Monday, February 14, 2011

Beat The Press Can't Run A Business

Beat The Press seems to have the idea that the only factor in the wages that employers pay is employer desire. Employers set wages based on what they would like to pay, and nothing else factors into their decision. The smart ones, according to Baker, raise wages indiscriminately to attract the most and best workers, and either raise their prices, sell their products at a lower profit, or go out of business. Simple, right?

If any nation, industry or employer says they are having trouble hiring, well, they’re just stupid and don’t know how to manage their business, according to Beat The Press. The answer is very simple; just raise wages until you get a plethora of highly skilled employees.

In an article last week he criticized Germany for not raising wages to attract more workers, failing to note that the article he was referencing stated that Germany has the lowest unemployment rate it has seen in 18 years and has closed its borders to new immigrants. That means that there are no workers available. You can raise wages all you want to, but if the workers are not available, then a goodly number of jobs are going to remain unfilled.

In an item Sunday he claims that “San Diego tech firms don’t know how to manage their businesses,” because they are having trouble hiring high-tech workers for wages that they can afford to pay. He uses his usual simplistic solution, which is to raise wages until they are able to hire, which would be all well and good if San Diego firms were not competing in a national market. The problem, clearly spelled out in the article he references, is not the wages offered, but the high cost of living in San Diego. Baker evaluates the situation (emphasis mine),

There actually is a chart accompanying the article that tells readers why tech firms in San Diego may be having trouble getting workers. Of 14 cities listed on the chart, the pay for tech workers in San Diego, adjusted for living costs, ranks 8th. It is more than 30 percent below the pay in Durham, North Carolina, the top paying city on the list.

If firms in San Diego really want to attract more workers then the trick is paying higher wages. Managers of tech companies should understand the way markets work. If they want to attract workers from other cities then they will have to pay more money, if they are unwilling to pay more money, then there is really no shortage. These firms are simply unwilling to hire people at the prevailing wage.

His thinking omits the “adjusted for living costs” part, of course. In fact, it is he who does not understand the way not “markets” but “the market” works. People who buy the product do not care about the cost of living for the workers, and they do not pay a price based on the cost of living where the product was produced. If a product produced in San Diego costs more than one produced in Durham, what buyer in Chicago is going to buy the one produced in San Diego?

In the chart he describes the fact that “San Diego, adjusted for living costs, ranks 8th” is absolutely true, as is that “it is more than 30 percent below the pay in Durham, North Carolina.” What is not mentioned is that the actual wages offered, upon which the selling price of the product is based, are approximately equal in San Diego and in Durham. The difference is due to the cost of living in the two cities.

His claim that "These firms are simply unwilling to hire people at the prevailing wage" is untrue. Reality is that these firms are offering prevailing wage and that people in these jobs are unwilling to work for prevailing wage in San Diego given the high cost of living here. Baker also says that,

It is also worth noting that the unfilled tech jobs have little to do with the problem of unemployment in San Diego. According to the Bureau of Labor Statistics, there are more than 160,000 unemployed people in San Diego. The article reports that there are 6,000 unfilled tech jobs. This means that if every last tech job was filled (there would always be some vacancies due to turnover), it would reduce the number of unemployed by less than 4 percent.

That is certainly true, but the article never claimed that the unfilled high-tech jobs had anything whatever to do with the overall unemployment problem, so the implied insult was gratuitous.

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