Thursday, February 02, 2006

Heard the One About the "Labor Shortage?"

Yeah, the National Association of Outsourcers Manufacturers has come up with a study by no less than Deloitte, Touche, telling us that there is a "critical" shortage of "skilled labor" in the USA.

That means that NAM folks have to open up factories in Red China and India, of course.

It's long been known that when one pays for a study, one gets the results one wants; but even this study couldn't paper over a couple of really significant internal contradictions, as pointed out by Alan Tonelson of American Economic Alert.

Try this:

"...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?

This deficiency in training has been noted by anyone who has spent more than 10 minutes in any HR-related area of endeavor--and this has been going on for 5 to 10 years.

Or this:

"Just as 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.

As to the expertise of Ms. Chao, Sec'y/Labor (and wife of Mitch McConnell, influential Senator:)

[Her own] Department’s latest projections of national workforce trends anticipate[s] 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.

Ms. Chao should learn to read her own Department's research before endorsing NAM positions.

Not surprisingly, it's the smaller firms who are squeezed the most:

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.

This observation comports precisely with real-world experiences of people I know, too.

Deloitte/Touche's study contradicts fundamental economic theory; it contradicts the experience of most "real people;" and it points out that a very large segment of industry simply refuses to spend even 3% of its payroll on training.

But these days, you can buy a study which tells you anything you want to hear.

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