The Fake Skills Shortage

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.”