Actually Skills Do Pay The Bills

The New York Times gets it wrong on  the skills gap, confusing cause and effect, ignoring facts, and making a false analogy.

We’ll give you the link to their misleading article at the end of this post. It made a couple of erroneous points:

  1. Supply and demand dictate that wages should rise if their is a shortage of machinists;
  2. Wages for McDonald’s managers are better than those for skilled machinists;
  3. Demand for skills isn’t real.

In this post we’ll deal with the supply and demand wages  issue.

Supply and demand dictate that wages should rise if there is a shortage of machinists

In the NYTimes piece, economist Mark Price argues that “It’s basic economics…If there’s a skill shortage, there has to be a rise in wages.”

If only economics were so basic, Mark. Actually supply and demand is the wrong issue; the issue is actually the Elasticity of Labor Supply to an Occupation.

In “basic economics” terms this means Where jobs require specific skills and lengthy periods of training, the labor supply will be inelastic. Inelastic means that  it is not possible to expand that specific labor force in the short term; ‘raising the wages won’t just create them out of thin air…’

The NYTimes and economist Price have confused cause and effect.

You need skills, not just high pay, to properly hitch the cart to the horse.

You need skills, not just high pay, to properly hitch the cart to the horse.

Higher wages are a consequence of having skills that add value by increasing the value and or quality of the employee’s work. Raising wages does not of itself add any tangible benefit or skill to the employee’s work product. It does however raise cost. Why the wages “don’t has to rise”  is because, unlike the inelastic  supply for skilled labor in an occupation, the supply for manufacturing work  is elastic.

China and other low wage economies around the world provide lower cost often government subsidized alternatives to  U.S. manufacturing that becomes more expensive but not more productive if the wages just increased because Mr. Price thinks they should.

Precision machining is an occupation with inelastic labor supply. It requires specialized skills, ability to do math, and training and experience to safely perform the work to zero defects (Zero PPM) standards. The anti-lock brake, airbag, and aircraft parts our machinists make need to work.

Bottom line:  Skills are what is demanded, and are in short supply. Higher wages are determined by the value add of the skills obtained, and held in check by low cost competitors across the globe.

NYTimes Skills Don’t Pay the Bills

Cart before the horse

Next post, we’ll look at the false analogy of a Mc Donald’s Manager somehow being comparable work to that of an entry level precision machinist.

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16 Responses to Actually Skills Do Pay The Bills

  1. Steve Dunn says:

    If the argument and the article were strictly limited to a specific skill set suchas Mazak VMC, you would be correct. But, the storyline is more general than that and thus the article does apply. In our area the entry level wage for fast food and fab shop or entry machinist is within a buck. So unless you are motivated and have someone paint you a picture of the path to success, why work hard when you can just show up and have essentially the same result?
    The other general point that you are missing is the money went to less useful functions like wall street finance instead of engineering and manufacturing, if the money comes back so will the better talent.
    You also appear to believe that the intrinsic value of creation overcomes the fact that I can support myself, now, much better on the fast food manager wage than I can for the next 3 or 4 years on the entry level machining wage. Especially since your first shot is likely to be a general shop till you prove you can do something, not your precision machine shop. Finally, your remark of the short-term inelasticity while correct misses the point, the finace boys didn’t manage to screw us up in a few years and it won’t turn around in a few years. But, until it pays substantially better than fast food or big box retail only those of us that are true believers are going to do the work. The hours are long, it’s hot, it’s cold, it’s heavy, it’s not respected, so unless there is a carrot to draw in the people we need they aren’t going to come, and the most universal carrot is the dollar.

    • speakingofprecision says:

      Thank You Steve. Your comments are well thought out and well taken. I do not have a major difference with your line of thinking. I guess I would ask why it is that the presumption these days is so short term vs long term thinking career wise. I spent quite a few years laboring to stay in the game until my qualifications and promotability became actionable. Today it seems it is not up to the potential employee, but to therest of society, to sell them on a positive career path rather than maximizing short term gains. (I’ll spare you my rhetorical question at what this implies.) Thank you for sharing your insights.

      • I have to agree with Steve Dunn. What MFG has to come to realize sooner or later is Young people have a bottom line too. Thinking short term may not be a symptom of narrow vision, poor judgement, it can be survival. If MFG or a particular skilled profession has a reputation for wages not increasing proportionally with the cost of living, a young person may dream of being a machinist, but just can’t afford to. It is not necessarily a bad decision for a young person to want to start living comfortably sooner (short term vision), rather than suffer and struggle for years flowing there dreams hoping that when they finally reach that financially comfortable spot, global economy/industry changes, company moves, young person lose everything (except educational debt) and have to start over again.

        It may they are just being smart. Realizing the times of there parents when you could pretty much guarantee, gain skill, work for the same company until you retire, and still live comfortable, are not the times they live in. Not even their 401k is safe and guaranteed. They see stagnant wages while cost of living climbing, big companies even industries moving, small one going under, medical and insurances bills robing lifetime of work, there taxes no longer providing a safety net encase they run into hard times due to no fault of their own, etc. Maybe they are smart to think the world they live in today, may not be the same tomorrow, do all you can today, shoot for the quickest gains you can, after all, that is what your employer is doing. I would recommend they get a skill that spans multiple industries, be entrepreneurial, if they are fortunate enough they can afford to, else go where the money is in the short term until they can afford to sure of a multiple skill set.

    • Mike reader says:

      Keep eating your whopper and fries. Your comment of “why work hard when you can just show up and have essentially the same result?” explains it all. Only those that work hard, apply themselves get ahead. I will take those not afraid of hard work any day, and the “results” will be very different.

      • speakingofprecision says:

        Mike Reader, you make a good point. My thinking has been evolving on this issue as a result of my work on Skills And education. What if the issue isn’t really the lack of people with skills? What if it is the lack of people who actually want to work. More and more I see anecdotally that folks really don’t want to work, and will always choose the least effort option. What if it’s ultimately about lack of want to work, not lack of skills. Since Skills would have to follow wanting to work. Not a very pleasant thought.

  2. K. G. Sims says:

    I would offer that the two examples given for comparison are difficult to compare. Having a very close involvement with machinists in my engineering and operations career period and an up-close observer of the challenges of managing fast-food personnel in my sales and consulting, the more difficult job is managing at McDonalds’. Todays Millenium generation and the pressures of fast delivery of the meal calls for resourceful people and situation managers. While I may curse because I miss cutting a radius correctly due to a dull cutting tool; I would not be allowed to curse an employee that cannot follow simple directions and does not care. People skills are, in my opinion, much harder to find in job candidates.

  3. Nick Barstow says:

    I worked in precision machine building, R&D, there were skilled machinists that went home each night with satisfaction of accomplishment probably not comparable surviving a day teaching a kid to flip burgers and deal with customers. My contribution was electrical controls, i spent a lot of time after hours thinking of ways to solve a new challenge as did the Machinists. I doubt the fast food manager feels the same way, but if he did, a good manager is a skill also. Higher wage does follow skill.

  4. Jim Fetcko says:

    I don’t necessarily take exception to any of the viewpoints expressed here and respectfully suggest that you are all right to some degree. My concern for any young men and women who might be aspiring to embark on a career in fast food management would be to consider the future opportunity’s available. We are already beginning to see table top kiosks designed to reduce or perhaps even eliminate the need for waiter and waitress staff in forward thinking food establishments. The mention of the use of robotic devices on the looming horizon designed to replace the cook staff in the kitchens. Personally I still have a hard time getting my head wrapped around a robot cooking my steak at the neighborhood Ruth’s Cris, Hyde Park or Mortons, but mass producing burgers and fries at the local McDonalds………. I appreciate the need for people skills when managing these establishments but how much people skill would be needed to manage a bank of robots? In this type of environment I would certainly envision that programmers and maintenance personal might be a more desirable position but who knows what the future holds. I for the most part grew up in the skilled trades manufacturing environment and would suggest that the position that I currently hold is far more lucrative and secure than a fast food management position. Sure it took years of hard work and dedication to get here but what is the down side of that? I have no personal disregard for those individuals out there that aspire to be a fast food manager; I just don’t know a whole lot of young folks who profess “I want to be a manger at McDonalds when I grow up”. If this is truly your calling in life then good for you and you should pursue it. As for my college aged Engineering student, he will be working in the machine shop this summer while on break, and having lunch with his friends at McDonalds.

  5. Thomas Pauley says:

    When we were young, didn’t we all dream of getting a better job, whatever it takes? I suspect the lazy ones that don’t care, are staying on unemployment way past a reasonable amount of time. And some have given up on even finding a job, and so are no longer counted among the “unemployed”. Very interesting to read all your comments.

  6. Thomas Pauley says:

    Ok, i read the NY Times article, and it reminds me of the recession at the start of the 80’s. Our U.S. screw machine industry was being driven into the ground by competition from the Japanese, who had found and purchased the 300 Tornos 6 spindle automatics that existed back then, for the simple reason that those machines had a 1 1/2 second cycle time. So, we couldn’t compete with our Japanese -made single spindle automatics and ancient Brown and Sharp, Acme Gridley and Davenport screw machines. President Reagan then turned the Japanese’ high tariffs on our goods around, and put extremely high tariffs on THEM. Thus, saving an entire industry here in the USA. This information is from the Trade Journal for the screw machine trade. The average wage for a “skilled” machinist in the 90’s was $15/hr, both in Japan and here in the U.S. I was making $19/hr as a setup man in 1989. My wage has been around $22/hr since 1993, at almost every place i worked (job shops, Medical Device and Dental Implant companies). So, with the increase in the cost of living every year, i think i have been “going backwards” for quite a while. And i totally agree that a skilled machinist won’t work for $10/hr, perhaps Mr. Isbister’s Gen Met Co. is a sign of the times? I seem to recall that the previously poverty-stricken Chinese are now making the big bucks, buying new cars and all, due to THEIR economy being so good. Way to go, Wally World and other co.s selling us cheap chinese junk. The American floor worker has always been the best in the (although Germany has a terrific emphasis on preparing their students well for real jobs). In fact, Germany could care less about the world economies; they are doing just fine. Perhaps we could try to emulate their job training programs. Here, the greedy corporations just don’t get it (except AIG, of course). Sorry if the truth hurts, but when the old guys are gone, the high paying jobs will probably be gone, too. Truthfully, i would work for $10/hr just to get started in a good career (knowing i would make triple that in the future), but only Engineers can count on that today. Machinists seem to be going the way of American Mfg. in general. It seems to correlate to the disappearing middle class. Maybe i should have taken up politics, they seem to be doing alright! Oh, and another thing; half of Congress are lawyers, what does THAT tell you!

  7. […] And our most popular post of late  Actually Skills  Do Pay The Bills […]

  8. Daryl Lucien says:

    The labor pool for any industry is a dutch auction….very similar to the Ebay format using “buy it now”. Here’s the rub….the employee candidate is the seller….not you. If you don’t come up with a bid that matches the minimum….no sale. How large or how small the skill set is quite irrelevant. At any point after you ‘buy’ the employee, if that employee sees better buying power in their next opportunity, they will be gone. The market hasn’t caught up with the real shortage yet…..bodies. We are entering a time when even at today’s sluggish hiring, we will well outstrip supply of upright, breathing individuals…..forget about whether or not they bring you superior skill sets…..in less than five years. The winner is going to be the employer that can see strategically into the future…not tactically into next week.

  9. […] And our most popular post of late  Actually Skills  Do Pay The Bills […]

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