Monday, November 26, 2012

The phony skills gap

Adam Davidson's 20 November 2012 piece, "Skills Don't Pay the Bills", debunks the myth, promulgated by both major parties in the recent presidential race, of a "skills gap".
“It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.
The problem is that manufacturers, behaving with complete economic rationality, have peered into the near future of their industries, and they don't see higher wages (above $18 an hour, according to the article) allowing them to remain economically competitive.

During the campaign it was good rhetoric to promise job training for displaced manufacturing workers, since we all assumed that if these workers had the new skills required, they'd happily fill the hundreds of thousands of job openings about which we kept hearing. The reality, though, is that even with retraining, most of these workers are not going to rush to take positions that start at $10 an hour, which is in the neighborhood of what some workers make at fast-food outlets.

Last month I wrote about the trouble that part-time retail and hospitality workers have making ends meet. As a practical matter, employers are taking advantage of the fact that they can attract enough workers paying ridiculously low wages. Moreover, if you accept the wisdom of the free market, there's nothing wrong with that. In a free market, the employer has no moral obligation to ensure its workers can sustain body and soul on the wages it pays.

And yet, I spotted a flaw in the grand logic of the free market:

If you look beyond the tip of your nose, though, a bigger question presents itself. Is the U.S. economy able to provide enough jobs that pay livable wages to support a robust consumer sector?

If enough people are working at jobs that don't pay them enough to cover their cost of living, that means these people can't be good consumers, right? What happens to the U.S. economy then? Hell, what happens to the United States as a whole?

(By the way, I'm aware that that's not a moral argument, either. For the sake of this discussion, I'm staying within the parameters of the free market.)

I'm not the only one who has spotted this obvious shortcoming in our economy, of course. From Davidson's 28 November piece:

Manufacturers, who face increasing competition from low-wage countries, feel they can’t afford to pay higher wages. Potential workers choose more promising career paths. “It’s individually rational,” says Howard Wial, an economist at the Brookings Institution who specializes in manufacturing employment. “But it’s not socially optimal.”
Not socially optimal, indeed.

It's worth noting that the oft-cited father of the free market, Adam Smith, did not believe we should surrender ourselves completely to it. I wrote about the modern misunderstanding of Smith's "invisible hand" earlier this month.

You could argue that the confluence of these pieces shows that the New York Times' editors are conspiring to undermine our confidence in the remarkable power of the free market — but you wouldn't convince me. That these articles were published in the last month or two simply means that we're finally coming to understand the limits of the free market, having allowed it to run without significant impediments over parts of our economy.

While it's easy to caricature (or to demonize) market oversight as "socialism", as many Republicans have done over the last decade and especially during the last four years, free-market advocates are going to have to address the socially suboptimal effects of the untrammeled market if they expect to reach people like me. For I don't see some governmental intervention in the market as socialism: I see it as civic and personal self-defense.

The free market has been the best compromise humanity has discovered to permit our society — in which individual liberties are treated as paramount — to flourish. I don't see an attractive competing philosophy on the horizon. However, people need food, clothing, shelter, and rest, too. If the free market's advocates can't figure out how the market can satisfy those needs, people are going to look for alternative solutions, the market be damned.

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