The Labor Shortage Hoax

There's a new glut on world markets. No, I'm not talking about the gluts of Chinese apparel or shares of Google stock bought at $475 each or of sub-prime U.S. lenders. I'm talking about the new glut of studies claiming that what really ails the U.S. economy is a shortage of skilled workers.

In fact, all these studies really show is that there's still another glut that's engulfed the economic policymaking world – of raw, unadulterated chutzpah. What else could explain the contention that, as American multinational companies continue offshoring even the nation's most knowledge-intensive, best-paying jobs, the biggest problem these same companies face at home (along with smaller firms) is finding enough qualified workers to take advantage of all the extraordinary career opportunities they're creating?

Not surprisingly, these studies are all coming from the outsourcing lobby itself. In November, the National Association of Manufacturers, whose sector of the economy has lost 3.34 million jobs since employment peaked in 1998, reported finding "a widening gap between the dwindling supply of skilled workers in America and the growing technical demands of the modern manufacturing workplace." In fact, 39 percent of the firms responding to a NAM-sponsored survey reported shortages of unskilled production workers.

The U.S. Chamber of Commerce chimed in shortly after the new year, declaring in its new State of American Business report, "We are staring right in the face of a severe worker shortage as 77 million baby boomers prepare to retire in the next five years...." Added the Chamber, "Many new jobs will require more technical skills and a greater understanding of math and science, subjects in which American students fail to show a suitable level of competence or even interest."

And the leading lobby for high- tech outsourcers, the Information Technology Association of America, continues to warn of a crisis in the availability of technically skilled workers and the need to greatly expand the number of scientists, engineers, and mathematicians graduating from American colleges and universities.

What's wrong with these findings? Only two things: First, the main studies themselves are slipshod methodogically and internally contradictory. Second, they clash with everything known about major trends in the U.S. labor market, and about labor shortages themselves.

The study attracting the most attention has been NAM's effort, a survey of manufacturers conducted by Deloitte Consulting. To put it mildly, NAM should ask for its money back. Only 10 percent of the 8,000 companies contacted by Deloitte replied, and as Wall Street Journal columnist David Wessel noted, lots of self-selection surely was at work. Specifically, employers not perceiving any shortages probably were much less likely to bother responding than those that did.

Further, Deloitte ignored a major irony that practically shouts out from the results: Although the consulting firm recommended that companies spend at least three percent of their payrolls on employee training, it found that fully three-quarters of all respondents fell short of this threshold. Moreover, only half the total respondents have increased their training expenditures over the last three years. And 64 percent of total respondents are training 60 percent of their workers or fewer. Does this sound like the behavior of firms that value trained workers and are desperate to secure them?

Similarly, many of the policies long championed by these multinational-dominated business groups thoroughly undercut their professed concerns about labor shortages. For example, it's hard to imagine that talented people will flock to manufacturing production careers in a nation whose trade policies encourage the massive offshoring of such jobs. And it's hard to imagine that talented people will flock to research, development, engineering, and design careers in manufacturing in a nation that not only encourages the offshoring of these jobs, too, but that admits large numbers of immigrants who will do this work for bargain basement pay. Yet that's exactly the kind of nation that Washington has given us – at the behest of the same multinationals now crying "Labor shortage!" Talk about creating a self-fulfilling prophecy!

Indeed, U.S. Chamber of Commerce President Thomas Donahue has declared that passing a new immigration reform bill with a guest worker program is one of his organization's top priorities this year.

Just as important as the incoherence of these multinational positions is the overwhelming evidence from the U.S. labor market exposing the shortage claims as bunk. Actually, according to mainstream economic theory, the very idea of long-term shortages or surpluses of any commodity (including, by definition, labor) is a non-starter. And if you think about it, the theory makes perfect sense. It holds that through the workings of the price mechanism, markets will eventually clear and stability will be restored.

In the case of worker shortages, employers simply need to increases wages enough, and before too long, they will be able to attract whatever workers they need – either from the ranks of the voluntarily or involuntarily unemployed, or from competitors. Of course, the opposite is equally true. As long as workers are in over-supply, businesses can offer meager wages in full confidence that qualified workers and jobseekers will have no choice but to swallow them.

In other words, anyone believing in modern economics should recognize that manufacturers aren't facing a chronic labor shortage. If they were, they wouldn't be cutting wages. Instead, they face a shortage of workers willing to accept the paltry wages they have been offered. How paltry? The latest figures from the U.S. Department of Labor show that after peaking in1978 – yes, 28 years ago, inflation-adjusted wages for manufacturing workers have fallen back to levels they first hit in 1972.

Of course, the policy whizzes at the NAM have an explanation. As stated by Jerry Jasinowski, the organization's former president and how head of its Manufacturing Institute, the stagnating wage figures are much less important than the increasingly lavish benefits received by the typical manufacturing worker. NAM Chief Economist David Huether has added that, since 2000, wages have fallen from 84 percent of total manufacturing compensation to 80 percent, with growing health care costs the main reason.

But do these NAM bigwigs really mean to suggest that industrial workers are making out like bandits as a result – pocketing most or all of the higher health care payments to boost their real living standards? Surely, Jasinowski and Huether know that today's health care costs are eating up the benefit payments – meaning that workers' other needs and wants have to be paid for by their shrinking wages, or by more borrowing. And surely these NAM experts know that the multinational outsourcers that dominate their organization's leadership, along with so many other companies, are starting to reduce the absolute levels of these non-wage benefits. Again, companies really facing a labor shortage would be doing just the opposite.

In addition, everything known about the dominant trends in the U.S. labor market clashes with claims of chronic labor shortages. For example, Secretary of Labor Elaine Chao has echoed the outsourcers' claims of shortages of skilled labor, of lots of great jobs going begging, and of greater shortages looming ahead.

But she clearly hasn't read her own Department's latest projections of national workforce trends. They anticipate that nearly 40 percent of the new jobs that will have been created between 2004 and 2014 in the economy's fastest-growing occupations will require only short-term or moderate-term on-the-job training – i.e., no post-secondary school at all. Moreover, another 9 percent of these jobs will only require a two-year (Associates) degree. The predominance of jobs lacking B.A. requirements is even greater in those professions that will remain America's largest employers in absolute terms. This sounds more like a Wal-Mart-centric economy than a technology-centric economy.

And here's a result that made me, for one, laugh out loud: These Labor Department projections do indeed generally show that the more training a job requires, the higher the pay. But do you know what the Labor Department considers "very high" pay – its highest pay category? A grand total of $43,600 in total annual earnings. Not exactly a high bar.

In fact, there's only one sector of the economy that could plausibly be suffering a genuine shortage of skilled labor. The NAM report found that small employers are slightly less likely than large employers to report shortages. But this claim conflicts not only with anecdotal evidence I've run across recently, but common sense.

Some smaller manufacturers I've met over the last year say that business has recovered since the recession, and they're once again hiring. But they feel victimized by two related problems. First, their margins have been squeezed relentlessly by their bigger manufacturers they supply, who keep threatening to turn to Chinese suppliers if the little guys don't match Chinese costs. Therefore, smaller companies are struggling to generate the earnings they need to offer workers higher wages. Second, some little guys observe that the skilled workers they laid off during the last recession aren't returning to compete for their old jobs. One possible explanation: These missing workers fear another round of layoffs, and are sacrificing pay for greater job security.

Many multinationals face price squeezes, too, but of course unlike a 20-worker machine shop in northeastern Ohio, they often can respond by offshoring to China. This option explains much of the record profits these companies have been earning – profits that clearly aren't being spent on attracting skilled workers with better pay offers, or on training existing workers.

It's clear, then, that most labor shortage claims are simply meant to justify the multinationals' continued resort to the low-wage strategy to greater short-term profits, either through offshoring jobs and production, or through flooding the U.S. labor market with immigrants. But give credit to the outsourcing lobby – it's not only pressing on, but has added a new twist to their argument: The outsourcers are turning up skilled-labor shortages in China and India, too, according to numerous news reports like the January 4 Wall Street Journal item titled "India's Talent Pool Drying Up."

Apparently even most university graduates from two Asian giants with science and technology degrees lack the qualifications multinationals say they need. The reason? The higher education in these countries varies wildly in quality, and often badly lags American standards. One big difference between the Asian situation and the American, however, is that the outsourcers have been bidding up wages abroad for the all-stars they're seeking – though their pay is still orders of magnitude lower than U.S. levels.

Luckily for them, even lower-wage countries like the Philippines, Russia, and Vietnam are beckoning. So before too long, look for wages for skilled labor worldwide to resume falling. I can't help but wonder how the outsourcers will sell their products when every major world population is becoming steadily pauperized. Presumably, they'll cross that bridge when they come to it.

For a Canuck you are sure up on American history and prosperity. Why don't you tell us all how well Canada is doing in the world market these days? Shhheeeessshhhh what gall!!!!

Contrary to your previous claim immigration was never unlimited. It's impossible to compare the 1800s or even 1900s to today when travel was far more difficult. The Irish and others came here mostly on ships that took forever to make it to the states but most importantly they came legally. Today they're flying in by the millions, staying illegally or just crossing the borders as if they don't exist.

Why don't you tell us all how well Canada is doing in the world market these days?

Canada is doing quite well. In fact, the U.S. tariff on Canadian lumber has resulted in major U.S. job losses in the lumber industry and record Canadian exports of lumber throughout the Pacific Rim. Go figure, eh?

And with oil trading at $60-$70 per barrel, the U.S. has run up a huge trade deficit with Canada due to its massive imports of Canadian oil.

Anything else I can answer for you?

P.S. And no, I am not a "Canuck."

The Irish and others came here mostly on ships that took forever to make it to the states but most importantly they came legally.

They came here "legally" because there was no such thing as "illegal immigration" back then.

Today they're flying in by the millions . . .

Yes, and the U.S. is a much larger country today than it was in 1850.

Yes, and the U.S. is a much larger country today than it was in 1850.

What difference does that make, travel is still far easier today and why the comparisons can't be made. In the 1850s thousands sailed in, today it's millions flying in.

I look for the Senate to follow the house like they are on skates on the immigration bill.

Ford and GM are laying off workers by the thousands, and foreign auto manufacturers are opening new plants here in the U.S. at a record pace.
Go figure.

You heard it here first. The party that caters to the American worker now will be the party in power!!!

Sure. And when you add up the votes that were accumulated in 2000 and 2004 by people like Nader and Buchanan, you get a number that is smaller than the population of the town where I grew up.

The "American worker" is now a 50-something UAW worker whose job is fading into obscurity. I hate to break this to you, but there ain't enough of them left to make any difference in a national election.

And all this makes you happy? I think Canada does a lot of business with US automakers. OH well I already know where you are from....

Many of us can only hope you're right. But after the last fiasco of Arlen Specter and Ted Kennedy trying to ram through a massive increase in H1-b visas and then the ridiculous defense made of it by John Cornyn and the rest I can only believe they're ready to sell the store out.

Call your Senator. Call him a few times. Or her. Call them while they are in session on this bill. Makes a great big difference beleive me. My Senator Mr. Wayne Allard is doing very well on this issue. His voting record in the past has left a little to be desired but he is paying close attention to the issue now. Call your Senator!!! Speak clear English and say you have had it!!!

The "American worker" is now a 50-something UAW worker whose job is fading into obscurity. I hate to break this to you, but there ain't enough of them left to make any difference in a national election.

I hate to break it to you but this American worker has two or three kids. Been busting their butts in sports and academically. They essentially hate your guts. Guess why?

I know what some of these long haul truckers do hr. wise. You figure their wages up door step to door step and they are working for chump change.>>>>>>>>>>>

I talk to truck drivers every day that I work and almost without exception they tell me the same story, the buying power of the average trucker is much lower than it used to be and, as you say, they work far more than a forty hour week, sleep in their trucks, etc. I have talked to some who don't even have an actual home, they literally live in a sleeper cab. It is not an enviable way to make a living for most of them.

U.S. Department of Labor show that after peaking in1978 – yes, 28 years ago, inflation-adjusted wages for manufacturing workers have fallen back to levels they first hit in 1972.>>>>

In my humble but honest opinion, they are lower than in 1972.

In a free economy, those 'sucker' companies who pay more than their competitors for the same quality labor will end up out of business.>>>>>>>>>>

What I see is more of an unwillingness to make distinctions between people as to the quality of their labor. Where I work there is less than a twenty percent differential between new hires who are unable to do anything and those who are trained in all aspects of the department and everyone who has completed the training is paid the same regardless of the fact that the most productive do at least twice the amount of work that the least productive do. There is no incentive, in fact there is disincentive in that the more work one does the more likely that a serious mistake will be made and you will hear about your mistakes but those who do the bare minimum do not hear criticism for their laziness. I really prefer to go all out during the work day as it makes the time seem to pass faster but I am beginning to see that I would be better off if I could learn to do the minimum as most other people do.

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