainly because the cultural difference was so great. But the rest of them had masters degrees, spoke excellent English, and I have to admit were a cut above my American co-workers when it came to general intelligence.

    I never learned the result of our own particular experiment, but I am certain GE and other companies got their list of certified companies to work with. And this was ages ago – now it’s very normal for any serious software project to design it at home but farm out the actual coding/building of it to the lowest cost provider, wherever they may be.

    Twenty years later, in 2012, I was cruising the web, looking at some Canadian spiritual teacher’s website, and drilled down into it. It looked fantastic, and was created by some company in India, with a long resume of successful projects. I am certain this teacher didn’t have to have Indians move to her town to create this site; the continuing perfection of the internet has abolished the need to travel. I’m also certain she could’ve found programming talent locally to build her site (she’s based in Vancouver). But for whatever reasons – and I’m sure cost was part of it – she chose to go overseas for this work.

  12. Bill B.  •  Nov 26, 2012 @4:14 pm

    Isn’t it interesting that they outsource the labor for lower cost and then reward themselves with higher management salaries instead of looking for outsourced managers? If a company ever wakes up to that, there will be howls from a new area!

  13. maha  •  Nov 26, 2012 @5:16 pm

    moonbat — programming work may be in a class by itself. In other kinds of manufacturing jobs, there are physical things that have to be shipped overseas by a particular date, so you have to add shipping cost, and if the things aren’t made to spec they can’t be used. If you are talking about a machinist or manufacturer, you are not talking about something done by educated people that can be zapped electronically around the world. So, again, it depends on what industry you are in.

    Publishing for years has been so broken into pieces that about the only people employed who have any contact at all with books are acquisition editors and people in production who coordinate the many outside freelancers and vendors that do the actual editing, typesetting, proofreading, and printing. Not much of this goes overseas because, frankly, you still need native English speakers. When I started in the business all editorial functions were done in-house, and now most editorial functions are done by who knows who, and there’s no quality control at all. Most books these days get published without anyone who is a real employee of the publisher reading them first. I’m serious.

    At first this kind of worked, because most of the people doing the work as independent contractors had in-house publishing experience, but that’s less true any more, because not as many people ever get in-house publishing experience. But, still, they’re just books. They’re not going to blow up and kill anyone. If most of the people working on them at least stay sober and speak English, you can get by with this most of the time. And maybe the same thing is true with software. But this would be less true with, say, machine parts or medical equipment, I suspect.

  14. Tom_B  •  Nov 26, 2012 @5:22 pm

    Medicine, law, programming and STEM– from my perspective, I see strong downward pressure on compensation and massive third world outsourcing. I’m with Bill B.– let’s outsource the bosses.

    I have an advanced degree and did VERY well, thank you, with VERY stable work, up to about a decade ago. My field collapsed from lack of investment. I “get by”, but the future is murky at best. SOMETHING proactive needs to be done by the Gov’t to support STEM employment instead of just saying we need more engineers. Maybe just more venture money in the system. If it were easy to find Gov’t or private capital, people could start their own businesses much more easily. But, for every new biotech or green energy start-up, it seems you have a bunch of “fad of the moment” (Facebook, etc) Ponzi schemes.

  15. moonbat  •  Nov 26, 2012 @6:02 pm

    I could be wrong about this, but the way you describe publishing – it sounds like a world unto itself, the way it’s evolved (or devolved). My knowledge is hardly encylopedic, but I can’t think of anything like publishing.

    What’s happened with manufacturing, is that the lower skilled commodity type work has moved overseas. It’s only the more sophisticated, more complicated work that remains in the USA. I understand this is how Germany has retained its manufacturing edge – it will be awhile before China can produce something as fine as a BMW, but in the meantime they can make plenty of lesser quality products. In other words, the lowest hanging fruit is the first to go. Same thing happened in software: the (lower level) coding moved, but the (higher level) design work – which often requires local knowledge about the problem domain, as well as interfacing with all of a project’s stakeholders – remains. Americans with exotic, in-demand skill sets in software are still amply paid; those with commodity skill sets are competing with the rest of the world.

    In fact, I remember one point in my software career, where a manager used the word “commodity” in reference to the skills I and my co-workers labored in. My ears picked up. When the team from India arrived, I could see the writing on the wall for this field, and knew my days in it were numbered.

    Fortunately I had studied history and geography. I knew how the production of cloth had moved from New England, then to the South, then to Asia. I understood and accepted how economies evolve from one type of endeavor to another, as different parts of the world “come on-line” to compete in spaces formerly held by a more advanced economy. Some of my cohorts in software didn’t take it quite so easily.

    The final step in all of this is the financialization of the economy. Where an economy’s focus was formerly on making actual physical products, the focus then turns to finance and imaginary products like derivatives. This works fine for awhile – as long as the country can accomodate masses of citizens that are basically uncompetitive with the rest of the world AND it can hold sway over the rest of the world to believe in and use its financial products, including the currency. This latter part – the holding sway over the rest of the world – often happens at the point of a gun – it’s been said part of the reason why we invaded Iraq was Saddam’s decision to move off dollars in selling oil. Sadly, I expect to see more of this in the years to come. “Use our money or else!”

    Unfortunately I haven’t studied what happens next, when an economy becomes dominated by finance – there aren’t many examples or explications that I know of. But I suspect it’s not pretty. Once the rest of the world stops believing in your currency or financial products, and you have no other edge, it’s pretty much over for that economy. In the US, we’re fortunate to still have a lot of natural resources, such as freshwater and farmland, and one way or another, these will be extracted and exported to economies that become more dominant and vibrant than ours.

  16. paradoctor  •  Nov 26, 2012 @7:26 pm

    Is a fake skills shortage a fake shortage of skills, or a shortage of fake skills? Because if the latter then Fox is hiring.

  17. maha  •  Nov 26, 2012 @11:34 pm

    What’s happened with manufacturing, is that the lower skilled commodity type work has moved overseas. It’s only the more sophisticated, more complicated work that remains in the USA.

    Yes, of course, I understand that. And my other point is that programming is utterly unlike manufacturing. Shipping most manufacturing jobs overseas reduced labor costs but add shipping and managing cost. It’s not always practical, because labor costs are not the only consideration.

    A lot of manufacturers, including publishers, like to work with vendors who can supply products and components quickly, so that they don’t have to keep a lot of stuff warehoused until they are needed. Keeping product and component parts in a warehouse costs money. A common complaint I hear about overseas vendors is that they need a lot more time to fill an order. So I’m saying it’s a trade off. In some cases it may be more cost-effective to order from a U.S. vendor that has higher labor cost but lower shipping costs and turn around time.

    Instead of just following the herd and sending manufacturing jobs to China, some innovative manufacturers ought to be thinking in terms of what they can provide that overseas vendors generally don’t.



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