Pay More

Dr. Ed Yardeni, President and Chief Investment Strategist of Yardeni Research, Inc., provided a summation of the latest U.S. employment findings:

Plenty of jobs available. In August’s consumer confidence survey, the Conference Board found that the percentage of respondents who said that jobs are plentiful rose to 26.0%, the highest since August 2007. The percentage saying that jobs are hard to get was 23.4%, near recent cyclical lows, and consistent with the cyclical low in the unemployment rate.

Record job openings. It’s actually somewhat surprising that nearly a quarter of respondents still say that jobs are hard to get given that job openings are at a record high. Perhaps many workers simply lack the skills required by the available jobs.

Unfilled positions hard to fill. NFIB’s August survey also reported the following litany of complaints by small business owners about the labor market: “Fifty-three percent reported hiring or trying to hire (down 3 points), but 46 percent reported few or no qualified applicants for the positions they were trying to fill. Fourteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem. This issue ranks third out of nine major issues listed. Twenty-six percent of all owners reported job openings they could not fill in the current period, down 3 points from, the highest reading in this recovery.”

Business owners, especially in our hyper-politicized environment, have been claiming there aren't any skilled workers to be found.

One caveat from Yardeni's findings:

Why aren’t wages rising more rapidly? There are a few explanations for the slow pace of wage gains. One possibility is that high-wage Baby Boomers are retiring and more jobs are going to low-wage Millennials. Workers may be afraid to push for big raises, fearing that that would provide an even greater incentive to employers to replace them with automation, robotics, and artificial intelligence. Since the Trauma of 2008, corporate managements have been obsessed with keeping a lid on their costs and maintaining high profit margins.

Although Yardeni mentions the lack of wage growth, he really doesn't give that factor its proper due. Which is sad because its the crucial point in this discussion. If demand is high and supply is low, wages should rise. That's basic economics.

Owners can't have it both ways - claiming they have all these positions to fill, yet they can't find anyone, while also being unwilling to increase wages to attract workers. If they are such astute businessmen, they should understand basic economics.

As Barry Ritholtz wrote, Having Trouble Hiring? Try Paying More.

None of this means there is never some frictional or structural unemployment, where skilled workers for a certain industry are in short supply. But, again, this is solved by increasing wages.

For Further Reading:
Shortage of Skills or Abundance of Excuses?
Skills Shortage Sham
Training, Skills, & Other Fairy Tales
The Zombie Skills Gap Meme That Won't Die
Low Wages, Not Skills Mismatch

Why Wages Are Not Returning as Job Growth Increases

Wage 'growth' continues to go nowhere
Wage Growth Is Weak. Inflation-Adjusted Wage Growth Is Much Healthier

The Walker Jobs Plan: Layoffs

Elections have consequences. State budget cuts have consequences.

As James Rowen notes, Big Teacher Layoffs Announced for Milwaukee; Another Walker Jobs Success.

Milwaukee has roughly 350,000 working-age citizens. If we use an average yearly total compensation of $50,000 for each of the 350 teachers being laid off, this works out to $50 per year, per working-age taxpayer, to fund these 350 teachings positions. The "savings" from these layoffs is a minuscule part of the overall budget. Walker has taken an ax, rather than a scalpel, to the budget.

It's one thing to cut wasteful programs. No one would argue against such. It's quite different to butcher a crucial pillar of being a competitive economy - our schools. And, it's especially egregious when one does this while claiming the sky is falling and while also giving millions away in corporate tax breaks.

Scott Walker has no problem initiating hundreds of millions of dollars in corporate tax cuts, while simultaneously slashing education spending. Big businesses already complain about the lack of skilled workers. How will increasing class sizes and demoralizing our public education system help to provide a more robust and skilled workforce?

As I noted in an earlier post, Walker wants the state to borrow $75 million to combine museums of state history and veterans into one 200,000 square foot building. Walker also wants almost $119 million to replace the Department of Transportation's headquarters." We're broke, but we have $200 million for two non-essential buildings?

So...during a recession, a few of the highest priorities for our governor are: unnecessarily combining two museums, replacing the public headquarters of the department involved with the road builders (a huge Walker campaign contributor), and downsizing our educational system.

The recall elections can't happen soon enough.

Unemployment and Jobs

Heidi Shierholz finds that there are five unemployed workers for every available job. More evidence supporting the idea that (un)employment problems are not the fault of a lack of skills or a need for job-training, but rather due to a lack of jobs.

Manufacturing

Some economists have purported the ideas that domestic spending has shifted away from manufactured goods, growing international trade is at most a minuscule reason for the declining manufacturing employment, and the decline in employment is a part of a natural, comparatively advantaged, order involving a rise in demand for skilled workers.

The last point was directly addressed in a previous post, The Skills Crisis and Job Training, "There is little evidence of absolute declines in cognitive or hard skills in the United States or generally poor performance relative to other advanced industrialized countries," as reported by associate professor Michael Handel.

Another relevant question is whether or not this supposed rise in demand for skilled workers was simply the by-product of having more college graduates available for the workforce. It's the chicken or the egg question. Also, even though a country moves toward higher skills and education among more and more of its citizens, does that necessarily mean that the productive use of the workforce also follows in-line by only providing services and offering more "professional" employment opportunities?

No matter how advanced a country might be, every citizen cannot be a lawyer, doctor, or CEO. As I reported in The Skills Crisis and Job Training, Marc Levine finds, "Over the next decade the Bureau of Labor Statistics projects the greatest job growth in occupations requiring a high school education and short-term, on-the-job training."

Manufacturing productivity has been consistently increasing throughout the years, but demand supposedly hasn't kept up. Josh Bivens dissects and dismantles this (and the other claims) idea of decreased demand in his report, Shifting Blame For Manufacturing Job Loss. He finds:

Trade imbalances in manufacturing accounted for 59 percent of the decline in employment.

Demand for manufactured goods as a share of total demand has grown over the past 10 years.

The rising trade deficit in manufactured goods accounts for 58 percent of the decline in manufacturing employment between 1998 and 2003.

The use of contract, part-time, and temporary workers by manufacturing companies also hurts wages and overall employment numbers. A development obviously connected to increased productivity and cost-cutting initiatives at firms (induced by global competition of cheaper labor).

Some also explain the (mythical) decline in domestic spending for manufactured goods with the supposition that goods have become cheaper. But this is a glaringly, sweeping generalization. Which goods? Cheaper for whom? Sure VCRs are relatively inexpensive, but cars are the second largest purchase for most families, and the price of most cars is near the yearly median income of most workers. And, let's not forget that wages have stagnated for the majority of workers since the 1970s.

Dean Baker writes, "At the end of the 1960s, nearly twenty-nine percent of workers in the U.S. were employed in manufacturing...part of the decline of manufacturing is attributable to the decisions of firms to move operations overseas...the U.S. has been running an annual trade deficit in excess of $150 billion for the last several years. If this trade deficit were eliminated it would create over two million additional manufacturing jobs, and increase of almost fifteen percent."

The trade deficit has been accelerated by the high value of the dollar versus other currencies.

"The American dollar had been high through much of the Bretton Woods period, but in 1979 it took off and rose some 60 to 70 percent...Manufacturing thus did not decline as a consequence of natural causes, but was hastened to the edge of the cliff and pushed off by the high dollar," concludes Jeff Madrick. As a share of overall employment in the Midwest, manufacturing has fallen from 29 percent in 1969 to 12 percent in 2007. Declines were pronounced during the Clinton administration because of Robert Rubin's high dollar policy.

Howard Wial and Alec Friedoff, in a report for the Metropolitan Policy Program at the Brookings Institution, found that, "Despite these job loses, manufacturing remains a major driver of the nation's economy and the economy of the Great Lakes region."

Manufacturing represents 20 percent of GDP in Europe, 14 percent in the U.S., 33 percent in China and 18 percent worldwide. David Huether of the National Association of Manufacturers, in a New York Times article by Nelson Schwartz, explains, "Manufacturing makes up two-thirds of U.S. exports and contributed more to GDP growth over the last 20 years than any other sector of the U.S. economy. Our share of global manufacturing output has remained steady at 20 to 23 percent over the past decade."

In a recent posting, Failure Bonuses, I noted that the Economic Policy Institute had found:

Of the 20 richest countries tracked by the U.S. Bureau of Labor Statistics, the United States ranks 17th in hourly pay for production workers in manufacturing.

Of the 16 nations with higher compensation for production workers in manufacturing, the United States ranks behind only Ireland (a nation with a manufacturing workforce less than 2% as large as that of the United States) in terms of “value-added per employee” (a rough measure of productivity).

The combination of relatively low compensation and high productivity means that U.S. manufacturing leads the world in terms of competitiveness of per unit costs of manufacturing output.

If the wages claimed by managerial and non-supervisory labor in the United States were the same as the median of comparable countries, U.S. manufacturing would have a 6.4% cost advantage over major trading partners.

Robert Scott elucidates, "Manufacturing supported 14 million jobs in 2007, about 10.1 percent of total employment...generating $1.6 trillion in GDP in 2006 (12.2 percent of total U.S. GDP)...gross output of $4.5 trillion in 2005, by far the most important sector of the U.S. economy in terms of total output." In Wisconsin, manufacturing generated 20.8 percent of GDP, $47 billion.

Manufacturing is a hugely important industry. It deserves our attention and support. To simply allow it to steadily decline is a failure of national, industrial, economic, and security policy. Manufacturing is an important element of our economy and a source of many well-paying jobs. Manufacturing also allows us, as a nation, to innovate and produce products sought after the world over. Doing nothing and allowing America to become a nation of service-providers leaves our choices to the whims of foreign producers.

After all that has happened since the economic collapse of 2008 (the fault of our "professional" financial service providers - Wall Street), I think it's time we rediscovered production of tangible objects. I'd much rather be helping assembly line workers get back on their feet and securing America's future building and providing things - such as wind turbines and electric cars, rather than seeing my money gambled on the black hole that is Wall Street.

For Further Reading:

If GM Was a Canadian Company It Would Be Asking For Help
Robert Rubin: Coward or Liar

The Bankers' Regime

Thoughts on American Manufacturing Decline and Revitalization

Who's Afraid of a Falling Dollar?

Will Robert Rubin Haunt the Next Democratic White House?

The Skills Crisis and Job Training

The myth of a skills crisis among workers sure has gained steam among municipal leaders, the business community, and even some (so-called) academics. Although, in reality, this phenomenon is more of an urban legend. As Marc Levine [a former employer], professor of history and urban studies at the University of Wisconsin-Milwaukee, reports in a Milwaukee Journal-Sentinel article, “Over the next decade the Bureau of Labor Statistics projects the greatest job growth in occupations requiring high school education and short-term, on-the-job training.” According to the Census Bureau, 80 percent of the City of Milwaukee population has at least a high school education. The total number for the U.S. is 84 percent.

Gordon Lafer, associate professor at the University of Oregon, in his expansive and definitive work on job training, The Job Training Charade, states, “Job training has served primarily as a form of political diversion. At both the federal and local levels of government, the rhetoric of job training has encouraged a discourse about poverty and unemployment which minimizes the public’s expectations of government. If poverty were viewed largely as the result of a shortage of jobs, and the government were held responsible as employer of last resort, scores of mayors and governors would have been thrown out of office in response to the dislocations of the past two decades. By instead promoting a view of poverty as largely rooted in the educational, cultural, and moral failings of poor communities, the assumptions underlying training policy suggest that the government could not be expected to provide more than marginal assistance toward solving this problem.” (212)

The market and the government are doing all they can or are able to do. The heart of the problem is the motivation, laziness, and inherent inabilities of poor people. Or some variation of this is what job training proponents would like us to believe.

As noted in this review of Gordon Lafer’s work, “The commonsense idea that there are plenty of jobs to go around if only the unemployed and the poor had the motivation and the skills to fill them…The number of decently-paid jobs that were available over the last twenty years has never been more than a fraction of the number needed to raise the poor beyond the poverty level…Except for certain professional positions that require specialized and highly controlled education and that compromise a very small portion of the labor market, variables such as gender, age, race, and whether or not workers are unionized, are more important determinants of the levels of employment and wages than are the levels of education.”

David Howell, professor at Milano The New School for Management and Urban Policy, observes, “In short, employers in the 1980s responded to increased competitive pressures by taking a low-road human resource strategy, one aimed above all at reducing current labor costs…In a great many industries, workers learned new skills to work with more advanced production technologies – but their higher productivity was not reflected in higher wages…In the 1980s, higher skills have simply not led to higher wages. In industry after industry, average educational attainment rose while wages fell.”

The disappearance of good-paying jobs has more to do with a decrease in collective bargaining (unionization) and anti-worker public policy initiatives rather than a lack of skills in the workforce.

Michael Handel, associate professor of sociology and Northeastern University, finds, “There is little evidence of absolute declines in cognitive or hard skills in the United States or generally poor performance relative to other advanced industrialized countries." (Annual Review of Sociology, Jan. 2003)

For Further Reading:
Bush’s Call For Job Training: Cruel Joke on Unemployed
Is There A Skills Crisis?
Worker Skills and Job Requirements: Is There a Mismatch?