Sunday, April 21, 2013

Economics Is Not Business

Again on Saturday columnist Dean Baker illustrates the difference between economics and business by claiming that whenever “employers cannot get the workers they need then they raise the wages they offer to pull workers away from other employers.” Many economists espouse this little piece of sophistry, completely ignoring that even from an economics standpoint it does not make much sense. The shortage is merely shifted from the hiring employer to the employer from whom the employees are “pulled away.”

The concept makes even less sense from a businessman’s standpoint.

For one thing, it apparently never occurs to Dean Baker and his fellow economists that stealing employees from other companies is not really the most ethical way to go about hiring. When I was in the steel business we called that “poaching,” and it was widely frowned upon. It tended to evoke retaliation in a multitude of nefarious ways, up to and including sabotage.

There’s also a little thing called “labor unions,” which dictate in many cases that all companies in a area will pay the same wages for like jobs. The UAW, for instance, negotiates contracts that mandates that all car producers in Michigan pay the same wages. The union contract does not allow paying lower wages, and it does not allow paying higher wages either. Kind of shoots Bakers employee shortage solution down in flames.

Baker also seems to think that producers can raise the prices of their products at will, and to an infinite degree. There was a day when that was the case, the public was in such a spendthrift mood that they would pay any price for anything, but those days are gone, and they are not going to return any time soon. That means that many employers cannot simply raise the prices of their products to cover the increased costs of higher wages plus increases in payroll taxes, worker’s compensation insurance and unemployment insurance, all of which are a percentage of payroll.

Economists need to stick to things like forecasting recessions, not telling employers how much they should pay their workers.

The real issue discussed in the column which Dean Baker is sneering at is the issue of availability of trained workers for today’s technical jobs. There’s plenty to sneer at in that column, but it isn’t in the form of a nonsensical claim to the effect that there is no labor shortage because employers could steal employees if they were just smart enough to do so.

In the past employers would hire untrained workers, called “apprentices,” and train them, at which point they became “journeymen,” but in today's economy they are apparently unwilling to do that. They seem to think someone else, presumably the government, should do the training for them, which I think is rather idiotic. I’m not sure why no one comes up with a suggestion that if employers need trained employees that they should do their own damned training.


  1. bruce3:38 PM

    maybe they don't want to do their own training because it costs them income - that is, training apprentices takes away from journeymen /fully trained peoples that they can get full productivity out of. Of course, the apprentices can be paid less and also maybe do some grunt labor that is more cost productive for them to to and not a highly paid skilled person.

    Or they are just self service and don't want to incur the cost /hassle of doing this and think it should be foisted off on "the goverment"...

  2. Economists should probably be lumped into the same category as "sociologists and other social "scientists." Usually they just tend to spout drivel.