Lack of Demand is the Problem

A Jobless Dilemma: What’s Wrong with Fort Wayne? – WSJ.com.

Lately, a popular story in the mainstream media is the so-called skills mismatch. The narrative is that since there are so many open jobs while the unemployment rate is so high, prospective candidates must not have the proper skills. The validity of this narrative does not withstand careful analysis.

Ben Bernanke is an expert economist, and he certainly knows a lack of demand when he sees it. That is exactly what we have in Fort Wayne.

Let’s examine the jobs that employers are having a hard time filling that are described in the article.

A classroom aide position in the Fort Wayne school system pays $8.65 to $11.79 per hour. The maxim is that you get what you pay for. Those are fast food wages, so you will only attract fast food talent. Fort Wayne is not offering the proper wage to hire qualified people for this position.

Then there is the case of C&A tool engineering. They want a person who can program a machine, use it for production and engage in quality control, all for $20 an hour. Someone with these skills already has a job in manufacturing, so you will have to offer him more than he is making at his current factory. This will be more than $20 an hour.

No wonder why the manufacturing degree at the local community college is not popular. After a few years of schooling and several thousand dollars in tuition, you can go work at C&A for a little more than you would make managing a fast food outlet. The parents dissuading there children from pursuing a manufacturing career are doing so for a good reason; a manufacturing degree is not a good investment.

The internet music equipment store executive complains that he cannot get someone with great technical knowledge and sales skills for $30k a year, which is about $15 an hour. Once again, a manager at a fast food outlet makes more than this and does not have to spend years learning about musical instruments and studio equipment. Technical musical skills must be worth more than those of a fast food manager, so why doesn’t the executive just offer more money to attract the skilled person he needs for his business?

There is one commonality running through each of these examples. Employers are not willing to pay a sufficient rate to attract the talent necessary to perform the job. These employers are not fat cats wishing to take advantage of workers, but they are being rational. Based on their actions, they believe that a worker will not be able to cover his own marginal cost because of a lack of demand.

For example, the music store is willing to pay the salesperson $3ok a year. If hiring this person brings in more than $30k during the course of the year, then it is a wise business decision.

If demand for instruments and studio equipment was surging and the business knew that it could expand sales by $60k by hiring one more person, it would jack up the salary to $50k and attract people with more skills and experience. You get what you pay for.

C&A pays $20 an hour or about $40k a year. If they could add ten workers and run another shift that would yield $800k in revenue, they could and would pay more to attract those extra workers.

The implication of the low wages being offered is that the managers believe that the contributions of that one extra employee will not cover his cost even at the low wage.

Until demand for goods and service in the country increase, we are stuck with this labor market. The lack of demand for American products is causing a lack of demand for labor as evidenced by the low prices it is commanding.

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