Guest Column

Skill shortage likely due to lack of a decent wage

May 16, 2014
| By Lou Glazer |
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There is a lot of skepticism about a skill shortage in technical occupations — particularly in manufacturing — because employers seem to be doing the opposite of what they should to respond to shortages. Mainly, they are not raising wages and benefits.

We all learned in introductory economics that price is the market mechanism for bringing supply and demand to equilibrium. When there is an excess of demand compared to supply, prices go up to attract more supply. In this case, where the claim is that there are not enough workers to take available jobs in manufacturing and other trades, the market response should be higher wages and better benefits.

MIT’s Paul Osterman is co-author of an Economic Policy Institute report entitled “Why Claims of Skills Shortages in Manufacturing Are Overblown.” The study is based on a national survey of manufacturers.

In a written statement detailing the report, Osterman says: “The claim that a shortage of skilled workers is exacerbating inequality and high unemployment is a stock talking point, but it’s not supported by the data. Similar to the broader U.S. economy, the manufacturing industry is experiencing a shortfall of demand for workers; as such, available workers far outnumber job openings.”

In an interview with Manufacturing &Technology News, Osterman continued: “Elementary economics says that if there is a shortfall of a factor of something that you need, you raise the price to get it. But you don’t see that.”

In an article on a Boston Consulting Group study on the same topic, The New York Times wrote: “In a recent study, the Boston Consulting Group noted that, outside a few small cities that rely on the oil industry, there weren’t many places where manufacturing wages were going up and employers still couldn’t find enough workers.”

The Boston Consulting Group asserted: “Trying to hire high-skilled workers at rock-bottom rates is not a skills gap.” The study’s conclusion, however, was even scarier. “Many skilled workers have simply chosen to apply their skills elsewhere rather than work for less, and few young people choose to invest in training for jobs that pay fast-food wages.”

The pattern is the same in West Michigan. The Right Place just released a regional economic profile by Economic Modeling Specialists International. They found that from 2000 to 2012, wages in production occupations were flat. Median hourly earnings in the Grand Rapids CSA were $15.41 in both years. (The pattern was the same in other blue-collar occupations where labor shortages have been reported: installation, maintenance and repair, and construction and extraction.)

Add to lower-wage jobs the fact that manufacturing (and construction) skilled trades have seen mass layoffs for years, and you can see where this is going. It’s hard to attract workers to occupations when fathers and older brothers in those occupations have been laid off repeatedly or have lost a job and never found another in the occupation.

It is likely — mainly because of retirements — that there will be an unmet demand in the future for skilled factory work. So what is the answer? In some part it is about training, but it is far more about employers offering higher paying and more attractive jobs.

Lou Glazer is president of Michigan Future Inc.

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