Policies Have Consequences

In his column at the Wall Street Journal James Freeman takes note of the much-reported shortage of workers:

How are U.S. employers going to fill all of their open positions? That’s the question raised again by the National Federation of Independent Business monthly jobs report, due out later today.

“Reports of employment gains remain strong among small businesses. Owners reported adding a net 0.19 workers per firm on average, virtually unchanged from May and a good number,” says NFIB Chief Economist William Dunkelberg.

That’s certainly good news, but the news could be much better if employers could find more job seekers. “Sixty-three percent reported hiring or trying to hire (up 5 points), but 55 percent (87 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill,” adds Mr. Dunkelberg.

NFIB finds particularly high demand for workers in home building, “where labor shortages are clearly restricting the construction of new homes and apartments as demand remains strong. The limited supply is resulting in strong house price appreciation.”

Beyond construction, it seems that things are tough all over for small businesses in need of new workers—both skilled and unskilled. “And the hiring strength is in industries that pay well,” notes Mr. Dunkelberg. Along with construction, this category includes manufacturing and financial services.

Let me put my observations in bullet form:

  • In some cases there actually aren’t enough workers.
  • When we place caps on the number of people who are trained, as is the case, for example, with physicians, it tends to create shortages which otherwise would not exist.
  • Some of the shortages are actually attempts to keep wages low. Employers are entitled to keep wages low. Americans are entitled to resist importing workers to keep wages low.
  • In some cases the shortage is an over-simplification. Employers aren’t just looking for workers with specific skills. They’re looking for workers with specific skills who don’t do drugs, have no criminal convictions, who haven’t posted nasty things on Facebook.
  • In some cases the shortage is nonsense. They’re looking for workers with specific skills, etc. who are under thirty and have fifteen years of experience. I recall seeing ads in 1981 for IBM PC programmers with five years of experience. That such mythical creatures did not exist never occurred to prospective employers.
  • In some cases the shortage is a self-inflicted wound. Junior engineers become senior engineers. When you won’t pay junior engineers a living wage, eventually there are no senior engineers. We’ve been reducing vocational training at the high school level for decades. We shouldn’t be surprised that there are no prospective workers with the skills that might be learned in such training let alone workers with those skills and ten years of experience.

And then there are the policies which make it more comfortable to be out of the labor force than in it. Good policy is hard which is why there’s a chronic shortage of it.

9 comments… add one
  • Ben Wolf Link

    We’ve just hit another 200,000+ jobs number with wage growth continuing below inflation. There’s no labor shortage, there’s an ongoing surplus.

  • Ben Wolf Link

    IMO Trump is betting on trade restriction to fuel domestic output and wages. Production is currently at 78%, a figure well below the 90% average recorded in the 1950s and 1960s. That’s why government spending is surging (although it’s possible this is a coincidence and I’m giving Trump’s people too much credit). We will need additional domestic demand to correct for fewer imports.

  • There’s no labor shortage, there’s an ongoing surplus.

    That’s certainly my view.

  • Ben Wolf Link

    IMO, in instinct, Trump is the first Keynesian president since Nixon. Orthodox Republicanism (or neoliberalism) is dead.

  • Republicanism (or neoliberalism) is dead.

    I’m not so sure. Like Obama, Trump is building no organization. He’s idiosyncratic. They keep talking about “the party of Trump” but there is no party of Trump without Trump. Trump will be president for no longer than 2024. After that the same old ideologies will peep out of their holes and if they see their shadows we’ll have six more weeks of winter.

  • Roy Lofquist Link

    Sheesh. Some people would complain if you hung them with a new rope.

  • bob sykes Link

    Perhaps the workers can start getting back some of the wages they have lost under 40 years of free trade. A 20% to 30% pay raise would get them back to 1970.

  • steve Link

    bob sykes- Not happening. If any gains are made, it will go to shareholders and management. Count on it.


  • Andy Link

    That’s a good list.

    I was recently at a family reunion of about 150 people from my wife’s side of the family – a line descended from Germans who immigrated to the northern plains after the Civil War. Today, many are still farmers in the Dakotas, but most are blue collar workers spread between the Dakotas and Ohio.

    We did a lot of catching up on the reunion, including where people were working, who retired, etc.

    The conversations and anecdotes covered everything on your bullet list except #2. Here’s one example:

    One guy worked at a machine shop in Wisconsin for 35 years and recently retired. The shop employs about 50 people in total. He gave his retirement intentions months in advance, thinking he would have the opportunity to train someone, but no one was hired. Over the past couple of years they’ve had a few of what he called interns from local trade schools. He was disappointed they couldn’t do basic math without their phones – things like dividing the length of a piece of stock by two to cut it in half. The other issue was that the current management did not adequately compensate prospective and new employees, nor give them the same kinds of increases in responsibility in pay that he got as his skill and value to the company grew. He wonders what’s going to happen to this firm when all the older guys finally retire as management hasn’t built up a cadre of workers to replace them.

    Another example is an executive at a steel materials supplier. He complained of not being able to find adequately trained workers – I asked if they’d tried raising wages to attract people, but he said if he did that he’d have to increase the base wages for everyone else. A couple years ago their factories had about 40 employees each, but they brought in a lot of automation and cut that down to less than 10. They’re looking at additional automation to cut it down to less than five.

    I’m coming around to the conclusion that the major problem is with management – or rather mismanagement.

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