Dean Baker is again demonstrating the difference between economics and business, and proving that the former is voodoo and that economists know nothing about the latter.
On the shortage of skilled workers, he says Friday that, “…the usual way to get better workers is to offer higher pay. And, the workers are almost invariably out there, most likely working for a competitor.”
So. If you hire a skilled worker away from your competitor by offering him a higher wage, and your competitor is now looking to hire a replacement, have you solved the problem of the shortage of skilled workers? Of course not. Moving the job opening from one employer to another is not solving the shortage of workers.
What it does do is increase the cost of producing your product, which you pass on to your customer in the form of higher prices. If you can. Not all companies can do that, for various reasons; a fact which economists vigorously deny. Economists love rising prices because they create inflation, which they think is a good thing. No one else thinks that.
“This means,” he goes on to tell us, “that if there were really shortages of workers with specific skills then we should see pay for workers with these skills rising rapidly.”
To begin with, he sort of blew his theory with his own statement that workers are “almost invariably out there.” Even Dean Baker does not claim that such workers are always available, so the claim that there is a shortage of skilled workers may be valid, and raising the offered wage may, in fact, do no good.
And his claim about obtaining workers by raising wages might mean increasing wages in the economy at large if a) his theory was valid and b) the shortage was nation-wide. To the best of my knowledge, Baker has never cited a specific case where a company solved a skilled worker shortage by offering higher wages.
Something like, “The Skunk Iron Works was trying to hire welders at $12/hr and could not hire them. They started offering $20/hr and in one day had more welders than they could use and formed a waiting list.” Got an example like that Mr. Baker?
Did the example get followed by, “The subsequent decrease in sales due to price increases caused them to lay off all of their new hires and some of the original workers, reducing their work force to below its original level,” or something on that order?
Or perhaps, “The original welders, who were still being paid $12/hr, quit and went to work for the competitor from which Skunk Iron Works hired the new guys.”
He claims validation for his theory by saying that, “there is no major segment of the labor market where we see rapidly rising real wages,” but the shortages were not claimed to have been in a “major segment of the labor market,” in fact he mentions “workers with specific skills,” and he is looking at nation-wide statistics while discussing issues which have been described by local businessmen.
Common sense is called that because it is so uncommon. Economists should be put into a wooden whiskey barrel upon graduation and fed through the bung hole.