Employers Aren’t Just Whining – the “Skills Gap” Is Real

[Bronzeage]

If you are in a business that requires certain skilled workers, and you can't afford to pay the going rate and you can't afford to grow your own...

You are not in the right business for you.

This is the way free market economics works. The obvious solution is to let competition for labor drive up prices, but each price increase make alternative products more appealing. Just like when whale oil started to get expensive, people switched to kerosene. It wasn't quite as good, but it was good enough for the price.

If there is lack of labor(or any essential business need) the market can only support a certain number of businesses. When alternatives mean prices cannot be raised, someone will have to go find some other kind of business. This puts more labor on the job market, which lowers cost pressures from below, and increases market share for the surviving companies.

A better solution is investment in educational infrastructure, so business expansion will not be choked by an unsuitable labor pool. The problem with this solution is finding someone to pay for it.

 

[ksen]

No, that wouldn't be the argument about college . . . at all.

Although as an aside I do support government paid for college education like a lot of the rest of the civilized world has.

Yes it does apply, because you as an individual growing up are expected to decide what you want to study and then decide if that applies to what you want to do later in life. An individual decides before knowing they have a job to become a nurse, lawyer, engineer, etc without being 100% that those are the skills that a company wants.

No, it doesn't apply since my reply was specifically aimed at acquiring the skill for a highly specialized system for one particular company. College is about a lot more than that.

 

[AthenaAwakened]

If you are in a business that requires certain skilled workers, and you can't afford to pay the going rate and you can't afford to grow your own...

You are not in the right business for you.

This is the way free market economics works. The obvious solution is to let competition for labor drive up prices, but each price increase make alternative products more appealing. Just like when whale oil started to get expensive, people switched to kerosene. It wasn't quite as good, but it was good enough for the price.

If there is lack of labor(or any essential business need) the market can only support a certain number of businesses. When alternatives mean prices cannot be raised, someone will have to go find some other kind of business. This puts more labor on the job market, which lowers cost pressures from below, and increases market share for the surviving companies.

A better solution is investment in educational infrastructure, so business expansion will not be choked by an unsuitable labor pool. The problem with this solution is finding someone to pay for it.

there ya go.

 

[coloradoatheist]

Yes it does apply, because you as an individual growing up are expected to decide what you want to study and then decide if that applies to what you want to do later in life. An individual decides before knowing they have a job to become a nurse, lawyer, engineer, etc without being 100% that those are the skills that a company wants.

No, it doesn't apply since my reply was specifically aimed at acquiring the skill for a highly specialized system for one particular company. College is about a lot more than that.

Except is usually a combination of both parties to decide on particular skills on who pays for it. Sometimes businesses pay, sometimes individuals. Depends on the skill, the cost, and what both gain from it.

 

[coloradoatheist]

This is the way free market economics works. The obvious solution is to let competition for labor drive up prices, but each price increase make alternative products more appealing. Just like when whale oil started to get expensive, people switched to kerosene. It wasn't quite as good, but it was good enough for the price.

If there is lack of labor(or any essential business need) the market can only support a certain number of businesses. When alternatives mean prices cannot be raised, someone will have to go find some other kind of business. This puts more labor on the job market, which lowers cost pressures from below, and increases market share for the surviving companies.

A better solution is investment in educational infrastructure, so business expansion will not be choked by an unsuitable labor pool. The problem with this solution is finding someone to pay for it.

there ya go.

The issue is aligning the education infrastructure with what is needed. The philosophies that have guided both are very different.

 

[Emily Lake]

Or perhaps the people without the skill shouldn't expect to receive the compensation of someone who does have the skill. If you had read the OP, you would have seen that the compensation isn't the problem being identified here - it's specific types of advanced skills. And employers are willing to pay for those specific skills - when they can find them. But they're not willing to pay top dollar to someone who does not have the needed skills.

That's what you got out of the OP?

Yes. It did indicate that the highly skilled positions that employers are complaining about not being able to fill are positions that have shown steady and significant wage increases over time.

Rather than looking at the ratio of pay at the 90th percentile to that at the median, you should look at the growth at the 90th percentile. If it's true that workers at this level are in short supply, we should see their wages rising much higher than inflation and close to inflation plus producitivty growth. You mentioned nursing. Here's the yoy % change in avg hourly pay at the 90th percentile in the nursing industry (data taken from the Occupational Employment Statistics):

2004 = 2.99
2005 = 3.18
2006 = 4.63
2007 = 3.64
2008 = 3.01
2009 = 2.35
2010 = 2.34
2011 = 2.64
2012 = 1.51
2013 = 1.38

Here's the same series for "computer and mathematical science occupations", which includes computer software engineers.

2004 = 2.47
2005 = 1.29
2006 = 2.95
2007 = 5.00
2008 = 3.60
2009 = 1.37
2010 = 1.25
2011 = 2.28
2012 = 3.12
2013 = 1.63

Actually, that's not a very good comparison, and the commentator you've quoted has not controlled for inflation and recession. By comparing year over year within that same industry, you're assuming that the top 10% of that industry is completely shielded from the economy. This isn't a very good assumption. Macroeconomic factors still effect the field as a whole, even the more skilled. A comparison of growth in the top 10% versus the median really is a more useful and meaningful comparison for these purposes.

 

[Emily Lake]

When an employer cannot hire the employees with the needed skills at the offered compensation rates, those rates are not competitive enough to induce people with those skills to take the jobs. Either that is true, or there is literally no one who has those skills. In either case, it is up to the employer to either increase the compensation offers or revise his/her expectations if the work cannot get done with the current level of staffing. While anyone can whine about their insufficient budget line, that doesn't change the reality that it is the budget line that is insufficient.

Depends. I suppose you might say that the budget line is the problem when there's only two of the desired thing in the whole world.

What if you don't know know how many of a thing there is in the world, but you're pretty sure it's more than two? And you're pretty sure you're offering a competitive rate, based on what other people like you are offering for the same thing? And you're still not finding any of the thing you want? At what point do you finally say that the problem is a lack of supply?

 

[ksen]

Or perhaps the people without the skill shouldn't expect to receive the compensation of someone who does have the skill. If you had read the OP, you would have seen that the compensation isn't the problem being identified here - it's specific types of advanced skills. And employers are willing to pay for those specific skills - when they can find them. But they're not willing to pay top dollar to someone who does not have the needed skills.

That's what you got out of the OP?

Yes. It did indicate that the highly skilled positions that employers are complaining about not being able to fill are positions that have shown steady and significant wage increases over time.

Rather than looking at the ratio of pay at the 90th percentile to that at the median, you should look at the growth at the 90th percentile. If it's true that workers at this level are in short supply, we should see their wages rising much higher than inflation and close to inflation plus producitivty growth. You mentioned nursing. Here's the yoy % change in avg hourly pay at the 90th percentile in the nursing industry (data taken from the Occupational Employment Statistics):

2004 = 2.99
2005 = 3.18
2006 = 4.63
2007 = 3.64
2008 = 3.01
2009 = 2.35
2010 = 2.34
2011 = 2.64
2012 = 1.51
2013 = 1.38

Here's the same series for "computer and mathematical science occupations", which includes computer software engineers.

2004 = 2.47
2005 = 1.29
2006 = 2.95
2007 = 5.00
2008 = 3.60
2009 = 1.37
2010 = 1.25
2011 = 2.28
2012 = 3.12
2013 = 1.63

Actually, that's not a very good comparison, and the commentator you've quoted has not controlled for inflation and recession. By comparing year over year within that same industry, you're assuming that the top 10% of that industry is completely shielded from the economy. This isn't a very good assumption. Macroeconomic factors still effect the field as a whole, even the more skilled. A comparison of growth in the top 10% versus the median really is a more useful and meaningful comparison for these purposes.

From another commenter:

"But that’s not quite right. The wages of the median worker tell us only that the skills of the median worker aren’t in short supply; other workers could still have skills in high demand.

. . .

To the contrary, there is evidence that select groups of workers have
been had sustained wage growth, implying persistent skill shortages.
Some specific occupations such as nursing do show sustained wage growth
and employment growth over a couple decades."

90th percentile hourly wages for RNs adjusted for inflation (2013 $):

2006 - $52.06

2007 - $47.15

2008 - $47.99

2009 - $48.92

2010 - $48.87

2011 - $48.12

2012 - $46.21

2013 - $46.31

So much for highly skilled workers getting more and more money.

 

[Under the Rose]

Another contributing factor, IMO, is that corporations have ceased to engage in mentoring. At least in retail grocery, they have gutted middle management in many cases and are in a race to the bottom to see who can pay the lowest wages and benefits and carry the fewest F/T positions. A lot of the experienced work force are indeed aging out and because the lack of decent wages and benefits only contributes to transience in the workplace, there are not enough people of experience being retained to mentor the next rank, at any level.

Large corporations are also often slow to replace their dedicated software systems and programs, many of which are far from efficient yet they expect their staff to become proficient in these systems without adequate training and support. It is a circular equation. You have to break some eggs to make an omelette and if you want skilled employees, you are either going to have to compensate them better or invest in training them.

 

[rousseau]

If you are in a business that requires certain skilled workers, and you can't afford to pay the going rate and you can't afford to grow your own...

You are not in the right business for you.

This is the way free market economics works. The obvious solution is to let competition for labor drive up prices, but each price increase make alternative products more appealing. Just like when whale oil started to get expensive, people switched to kerosene. It wasn't quite as good, but it was good enough for the price.

If there is lack of labor(or any essential business need) the market can only support a certain number of businesses. When alternatives mean prices cannot be raised, someone will have to go find some other kind of business. This puts more labor on the job market, which lowers cost pressures from below, and increases market share for the surviving companies.

A better solution is investment in educational infrastructure, so business expansion will not be choked by an unsuitable labor pool. The problem with this solution is finding someone to pay for it.

I wonder if the massive military complex of the US could help pay for better educational infrastructure. That's a serious question. Right now the whole trend of American students being 80k in debt and learning no skills doesn't seem to be working out so well.

 

[Loren Pechtel]

Interestingly, I recently noted two positions at our corporate retail grocery store that required computer skills and software knowledge that I know that none of our employee base has at present because the only way to attain the software knowledge is to actually be working with the systems. Two years grocery experience is usually a prerequisite and then management will have to select viable candidates and send them out to their own educational venue.

Therefore, in my opinion, at least some of the skills gap is of their own making.

Yup--a lot of it is employers wanting employees that are already trained on their systems rather than understanding that sort of skill should be taught after hiring.

 

[Loren Pechtel]

I'm in the software industry. In this industry employers have a hell of a time finding people that they need. Consider when you need someone at an architect level, but every architect is so extremely employable that they're already working. What do you do? Do you hire someone who's nowhere close to that skill level and train them? That could literally take years, and it may not even work out.

This doesn't speak to an endemic shortage of skilled workers, but in my industry it isn't lollipops and candy for hiring managers.

I don't believe it. The programming industry casts aside large numbers of those who are over 40.

You can't find the architects because you put their resumes in trash without even reading them.

 

[Loren Pechtel]

Take a look at current hiring practices, as well.

If I need someone in my business who is a CAD operator, why would I need to run a credit check on her?

Every day hundreds of people are turned away from jobs not because they lack skills, but because they have low credit scores, suspended driver's licenses, even a debt of back child support.

I agree with Under the Rose

Credit checks are run on employment applicants because it is easy to do and it yields a number that can be compared to another number. It's less messy than a criminal background check. There's really no other reason.

Credit ratings are normally highly related to how careful & responsible a person is--it does provide useful information. Unfortunately, it doesn't distinguish the irresponsible from those who got in trouble when the economy cratered.

I live in a city of about 600,000 people. As of today, I know of five job openings which would pay $75K or better for a qualified person. It takes about ten years to accumulate the experience and training needed to perform the job. The work is hard and those qualified are aging out of the work force. There are not five such people in this city who do not already have such a job. This situation is the direct result of the reduction in corporate training programs over the past 30 years.

What this actually shows is that either this position, or perhaps the ones that lead up to it are underpaid. Your workforce is aging out because the job isn't attractive.

- - - Updated - - -

I've seen job ads that require X years with a particular development/database package, when that package didn't exist X years ago.

You should expect to pay a premium for people who can create their own time warp.

Yeah, I've seen a decent number of those. Some HR moron who doesn't understand what they're doing.

 

[Emily Lake]

So much for highly skilled workers getting more and more money.

You seem to have misunderstood the point that I made. I am also curious where the anonymous commentator got their numbers from. Do you happen to know their source, or are you simply accepting any information from the internet that confirms your bias?

 

[Loren Pechtel]

Employers whining about no qualified employees at the offered compensation is equivalent to a banana consumer blaming farmers for not offering bananas for sale at 1 cent per pound.
...

I think you need to understand how markets work. If employers cannot find "qualified" people to work for their offered compensation, then the employers are not offering enough to induce those qualified people to work for them. It really is that simple.

I think it might be more like employees complaining that they can't find clusters of exactly 11 bananas that are the exact shade of yellow with exactly 2% green at the top (but not the bottom!) end, and with exactly 4 inches of stem on each banana, and in which one single banana is hot pink when you peel it... even though they're offering a very competitive rate.

Because all the people who apply are clusters of 7 bananas that are 5% green with 2 inch stems and all white inside.

To translate a rather complicated continuation of your analogy: Employers are seeking very specific technical needs. Even if they're offering very competitive rates, the applicants don't meet those needs. The supply for those positions is so small that the price offered is almost irrelevant. There's a practical element at play, because even when you're talking pure economic theory of supply and demand, the budget line still exists.

Yes, this also happens.

All too often it looks like they simply took the skill set of the guy who left and put it in the ad, not understanding that there isn't going to be a perfect match out there.

 

[Axulus]

The flip side to that argument is equally valid though. Why should employers be the ones to bear the risk of paying to teach someone a valuable and competitive skill set, in addition to a comfortable salary, when all they have to go on is their best guess and just pray that they guessed right and that by the time they're done investing in that training the employee will still stick around and not move to a competitor?

Why should employers bear the risk? Because they reap the profits. And no matter what they pay in compensation, they will get more in the value of the work provided.

The world according to Athena:

Step 1: Hire someone
Step 2: Pay them low wages
Step 3: Profit

Businesses don't fail to make profits when they follow these three simple steps

 

[Loren Pechtel]

I think it might be more like employees complaining that they can't find clusters of exactly 11 bananas that are the exact shade of yellow with exactly 2% green at the top (but not the bottom!) end, and with exactly 4 inches of stem on each banana, and in which one single banana is hot pink when you peel it... even though they're offering a very competitive rate. Because all the people who apply are clusters of 7 bananas that are 5% green with 2 inch stems and all white inside.

"very competitive"

lol

obviously they aren't

No, she's right. I've seen some ads that asked for skills that you aren't too likely to find in combination--especially when they're asking for skills with a 2:1 wage differential.

 

[Loren Pechtel]

Wouldn't that be the argument that people shouldn't pay for college but companies should pay people to go to college? Why then do we say it's up to the individuals to go to college then?

As I said in the other threads about this, more research needs to be done into what the companies are looking for and what they are doing when they say this.

No. We pay to go to college to learn the skills that are widely used. The employer should pay for us to learn the very narrow skills.

If you want me to write a program to direct a machine to frobinate the thingamagigs then it's my job to learn how to program but you need to pay me to learn how to frobinate because nobody else is going to care if I know how to frobinate.

 

[Under the Rose]

One of the points in the article jumped out at me and that was with the rapid pace of new technology, the required skill sets in some industries are advancing faster than the educational venues to teach them. For some of the newer industries, that makes sense, but not for many of the established corporations that just want to continue with the established pattern of maximum profits, dedicated software and minimum wages.

 

[Under the Rose]

Wouldn't that be the argument that people shouldn't pay for college but companies should pay people to go to college? Why then do we say it's up to the individuals to go to college then?

As I said in the other threads about this, more research needs to be done into what the companies are looking for and what they are doing when they say this.

No. We pay to go to college to learn the skills that are widely used. The employer should pay for us to learn the very narrow skills.

If you want me to write a program to direct a machine to frobinate the thingamagigs then it's my job to learn how to program but you need to pay me to learn how to frobinate because nobody else is going to care if I know how to frobinate.

This is a valid point. The employee's responsibility is to gain the broader skill set while the corporation should provide it's own educational support specific to it's needs.