by Doctor Science
Why can't self-proclaimed capitalist, free-market businesspeople recognize the law of supply and demand? In particular, if you can't find appropriately-skilled employees when you offer salary $S, Adam Smith says you should try offering $S+n. If that doesn't work, you offer $S+2n. The cost of labor isn't something the employer decides ahead of time, it's determined by the free-market value of the labor needed to do the job.
But per links from Anne Laurie at Balloon Juice and her commenters, many employers seem to think that if they can't find employees willing to do a job at a particular wage, it *must* be because there's a lack of appropriately-skilled workers. (I've talked about this before, with regard to farm labor specifically.)
What are they teaching them in business school? And what are they teaching them in the pages of the Wall Street Journal and other sources of continuing business education?
In the Hermitage.
From Anne Laurie:
At his blog, Professor Krugman highlights Adam Davidson’s NYTimes "Skills Don’t Pay the Bills":Although this attitude is most visible now that we're in a recession (Depression), I noticed it years before the 2008 crash. I particularly remember being at a grocery store (not my usual, non-chain one) and being unable to find a butcher to cut up the meat I wanted to buy. The manager said, "We don't have a butcher after 5 o'clock, there's no-one who's willing to do the work. I can't find anyone even at $30 an hour!" He was so whiny and affronted I almost laughed at him, thinking "So you offer $35, right? " I knew my usual store, 4 miles up the road, always had at least one butcher on the premises -- but they offered things like benefits and long-term employment.Eric Isbister, the C.E.O. of GenMet, a metal-fabricating manufacturer outside Milwaukee, told me that he would hire as many skilled workers as show up at his door. Last year, he received 1,051 applications and found only 25 people who were qualified. He hired all of them, but soon had to fire 15. Part of Isbister’s pickiness, he says, comes from an avoidance of workers with experience in a “union-type job.” Isbister, after all, doesn’t abide by strict work rules and $30-an-hour salaries. At GenMet, the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour…Krugman adds:... And this dovetails perfectly with one of the key arguments against the claim that much of our unemployment is “structural”, due to a mismatch between skills and labor demand. If that were true, you should see soaring wages for those workers who do have the right skills; in fact, with rare exceptions you don’t.
So what you really want to ask is why American businesses don’t feel that it’s worth their while to pay enough to attract the workers they say they need.
Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."I do not think it coincidental that Sinegal does not have an MBA -- in my observation, it's very rare for an MBA to think that a business should be for the benefit of anyone except investors and upper management.
Mr. Sinegal begs to differ. He rejects Wall Street's assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street's profit demands.
Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. "This is not altruistic," he said. "This is good business."
Despite Costco's impressive record, Mr. Sinegal's salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among all American companies.
"I've been very well rewarded," said Mr. Sinegal, who is worth more than $150 million thanks to his Costco stock holdings. "I just think that if you're going to try to run an organization that's very cost-conscious, then you can't have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong."
For the record, this writer has a life-long predisposition to believe the unions are usually in the wrong. But is that the case in this situation? Members of these unions have been taking wage and benefit cuts for years while executives have been granting themselves massive pay raises.Meanwhile, in the Balloon Juice discussion of hiring practices more generally, commenter ericblair said:
@Nina:I'm not completely sure I understand, but I guess he's saying that not having someone to do the work is easier on the hiring manager than hiring someone who doesn't work out.
So if it takes a year to sort out the paperwork, why can’t those companies invest that year into training someone domestically?
In my experience, a lot of companies are not handling hiring rationally. You’d think that, since companies can’t find qualified people to work for the offered wages, they’d raise wages to clear the job market, but they don’t. Seems to be part not understanding the actual problem and part an emotional asshole refusal to pay people more: “who the F do these grunts think they are?”
Even when you get to the higher paid end of the job market, there’s a real refusal to hire people who don’t have the exact skillset required to be fully operational at 9:00 am Day 1. If you’re trying to fill the slot, the only applicants a lot of managers will approve are ones doing the exact same job at another company. Then it takes months to fill the slot, if it’s even possible, while you could have taken someone perfectly capable of doing the job on board a lot faster and simply trained them up.
This is harder to explain, but it’s trickier to actually identify trainable people like that, and it’s also higher risk of hiring someone who actually can’t do the job and everybody involved getting a black eye. Much easier to demand perfection and whine about not getting it than dealing with risk.
It's certainly true in my experience and observation that having the wrong person in a job, someone who can't do the work or can't get along with their colleagues, is a horrible time- and energy-sink for multiple people: manager, co-workers, whoever fixes the problems they mess up, HR department, manager's manager -- if worse comes to worst, *Legal* ... I'm sure we've all seen how ugly these things can get.
But this is part of the cost of doing business, right? And has been since before there was such a thing as business. So why has it become an intractable problem *now*?