Tuesday, March 29, 2011

Nonsense about Worker Shortages

I listened to a piece on CBC radio yesterday about a company claiming that there is a shortage of workers qualified to perform a particular task. The company wants to work with governments and universities to fix the situation. I don’t know much about this particular purported shortage, but such claims about worker shortages are almost always nonsense.

During the tech boom we heard similar complaints from Nortel and other high-tech companies. They claimed that there just weren’t enough engineers and programmers. They called for universities to churn out more engineering and computer science graduates.

We live in a free market society. If a business tries to hire workers and can’t find the number they need, the problem is not that there is a worker shortage. The problem is that they are not offering enough money. Worker salaries are driven by supply and demand.

I am a competent programmer, if a little rusty. I haven’t worked as a programmer for many years because what I do instead pays more (and I like it more). If programmer salaries were to rise by enough, I might choose to go back to programming.

Similarly, for almost all types of jobs there are people who could fill the jobs but choose not to because they make more money doing something else. Attracting more candidates is a simple matter of raising the salary offered.

Of course, companies prefer not to do this. They would rather have a glut of highly skilled workers begging at their door. In this case they could lower the salaries they offer.

Notice how this supply and demand view casts the call for more graduates in a different light:

What they say: We need universities to produce more students with degree X to deal with the shortage of qualified candidates.

A more accurate version: We need universities to produce more students with degree X so that we don’t have to pay our workers more and might even be able to reduce salaries.

Notice how the second version generates much less sympathy.

Of course, decisions about the types of programs universities encourage students to take should be driven by supply and demand considerations. Students looking to make a living with their degrees should be looking at available salaries and forces that may increase or decrease these salaries by the time they graduate.

Ironically, if an industry is very successful at encouraging students into the programs the industry needs, it makes these programs less valuable to the students. This is because they can expect lower salaries when their large graduating classes form a glut of workers.

18 comments:

  1. We hear this all the time in Alberta too, except here it's from the oil & gas sector. Apparently there aren't enough high school educated men out there who want to lift heavy things for a living.

    Meanwhile, graduates from University and College end up in entry level positions while companies force out the higher paid Boomer's.

    Of course they need more workers, it takes 2-3 new employees to do the same job that many experienced employees could handle themselves.

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  2. Maybe we need to hire more short order cooks to work in our test groups? (actual case in Nortel)

    Mars needs more programmers!!!

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  3. @Echo: Yes, the echo generation is starting to graduate and offer to work much cheaper than boomers. I guess there's nothing left to do but retire and lobby for more CPP :-)

    @Big Cajun Man: I remember the days at Nortel when they hired anyone with a pulse. After the tech collapse, many people seemed genuinely surprised that the unskilled workers among those laid off from Nortel couldn't find other $100k/year jobs.

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  4. Great post. I've thought the exact same thing.

    If your business isn't profitable enough to pay market wages, then maybe it's time for a new business?

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  5. @Mike: In that case it's either time to start a new business or time to start whining about worker shortages :-)

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  6. What I hear from that is: "We want someone else to take on the cost & time to train our workers - we don't care about them enough & don't plan to keep them long enough for it to pay off."

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  7. @Mark: That's an interesting observation. Businesses have the option to hire people who don't currently have the needed skills but can be trained.

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  8. From the employer's perspective, there is no downside to demanding more graduates who can do X. Like you say, more supply depresses prices and if demand (jobs) dry up, employers have no obligation to hire all those new graduates. Is there anyone who wouldn't want to have a bet where heads I win and tails you lose?

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  9. @CC: Agreed. Companies' motivation for doing this is clear. I just want readers to see it for what it really is: self-interest rather than public interest.

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  10. Seems like immigration is another solution, as is outsourcing. I don't see these as good or bad, just part of economic forces.

    I personally think immigration has made my city more interesting, more vibrant. The company that hires these immigrants operates a hog "disassembly" plant. They claim they can't fill these jobs with Canadians, and they probably don't pay enough to attract Canadian workers. I could well imagine that immigrants make better employees, though, since they appreciate the opportunity more.

    I was thinking the same thing as a lot of the commenters regarding Nortel. They called for more skilled workers a few short years before flooding the market with those same workers by laying them off. Thanks to Wall Street shenanigans, there are now thousands of formerly well-paid bankers available for hire too. The free market can be disturbing.

    gene

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  11. Respectfully, speaking as an employer, you simplify the issue. There are industries offering stupid money for mid-level talent and coming up empty (my law friends at big law are desperate for mid-level talent and throwing stupid money around with no luck).

    The employer-employee tension always exists. Let's not put a positive or negative spin on it. It is what it is. We cannot claim the virtues of capitalism only when it works our way. Capitalism is a double edged sword.

    Where I agree with you is that expectations for the entry and senior level talent is simply unrealistic. You cannot have ready made talent or senior talent and not pay for it.

    It is the middle (think late 30's/early 40's managerial talent) where the squeeze is. We do not have enough of those people (simple demographics), we set up too many barriers to immigrant workers and it is not the wage which is crippling it is the employer remittances to government which are a squeeze on cash flow (you want to revive the economy? Declare a tax holiday on employer side EI/CPP).

    The lesson to me is not that there is a worker shortage but don't go working for a company that complains to the media about it. Enlightened employers do not necessarily look for skill. They look for attitude, cultural fit, energy, devotion to the mission of the company (which goes above and beyond making money for good employers). If you have those in abundance, you can teach skill since most HR studies indicate salary is not a high priority for engaged employees (...and those employers do not have time to speak to the media, they are busy pursuing their mission).

    Just my 2 cents from the trenches.

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  12. @Gene: Immigration definitely affects worker supply and demand. Overall, I think Canada has benefited greatly from our fairly high level of immigration.

    @Thicken: It wasn't my intention to favour the employer or employee with my remarks, although it happened to be an employer complaining in a way that sparked my post. Market forces have caused large swings in the amount of money companies have been willing to pay me over the years. Some employees rail against employers who give low raises when market conditions call for low raises. I find this pointless. I seek pay that is consistent with my skills and current market conditions.

    Similarly, I have little patience for employers railing about worker shortages. It is better to face reality and either pay market rates or find a way to run the business without the workers whose pay has risen. Another longer-term strategy is to talk universities into turning out more graduates or seek to lower barriers for immigrants. However, I think that pointing to high salaries is likely to be more effective with universities than talking about shortages. But, who knows what kind of language works best when asking governments or professional organizations to take down barriers for immigrants?

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  13. I'm in favour of any line of reasoning that ends with programmers earning more money.

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  14. There is no worker shortage in Canada. Seventy three percent of income tax filers reported income of less than fifty thousand in 2009. In my wife's recent job search, a receptionist position paying a living wage routinely attracted over 200 applications. Employers have destroyed company loyalty so they are unwilling to invest in training and promoting from within, hence headhunting at the midlevel. A properly regulated guest worker program (don't hand out citizenship) would solve any unskilled labour shortage issues

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  15. @Keith: I'm sure that conditions differ depending on the type of job. Perhaps in most cases right now there are many applicants for each available job, but for certain specific jobs, it is employers who are chasing a scarce resource.

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  16. I have a chemical engineering degree and I am not using it at all. I'm in a completely different job that pays more and has fewer responsibilities. The capitalist corporations I used to work for demanded long hours, stress, and flattened the pay when the recession started. They forced the experienced engineers out and started replacing them with recent inexperienced graduates lower wages. Engineering depts across the US are gutted out. There's nothing to learn and the jobs are very unsatisfying. Anyone who was smart enough to obtain the kind of skills these companies are looking for are smart enough not to want to work in that kind of environment.

    I'm getting ready to start my own business. Way more risk involved, but at least I'm calling the shots (instead of some pinhead Dilbert manager with no technical degree/skills to speak of).

    Just my two cents. Until the profession starts paying more and provides a satifying, fulfilling career again, I'm staying out.

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  17. @Anonymous: It's unfortunate for you that work in your field went in this direction, but it does serve as a good example of my point. To someone trying to measure whether there is a worker shortage in Chemical Engineering, you don't exist. However, if working conditions improved and salaries rose sufficiently, you might be enticed away from your own business back to your former employer (or some other similar business).

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  18. Worker shortage??? hogwash, after working in 3 professional fields I learned one thing about employers, they want the employer next door to take on the inexperienced grad teach them and groom them, then the fly in and try to take the trained grad and swoop them away. Most employers are not willing to train or put any effort in grooming a young buck, hence why we have so many Uni grads working at timmies. Nobody is born with any skills, so we all need training of some sort but many employers, and I gather it’s the ones doing the complaining who fail to put in their share.

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