Thursday, August 28, 2014

Labor Market Tightening - Could Higher Wages be on the Horizon?

Despite the sluggish economy that has been with us since 2008, there have been periodic complaints from employers about their difficulties in finding employees.  Given the high unemployment rates of the past few years these complaints seemed strange.

In the labor market, employers are the buyers of labor services and workers are the sellers of labor services. With thousands of people out of work, it was only natural for many employers to assume that finding employees would be easy.  Logically this should have been the case and for many employers this probably has been the case.

No one likes to take a pay cut and, for many people, the available jobs being offered were at lower rates of pay than their previous jobs.  For those without any options, their only choice has been to suck it in and take a lower paying job.

However, extended unemployment benefits (sometimes continuing for a year or more), free re-training opportunities, food stamps, a spouse's income and/or savings provide many unemployed people with the means to hang on and hope for a better job opportunity.  While this can' go on forever, it does partly explain why we have both high unemployment and employers complaining about not being able to find workers.

A recent Wall Street Journal article (U.S. Companies Schooled on Wages, Aug 21, 2014) reported that one area that employers are experiencing trouble finding applicants is unskilled labor jobs.  Workers are being sought for unskilled labor jobs in areas like construction and other industries that employ unskilled or low skilled workers

This shortage is difficult to understand given that the segment of the workforce these employers are targeting, which consists of people with a high-school education or less and little or no formal job training, continues to have unemployment rates that continue to be higher than for the labor force as a whole.

A major factor is the fact that the number of unemployed people in the 25 to 34 age group who have a high-school or less education has shrunk to less than 2.6% of the population.  According to the article, this 25 to 34 age group is where employers of unskilled labor draw most of their recruits.  Many of the unemployed in this group qualify for funding for training programs which offer the potential of improving their future job and pay prospects.  As a result many in this occupation group may be electing to continue with their training and not respond to current unskilled job opportunities.

This leaves those in the 25 to 34 age group who are neither working nor looking for work which means they are not considered a part of the labor force.  This is a potential pool of workers that employers can try to induce them to come forward and apply for these jobs.

The best, and possibly the only, way to recruit these people is by increasing the wages being offered.  This will cost these businesses more money.   More money will be needed to  not only attract workers from this group of people who currently not considered a part of the labor force but these employers may also find they have to increase the pay of current workers with some skills who are working at the next level so they do not feel short changed and leave to seek employment elsewhere.

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