Thursday, October 26, 2006

Do labor shortages indicate a strong labor market?

Sorry I haven’t blogged in so long. Lack of ideas, mostly. Plus I’m busy not having ideas on my day job.

Today I have an idea. A lot of anecdotal evidence seems to suggest that labor shortages are a problem in the US today. Yet statistics – note, particularly, help wanted advertising, which is near a 50-year low – show little evidence of strong labor demand. Is this inconsistent?

I don’t think so. If different kinds of labor are complements in production, then shortages of certain kinds of labor could actually make the overall labor market weaker. For example, if individuals with a lot of different skills are required to make a product, then a shortage of one of those skills will depress demand for all the other skills. If chefs are in short supply, the demand for waiters will go down. Is this the kind of thing that’s happening in the US today? It seems plausible to me that shortages of certain technical and managerial skills could be depressing overall labor demand. Just an idea.

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15 Comments:

Anonymous yc said...

This happened in the town I live. A few months ago, a plant opened and needed 500 workers. Only 300 were filled. In that month, the unemployment rate was 5.2% - this rate didn't sound like severe labor shortage, not to mention that there were two firms moved out of town a couple of years ago, one to Mexico, the other to Brazil.

It turned out that there were applicants for the rest of the openings, but they failed to pass either the background check or drug-free test.

Sorry that my comment does not follow your reasoning. But at least it is one reason for the shortage. I hope it is not common.

Thu Oct 26, 11:43:00 PM EDT  
Blogger spencerengland said...

Yes, it always pays to look for bottlenecks.

But it is hard to come up with any ideas where we would have significant labor bottlenecks in today's labor markets.

With employment in the technology segment still close to 20% where it
was at the peak it is clearly not in this segment.

When I scan the average hourly earnings data by segment I do not see any one area where wage gains are accelerating sharply, impling that shortages are not leading to higher wages in one area.

Obviously, something made you think of this. Are you seeing some evidence of bottlenecks in some area?

Fri Oct 27, 10:12:00 AM EDT  
Anonymous Bruce Wilder said...

At the risk of point out the obvious, the current international financial landscape means that all manufacturing investment by American companies tends to be directed to China.

Any company considering building a next generation plant, builds it in China.

The only exceptions are cases in which a particular resource is NOT available in China. There are a variety of esoteric production processes and products readily available in the U.S., but not available in China.

The economies associated with investing in manufacturing plant in China are actually fairly modest, because of deficiencies in Chinese infrastructure and the lack of depth in Chinese manufacturing, which leaves China without some of these esoteric processes/skills.

Brad DeLong quoted a Louis Uchitelle N.Y. Times story that well illustrated the problem a while back.

Long-term interest rates are depressed by the international flow of funds, but returns on investment are depressed even more, by the combination of exchange rates and a determination of a reactionary Republican Administration to extract as much income and wealth from the poor and middle class as possible.

Fri Oct 27, 02:17:00 PM EDT  
Anonymous Lord said...

The only shortages I see are in low level and entry level work because the minimum wage has not been raised for so long no one is willing to work for it anymore and many would rather just drop out of the labor force. This could be creating a lack of jobs for higher level managerial workers that then remain out of the labor force, but most managerial workers aren't much more than minimum wage either and frequently less since they aren't hourly. Low pay is driving people out of the labor force and lowering the unemployment rate and lack of increase in real wages is keeping them there.

Fri Oct 27, 02:55:00 PM EDT  
Anonymous Anonymous said...

"A lot of anecdotal evidence seems to suggest that labor shortages are a problem in the US today."

knzn, or anyone, where is the anecdotal evidence?
No, really. In which sectors?

Sat Oct 28, 03:38:00 PM EDT  
Anonymous Bill Conerly said...

I meet a lot of different busienss leaders as I go around the country giving speeches. There really are "shortages" in the labor market. Not all across the country--Michigan and other midwest states still have plenty of people looking for work. But in most of the rest of the country, business people tell me it's hard to hire.

Key industries where it's hard to hire: trucking, health care, financial services. I was hearing about construction labor shortages, but that's probably turning around now. I've spoken to several business managers who have told me that if a person with minimal qualifications walked in to apply for a job, they'd hire him or her on the spot.

Does that lead to weak markets for compelmentary labor? Theoretically yes, and it's probably true in some cases where the need is a very specific technical skill that's not quickly learned. But for many jobs, companies are taking a gamble with people they otherwise would not hire. This means the jobs are substitutes, rather than complements.

As for wages, I think that business managers are nervous about the commitment implicit in a higher rate of pay. The would rather risk underproduction at the peak than overly high salary expense at the next trough.

Sat Oct 28, 05:07:00 PM EDT  
Blogger knzn said...

The industries that Bill suggests are consistent with what I’ve been hearing. I would argue that those industries are complementary with other industries. For example, if you can’t get your goods delivered (trucking), then there isn’t much point in increasing production, even if labor in your own industry is plentiful. I’m not sure how much substitutability of labor there is between industries, maybe more in the long run than in the short run. (At least you can’t hire unemployed auto workers to be nurses or financial analysts.)

Mon Oct 30, 12:50:00 AM EST  
Anonymous Lord said...

Trucking has long hours and relatively low pay, but then it doesn't take much skill. Why would they not be willing to increase pay? Worried about competition from the post office? ;-)

Healthcare and finance require some education and skill and can, although not necessarily do, pay better, but where is the evidence of pay rising in these areas? If it isn't rising, then most likely their is no shortage. Accounting is the only area I know of rising.

Mon Oct 30, 05:43:00 PM EST  
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