Asymmetrical Information - Megan McArdle

11.15.12

Why Can't Companies Find the Workers they Need?

Couldn't they just do more training and pay a higher wage?

Kevin Drum is not pleased with companies who complain that they can't get good workers for jobs that pay . . . $12 an hour.  

Companies like this all insist that American manufacturing is too competitive with anyone in the world. But look. If you can't afford to train workers, but you also can't afford to pay the wages it takes to attract experienced workers, then by definition that means you aren't competitive. The only time you're competitive is when a recession has made people desperate and the government helps you out with training. And who knows? Maybe this kind of training is a good use of taxpayer money. Wall Street certainly benefits from the training provided by state universities. But it's still a subsidy no matter how you slice it. Without it, apparently, American manufacturing just isn't very competitive.  

There is, of course, some truth to this: it's hard to compete with Chinese wages.  On the other hand, it's not as hard as it used to be; I've talked to a fair number of company heads who are taking work back from China because they're closer to the customer, they deliver on time, the quality is more consistent, and they don't steal your intellectual property.  

But the way they take work back from China is almost always to upskill.  They have a heavy investment in high-end machinery that's basically run by engineers, or para-engineers with several years of calculus and programming classes on their resume.  Those folks are hard to find because there aren't that many people who can master calculus and programming languages; paying a higher wage will not magically produce more American citizens who can pass calculus.  Especially since among families with good math skills, there is an increasing social stigma against manufacturing work.

The jobs that people are thinking about when they talk about "good manufacturing jobs"--the kind where you take a C-student straight out of high school, stick him next to a machine, and the machine makes him productive enough to justify $25 an hour--have gone away, lost not just to China, but to a machine who doesn't need to sleep, eat, or take a sick day when hunting season starts.  

Having seen an auto assembly line, I have very mixed feelings about that.  It's great that folks without particular aptitude for, or interest in, academics could make a very solid middle class wage.  On the other hand, those jobs are amazingly terrible to actually do.  Anyone who gets angry about how much money autoworkers extracted from the Big Three should try spending eight hours a day tightening the same four bolts or stacking a single auto part.  As should anyone who wishes that we had all those great jobs back.  

But I digress.  In this economic environment, it doesn't make sense for an employer to sit down and try to put an entry level worker through two years of calculus and machine language.  The training required is too expensive and intensive.  

It isn't just that that isn't what they're good at; it's that most of their candidates are going to find that they are not cut out for these higher end jobs--a process that currently happens in community college training programs, where many of the students flunk the math or otherwise wash out.  If employers take over this training, they'll end up spending quite a bit of money training future non-employees who just aren't cut out for a high-end manufacturing job.  

. . . along with a lot of future non-employees who are.  Anyone who makes it through your training program will now have a valuable skill they can take anywhere.  Another employer can probably pay them more than you can, since they didn't have to, y'know, pay for all that expensive training.  This is why apprenticeships used to essentially involve signing on for seven years of slavery; it allowed the employer to enjoy some of the benefits of the investment in training.

In the modern world, where that sort of thing is illegal, the employee is the only one who can permanently appropriate the benefits of the human capital investment.  Economic logic tells us that therefore, they're the ones who should pay the cost, and take the risk, of acquiring it.  Unions used to do some of this, but for various reasons--including the fact that it's harder to collectively bargain for the kinds of flexible, multi-disciplinary jobs that modern factories now require--they're not doing much of it any more. So it's either the worker or the government.  If we think that we all benefit from a more highly skilled workforce, we're going to have to pay for it.  

We could decline, and probably we wouldn't lose that much by it; the wages are high enough that it would make sense for the workers who have the ability and the interest to take the training.  (Yes, $12 an hour is not a princely sum, but for a straight-out-of-school worker in a low-cost area like Reno, it's not all that bad, either; there are entry level journalists in major urban areas who don't make much more than that.) 

But those workers would probably be deeper in debt, which we think is bad for all sorts of reasons.  So instead, we subsidize their training.  You can quarrel with that decision in all sorts of ways, but it is the worker, not the company, who gets most of the benefit.