Is There a Shortage of Skilled Labor? Point, Counterpoint

Companies complain about a shortage of labor. Is the complaint real or imaginary?

Shortage of Labor Claims

Record Job Openings

I discussed record job openings in Job Openings Decline by 284,000 But Still Near Record Highs

In the above link I discussed fictitious measures.

Case for Fictitious Numbers

Posting job openings on the internet is cheap. This does not mean companies are actually looking to hire.

  • Some companies want to investigate resumes just see what's out there.
  • Some companies prefer lower-pay foreign workers via the H1B Visa process. They post jobs with more qualifications than they really need to make a case no domestic workers applied.
  • For low-pay high-turnover jobs, companies keep many jobs open because they expect quits. There were 3.6 million quits in September.

I made the claim "If there really was a shortage of 7 million workers, wages would be soaring."

Reader Comments

  • The Realist commented: "No matter how you try to explain it away, there is a shortage of skilled workers. It may be overstated, statistically speaking, but there is still a shortage."
  • Pater Tenebrarum at the Acting Man blog replied "It should be noted though that there is a skill mismatch problem it is a remnant of the malinvestment orgy attending the previous cyclical bubble iteration."

Who is Right

All of us, in different ways.

The Realist is correct. There is a shortage, but an overstated one.

If there really was a shortage of 7 million workers, I stand by my claim that wages would be soaring.

Pater Tenebrarum made the most critical point. Let me rephrase it.

There's Always a Perceived Shortage at the Top

Think back to 2006. Supposedly there was a shortage of Florida condos.

Alleged "Proof" was easy to find. People were lining up around the corner to enter lotteries for the right to buy a condo.

More recently, in Australia, speculative demand from China made it look like there was a shortage of houses down under. That bubble recently died and has a long way to go before it's finished.

This time, rather than creating another enormous housing bubble, the Fed revived the junk bond market. Zombie corporations make up 15% of S&P corporations.

Cheap money finances many speculative endeavors.

Is there a shortage of skilled fracking workers? Probably, but how many of those drillers survive only because they can roll over debt?

Is there a shortage of truck drivers? Again, that's likely. But on top of boomer demographics (millennials don't want to drive trucks), we have an over-expansion of all kinds of franchises thanks to cheap credit.

As soon as the bubbles pop, there will not be any labor shortages, real or imaginary.

Also see Rise of the Zombie Corporations: Percentage Keeps Increasing, BIS Explains Why.

Mike "Mish" Shedlock

Comments (40)
No. 1-20
jivefive99
jivefive99

The model for the last 40 years has been that those with lots of money to invest (millions for Pizza Hut franchises comes to mind) did so either with zero interest money or money from some source, and then the dollars rolled in. But this model relied on paying workers nothing to ensure millionaires stayed millionaires. Working for dismal wages and no benefits is so ingrained in the American "gig" economy that workers dont even expect anything better. Offer REAL jobs with REAL wages and benefits, likely to the detriment of the millionaire owners (poor babies), and we'll see how many "available" workers come out of the woodwork.

Kinuachdrach
Kinuachdrach

That is a strange graph. From 2002 to 2015, the number of hires exceeded the number of job openings by 10-30%, continuously. That creates questions about definitions and accuracy of data. And that maybe suggests the reversal to an excess of openings over hires post-2015 should be taken with a grain of salt.

Eighthman
Eighthman

Many jobs at utility companies and colleges are filled only by crony hiring. The ads for jobs are simply a requirement and fake. In applying, this was admitted to me.

JL1
JL1

There is NO shortage of workers. The issue is just that companies try to pay low wages and complain about shortage of Labor instead of increasing wages until they find all the workers they need.

The illegal immigration of tens of millions illegal immigrants has been used to lower wages in many jobs and this illegal immigration has to be stopped and those jobs have to be given to African-Americans and Hispanic-Americans and all Americans and companies need to pay them good wages. All current illegal immigrants need to be sent back home.

The market needs to allowed to work so companies increase the wages since too high mandatory minimum wages like 15 dollars an hour lead to less productive workers not finding employment at all. However federal minimum wage should be set at about 9-10 dollars an hour.

There might be some shortages of skilled labor and this is due to mal-investment like mal-education where students study worthless degrees and rack up huge student debts and then find no work in their field of study and end up making lattes at Starbucks with a 100k-200k student debt destroying any chances for them to start a family or save money to start a business etc.

This mal-education should be stopped by making student debts dischargeable in bankruptcy and removing all federal guarantees from student debt. This would cause all students studying usable degrees where they can find and most likely find a well paid job in the field they studied still getting student loans but those studying worthless degrees NOT getting student loans so colleges and universities have to remove places from those degree programs and charge less for those degrees and increase amount of students in those degrees where students find well paid jobs after getting their degree.

However companies like Facebook and Google and Microsoft have been abusing H1B program for years to get workers they can pay less than they would have to pay to get comparably educated Americans to do those jobs.

There should be a minimum wage of 200,000 dollars for H1B's so companies could NOT use H1B's to find lower wage workers and they would have to employ Americans and pay well-educated Americans in those fields more and only those H1B's who are genuinely brilliant should be allowed to USA.

Unless a H1B is getting paid 200k then he is not really brilliant and the companies are just using him to pay less in wages and thereby increase the profit margin of the company and increase the stock price and executive compensation for the company.

The saddest example of H1b abuse was Disney forcing their IT department to train low wage Indian H1b workers that would replace most of American IT workers at Disney. Train Indian H1B workers brought in to replace you to get a few more months where you keep your job before being fired by greedy Disney.

Disney should have been boycotted by all Americans for that blatant H1B abuse.

JL1
JL1

From Financial Times today:

1. "US student loan debt is ballooning at a dangerous rate. Total debt topped $1.5tn this year and studies suggest that nearly 40 per cent of borrowers are likely to default on their loans by 2023."

1500 billion is quite a lot of student debt.

2. " One recent survey found that 43 per cent of college grads are underemployed. "

Study worthless degrees and you will have trouble finding work in the field you studied.

3. "There are plenty of MBAs who can read a balance sheet but have neither operational nor soft skills. Four-year business administration graduates are settling for low wage gigs, while $20-an-hour manufacturing jobs go unfilled because employers can’t find anyone with vocational training. "

There should be more vocational training together with companies.

4. " Walmart Academy has trained thousands of workers, including in basic skills they should have learnt in high schools."

So many high schools are worthless as well.

5. "For some middle-level positions in 2015, two-thirds of employers were asking for a college degree, even though only 16 per cent of people working successfully in similar positions had them."

So many applicants for jobs that some companies are trying to cut through the avalanche of applications by credentialism aka requiring degrees for jobs where one does not really require a degree.

Read the rest:

JonSellers
JonSellers

"If there really was a shortage of 7 million workers, I stand by my claim that wages would be soaring."

I disagree strongly Mish. Most modern companies set prices to what they think the market will bear to maximize their profits. In most non-manufacturing industries, labor is usually a high percentage of costs. So increasing wages is probably the absolute worst thing that can happen to a company.

That's because wages are sticky, when they go up, it is almost impossible to bring them back down. And the last place you want to be stuck in a downturn is having to cut your prices to maintain market share with wages set at the top of the market.

Today, most companies have subscriptions to services that provide local wage information. So if I have an open position, I look up what that the position pays in the local economy, and I never set my pay higher than that. That helps local employers to collude to keep wage prices in line.

Secondly, you should always advertise your positions to get a bank of resumes to quickly bring people in if someone leaves. So there are definitely less open positions than their appears. But bringing in replacements quickly reminds the existing staff that no one is irreplaceable.

Finally, I can't stress enough the importance of software automation. The more organizational intelligence you can put into software, means the less human intelligence you need in the business. And stupid is cheap.

Six000mileyear
Six000mileyear

This talk of skilled labor shortage reminds me of the year 2000 before the DotCom bubble burst. In May of 2000 I had 4 job offers in 1 week with less than 3 years experience. One of those jobs (permanent) paid 20% more than I was making, plus a 10% hiring bonus. It meant moving, but it was worth it for professional growth.

Webej
Webej

What's the problem? It's a free market. These complaints by employers are perennial. Have they done anything about acquiring or training the right personnel to match their changing needs and growth prospects, or do they simply expect there to be ready to use unemployed candidates with just the right mix of skills and experience at no extra cost? Employers who do not invest in their personnel will always have trouble and complain that the market is not supplying them with the right personnel at the right price, and that it is the fault of government and educational policies, and the poor attitudes of people in the labor force. But that is not how markets work over time. You don't get to have first access to cheap perfect tomatoes just by showing up. You either need to pay more, travel further, or plan ahead and make commitments. Optimizing price, flexibility, and future commitments is what the market is all about. Stop complaining and pretending it's somebody else's fault.

Realist
Realist

You can see the skilled labor shortage all over the world, not just in the US. To see it in the US, just take a look at local newspaper stories describing the issue. Here are just 3 of many local stories; if you look you can find many, many more:

Arizona Daily Star: Sept 22, 2018; discusses labor shortages, particularly in construction

Charlotte Observer: Sept 4, 2018; discusses various business in Charlotte and how the lack of workers is holding them back

Dallas News: discusses how tightening immigration is making the critical labor shortage worse

Realist
Realist

You can see the shortages in industry publications. Here are just 3 of scores of such articles:

Business Insider: July 7, 2018; discusses how wages will eventually rise due to labor shortages

Industry Insider: July 12, 2018; discusses 5 areas with critical labor shortages- construction, retail, accommodation and food services, manufacturing, health care and social assistance

Marketwatch: July 19, 2018; discusses how the labor shortage is affecting firms

Realist
Realist

Often the article refers to a specific worker shortage at a single plant:

CFO.com: Nov 7, 2018: discusses labor shortages at Foxconn plant in Wisconsin

Realist
Realist

You can find stories about the global shortage of skilled workers:

Aethon: discusses how the skilled labor shortage is global

And on and on:

Valuewalk.com: April 3, 2018; discusses labor shortage getting worse as boomers retire and how this slows economic growth

Sputnik International: July 6, 2018; discusses critical labor shortages

Motley Fool: Sept 19, 2018; discusses what companies can do about the current labour shortage

To deny that there is a shortage of skilled workers is to deny reality.

Realist
Realist

Why is there a shortage of skilled workers? Several reasons which I will outline below:

  1. For the last 300 years the job market has been constantly changing, primarily due to human ingenuity and creativity. We use tractors instead of a horse drawn plough; backhoes instead of hundreds of people with shovels, etc. Every year a high percentage of new jobs created did not even exist 10 years ago. These new jobs require new skills and education. Society is struggling to keep up. As the pace of change keeps increasing, we are falling farther behind in “fitting” yesterday’s workers into today’s jobs.

  2. Demographics: most industrialized countries have a generation of “boomers”; skilled workers in their 50s and 60s who are now retiring. Although many of these skilled workers are not skilled in the newest jobs they still have important skills which we are not replacing fast enough: tool and die, welders, oil field workers, construction, truck drivers etc.

  3. Economic growth: 9 years of steady growth has sucked up almost all available skilled workers. If the economy tanks, then of course, the demand for skilled workers will fall

  4. Restrictive immigration: Many of America’s retiring skilled boomers were immigrants (mostly from Europe). American businesses have always resorted to immigration to fill the gaps that local workers could not fill. With the immigration taps being turned down, there is less access to skilled workers from other countries.

Why are wages not soaring?

  1. Cost/benefit analysis: We live in a competitive world. If wages go up too quickly, alternatives are found. Giant trucks ply open pit mines and oil sands operations. The drivers of these behemoth trucks pulled in salaries of $100-$200K. Now they are mostly automated because it is cheaper. Give a fast food worker $15/hr and suddenly touch screen kiosks appear where you can order your food. Good old human ingenuity, and it is repeated millions of times each year. This helps keep wages from soaring.
mpowerOR
mpowerOR

I call bullshit on "skilled" labor shortage.

You can't claim a "skilled" labor shortage and then rattle-off industries like 'retail', 'food service', 'accommodation' & 'social services' as examples... gimme a break. NONE of those are "skill" industries... in fact, the reason those sectors are short is exactly because those are ENTRY LEVEL LOW PAY UNSKILLED NO-ADVANCEMENT jobs. Try working one of these jobs in an american city or suburb... rent+commute wipes out 80% of the paycheck, so yeah, there's a shortage of slaves... go figure.

Duh.

mpowerOR
mpowerOR

Furthermore... every job I've applied for in the past 10 years has has AT LEAST 450 other applicants... labor shortage? Hardly.

Our UE rate looks low because we structurally roll the L-T unemployed out of the equation. Add those L-T UE & under-employed folks back into the UE numbers and the UE rate would be 15-20% EASILY.

mpowerOR
mpowerOR

and another point...

where are these companies located? dollars-to-donuts the companies complaining about labor shortages are in the HIGHEST COST cities in the US. Rational people are FLEEING those high cost regions, so yeah, maybe locate your business someplace affordable... you'll find PLENTY of applicants.

This shit happens to me ALL THE TIME. Underwhelming offers from zero-loyalty corps. who insist that I relocate to SF or LA or Seattle. No, thank you. They couldn't pay me enough to live/work in those cities.

The only shortage is common sense in the executive suite... they can afford to live anywhere, but the people on their payroll? Not even close. It's laughable.

HAL9000
HAL9000

There is the eternally short-staffed skilled labor of us air traffic controllers...at least at N90. Who wants Long Island taxes? LOL.

Casual_Observer
Casual_Observer

Agree regarding bond market bubble causing this cycle. WeWork and others are laddering bonds to keep the game going. The dominoes will fall worse than last time because we will see how much of this growth is also debt induced.

Ping
Ping

Depends on your definition of 'skilled'. You'd think that fast food or retail is not skilled labor until you've come across the economy where I'm currently living. Entry level workers walk out of high school into good paying factory jobs. This makes a shortage of 'skilled' workers because all that is left are people who were just released from prison, people who don't care (likely working at Taco Bell because they like the food, not because they need a pay check) and temp workers who cannot make it in a economy like 'that' for some reason of another. The shortage is so bad that they have stopped drug testing. From a fast food manager perspective 'coming to work' is considered a skill. Now guess how the media reports it?

Ted R
Ted R

In the coalfields there is a shortage of skilled labor simply because most applicants can't pass a drug screen. Blame it on massive drug use in the Appalachian region.