Actually Skills Do Pay The Bills

November 30, 2012

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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