Home > Uncategorized > More evidence of the skills shortage in top management

More evidence of the skills shortage in top management

from Dean Baker

We all know about the skills shortage Harvard has to pay investment managers millions to lose the school a fortune on its endowment, Facebook can’t find a CEO who can avoid compromising its customers’ privacy, and restaurant managers apparently don’t understand that the way to get more workers is to offer higher pay. The NYT gives us yet another article complaining about labor shortages.

The complaint is that restaurants have small profit margins and therefore can’t afford to offer higher pay to their workers. The way markets are supposed to work is that businesses that can’t afford to pay the market wage go out of business. This is why we don’t still have half of our workforce employed in agriculture. Factories and other urban businesses offered workers better paying opportunities. Most farms could not afford to match the pay and therefore folded often with the farm owner themselves moving to new employment.

This is the story that we should expect to see with restaurants if there really is a labor shortage. We should start to see more rapidly rising wages. The restaurants that can’t pay the market wage go under. That may not be pretty, but that’s capitalism. We tell that to unemployed and low paid workers all the time. 

For the record, we aren’t seeing too much by way of rapidly rising wages to date. Over the last year, the pay of production and non-supervisory workers rose 3.2 percent over the last year. That’s a bit better than the average of all workers of 2.7 percent, but not the sort of increase that we would expect if there is a serious shortage of labor. It is also worth mentioning that profit margins in business as a whole are near post-war highs as a result of the wea labor market created by the Great Recession, so we should expect some shift back to labor as the labor market tightens.

  1. April 13, 2018 at 4:56 pm

    Remember to consider the safety net. For many sectors we are close to having it make little sense to work. Right now many work due to cultural inertia. It doesn’t make actual economic sense. People work for reasons other than money and often find after becoming jobless that the safety net isn’t so bad once you’re in it. The droves leaving the work force aren’t all destitute and miserable. This is not capitalism. We need to stop saying it is.

  2. Prof James Beckman, Germany
    April 15, 2018 at 11:26 am

    Peter, if “this” were Europe I would be inclined to say the safety net is a problem. But in America that is non-sense. Please live a week with the unemployed & then get back to us.
    By the way, in what state do you live–I might find some soup kitchens for you.

    • April 15, 2018 at 5:54 pm

      California. Social Security disability has exploded nationwide. For a long time after the GFC the safety net caught many from falling. The evident explosion in homelessness is result of those programs timing out. For many with fully funded social security in the middle class, dropping out isn’t looking that bad. No commute, no work wardrobe, move out of the Bay Area where rents are lower. It’s a long and growing list of reasons to quit the rat race.

      • Prof James Beckman, Germany
        April 15, 2018 at 7:48 pm

        Now, Peter, I understand you. Of course people who have had little or no health care are at risk. We see it here in Germany with many of our somewhat older male refugees, used to hard physical work it seems. And if one has a nearly funded US Social Security account, then one has a possible life off the streets. I have to allow medical doctors to evaluate this stuff. But I am told that my former home state, California, is overrun with the homeless–reflecting in part poorly paid jobs & very expensive rentals. These are employed folks.
        Coincidentally, Mr Trump wants to provide no economic support to the able who don’t have jobs. Social welfare agencies say the problem is either poor jobs-high living costs or mental/physical problems which prohibit full or even part-time employment. We shall have data on this in the next few months.
        I won’t touch on the fantastically expensive places like my old home town, Menlo Park, where employed police, fire, social work, teaching, etc people can’t afford to live except in overloaded living quarters, as we see in the Arabian Gulf States & in Asia.

  3. April 18, 2018 at 9:14 am

    Dean, your remarks help confirm the conclusion I’ve reached about large scale and international “markets.” Over the last 30 years, rich and powerful groups and corporations have dismantled what little was left of markets that function as economists depict them. OPEC and few friends control oil. 5 corporations control telecommunications. 4 companies control the internet. 6-7 companies control recreational equipment. One company control frames for eye glasses. 5 companies control steel manufacturing. 5 companies control advanced weapons manufacturing. 10 banks control banking in the world. 5 companies control pharmaceuticals. Etc. Controlling these “markets,” the companies, CEOs, etc. are easily able to push aside old rules about labor and wages. Dean, the somewhat specific historical relationships about wages and employment you reference no longer operate because those who now control most major industries and services simply don’t want them to.

    • Prof James Beckman, Germany
      April 18, 2018 at 11:54 am

      Ken, I think that Dean believes that unnecessary rents are accrued by patent-holding & possibly long-term contract-holding firms. One can sell against them given the economic resources, but you may not be be able to perforrm against their entrenched position.

      • April 19, 2018 at 9:06 am

        This is a bigger story, James. Per Yogi Berra, “It’s Deja vu all over again.” In other words, the US continues to relive the same economic nightmare. Theodore Roosevelt succeeded to the presidency in September 1901. The years from the beginning of Theodore Roosevelt’s presidency to the outbreak of World War I are generally known as the Progressive era, an age that was dominated by a passion for social progress and for reform in politics, business, and morals. The preceding generation had devoted its energies to settling the continent, building new industrial plants, and making money. The Progressive generation set out to reform what it considered the most serious abuses in the society it had inherited. Progressives believed more progress toward social justice is necessary, is essential. On the economic front the focus of progressives was trusts. In 1904 John Moody published his famous survey of trusts, “The Truth About the Trusts.” The book listed 318 great corporations that had been organized, or were in the process of being organized, including The United States Steel Corporation, the Standard Oil Company, Consolidated Tobacco, Amalgamated Copper, the International Mercantile Marine Company, and the American Smelting and Refining Company. At the peak of the economy stood the two great financial empires organized by the House of Morgan and by the Rockefeller Group. These and many other new and existing corporations and companies butted heads, sometimes violently. There were also conflicts with state and federal governments, unions, and Wall Street. After 1900, businesses tended to merge through interlocking directorates and the purchase of stock in each other’s companies to control the economy. These are trusts. Roosevelt chose to prosecute them and over many years began to break up the trusts. Howard Taft continued the prosecutions after Roosevelt, finally even forcing the break-up of Standard Oil. Except for the party role reversals (Roosevelt and Taft were Republicans) we’re back to an era of trusts, with large corporations and the wealthy grabbing all the money and resources, while controlling the lives of ordinary Americans. This has been the back and forth struggle in America since the end of the 19th century. This common saying seems to sum up this situation, “History doesn’t repeat itself but it often rhymes.”

      • Prof James Beckman, Germany
        April 19, 2018 at 3:46 pm

        Excellent summary, Ken. Seems like we have here that famous German philosophical model, action & reaction, applied to economy & society.

      • April 20, 2018 at 1:19 pm

        James, in interactions with corporations, US citizens usually have only two allies, both governmental. The courts and regulators. Neither was particularly effective in controlling corporations until after the Civil War. The willingness and capability of government to act to defend citizens from abuse by corporations grew many fold during the Progressive Era (1900-1915). This pushed corporations, particularly the large trusts and combinations that emerged at the end of the 19th century to search for ways to blunt this “interference” by government in the relationships between citizens and corporations. This lead to many efforts and money spent on direct propaganda to demonize government, as well the creation of a new ideology (libertarianism) and associations (e.g., community groups, think tanks) to act directly to achieve the goal. Governments were successful at contesting and blunting much of this activity till after the end of WWII. The paranoia and red baiting of the 1950s proved a fertile setting for Chambers of Commerce, the think tank “Foundation for Economic Education,” and business friendly members of Congress. Unlike traditional or even modern social and political conservativism, libertarianism is a revolutionary movement. It demanded and by the 1980s was achieving immense departures of the USA and its governments from both historic policies and Constitutional principles to replace government regulation and courts with markets in ensuring the fairness of the relationship between businesses and citizens. Going so far eventually as to secure a ruling from the Supreme Court that there was no difference in citizenship between business customers and the businesses themselves. This is the struggle ordinary citizens and their governments have been losing since 1950.

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