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Reinventing the Labor Market

If I were to tell you we’re at full employment, save one very nasty problem, you’d probably laugh. It sounds ridiculous on the face of it – aren’t people still struggling out there looking for work? Aren’t wages still stagnant?

The answer, not the punchline, lies in the problem – a terrible “skills gap”, or lack of the right skills for the jobs which are out there.

I’ve been slow to come around to the idea of a skills gap, figuring that it was far from our worst problem. There is a free market, after all, and workers who want a job will find a way to beef up their resumes to show that they have the skills which pay the bills. Eventually it should all even out. But what happens if the job market utterly fails?  That appears to be the situation.

Is there a skills gap? Apparently so.

Is there a skills gap? Apparently so.

There has been a lot of talk about a skills gap since the last official recession in 2008, and even some before. Little has been done to define exactly which skills the market is missing – and, in fact, it seems to shift around a lot. One day we’ll hear about a shortage of tradespeople like welders, the next a lack of certified technicians, and later a shortage of skilled salespeople. It doesn’t exactly make sense.

If we go to the Bureau of Labor Statistics (BLS) there is the ongoing Job Openings and Labor Turnover Survey (JOLTS) for hard data. It showed that in March there were 5.8 million jobs open, 5.3 million of which were filled. That’s a gap of 500k workers, which is serious enough. But it probably understates the problem, since not all needs for workers result in an immediately open job.

As reported before, there is evidence that there are about 1.4 million jobs left unfilled, enough to bring the headline unemployment rate down to 4.0% – essentially full employment.

Who will replace him when he's ready to rest?

Who will replace him when he’s ready to rest?

With a problem this big, it should be a lot easier to pin down than the reports which are circulating. The Manpower Group publishes an annual report called the “Talent Shortage Survey” which reports a similar effect all around the globe across nearly every field you can think of. The highest reported shortages of qualified workers in their survey? It changes every year in every nation. It makes no sense at all. But they are adamant that there is a skills gap everywhere in the world.

With this much confusion, we can let the education system off the hook. There’s little for tech schools and community colleges to respond to in this nonsense.

So what’s wrong? Let’s start with the idea of “skills” on a resume to start with. It’s not as if companies have never been faced with this problem before. When Henry Ford first fired up his new assembly line he hired thousands of men right off of farms who had never assembled a car. No one had done it that way before, so he had to. The great glory of American manufacturing was born – the chance to learn on the job, demonstrate talent and moxie, and work your way up.

It currently takes 26 days on average to fill a job opening. From a Duetsche Bank report.

It currently takes 26 days on average to fill a job opening. From a Duetsche Bank report.

That’s not how the job market works today. Companies need someone for an immediate need, possibly one that has gone unfilled for far too long already. They can’t wait for someone to be trained on the job regardless of how sharp and hard working they might be. With loyalty out the window, an actual investment in a worker’s skills only makes them more portable – as well as capable of demanding a lot more money to stay.

With more “outsourcing” to smaller companies, the only consistent engine of job growth lately, companies hardly have the resources to make the necessary investment in people.

But this is hardly the only way in which the labor market is broken. Free markets thrive on information, and we should all expect that as word gets out that companies need a skill workers would find the training they need. But where is that information supposed to come from? Recruiters, aka “headhunters” could fill the gap, but they are driven by their bottom line of getting a warm body in the door quickly. They don’t have even the most remote incentive to pass on the word for what’s needed long term.

There was a time when unions played a big role in worker training, too – but those days are as long gone as good union jobs.

The fuure has to have room for everyone, 'cuz we're all going there.

The fuure has to have room for everyone, ‘cuz we’re all going there.

With all of these problems, who will fill the skills gap? It probably falls to government as do all market failures.  Which is to say it comes down to yet another subsidy to business as yet another formerly corporate function is essentially socialized. But there is a great incentive for state and local government to match up workers to skills and a potential great payback in terms of growth and happiness among the population.

Given that we have such a large and persistent gap across so many fields it’s safe to say that no local government has created an effective system for doing so, probably because it would take a lot of as yet unidentified funding.

Where do we go from here? Without this very serious problem we would probably have full employment. It’s not a small matter at all, and it probably is the real solution to a lack of upward pressure on wages. It’s impossible to indict the education establishment because of a lack of good information and it’s hard to fault government for their inability to launch a massive systemic solution which has never been done before.

But one thing is clear – the labor market is broken. That happened for some good reasons related to the restructuring of the entire economy and a lack of support for the next economy. Getting us out of this predicament is the difference between a healthy economy that works for everyone and continuing weakness and frustration.

The next wave of innovation in business and technology probably has to come from government. That’s an interesting thing to demand in this crazy, contentious election year.

12 thoughts on “Reinventing the Labor Market

  1. Seems to me, this points to unions…they could help with training, negotiate contracts that could create incentives for loyalty, help with stagnate wages…but business leaders and government leaders are desperately afraid of this. Those are the folks that created this situation by continually working to marginalize workers for short term monetary gain.

    • Over the long haul that does seem like the best solution. Certification is part of the process and having someone who has not only taken classes but can demonstrate the skills would be of benefit to everyone. A union, or if we have to use a euphemism Guild, would be the most appropriate way to do this for sure. But it will take a long time to set this up.

  2. I think you let employers off a bit easy. They have to make the investment in people if they are ever going to get anywhere. Even if they are a small company the same rules apply. Smart people with a good work ethic will get things done every time.

    • Perhaps I did. But budgets are very tight and there isn’t much room for trying someone out if they can’t grow quickly into the position, no matter how smart they are. Then again, with the number of contract workers out there employers can do a “trial run” with a person rather than sit around and wait for the perfect person with a lot of skills and a low desire for pay.
      So I do see your point. But companies are slow to hire for a lot of reasons today and this is just one of them.

  3. If your telling me there are jobs out there going unfilled then my response is that people better put on their big boy pants and get out there and get hired.

    • I wish it were that easy. I can’t tell you how many applications I’ve filled out over the last few months. Companies want a very precise fit – and you better not look “overqualified” because they fear you’ll ask for too much money.

  4. I don’t think its fair to say the labor market is completely broken but this does point to a serious problem on the margins. This is like 1% of the workforce effected right?

    • Good point. It is about 1%, which is why this would take the headline unemployment from 5% to 4%. That may not seem like a lot, but it is a big deal if you are one of the million-plus people.

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