Tuesday, November 22, 2005

Human capital v. labor 

Chad the Elder notes today's WSJ article (subscriber link) that there is a shortage of skilled labor:
We all know what's been happening to the U.S. manufacturing sector over the last few years, right? The media is full of stories (most completely anecdotal in nature) describing how greedy corporations have been outsourcing all the "good jobs" to places like Mexico, India, and China, closing down the factories and "meels" (as John Edwards would say) that made America a great nation, and leaving the average working class American with a dismal future of low-pay, no-benefits jobs at either McDonald's or Wal-mart.

The problem with this woeful tale of American manufacturing decline is that those spinning the sad stories have rarely bothered to talk with those firms actually doing the manufacturing.

But we have, here in St. Cloud. I co-author the Quarterly Business Report with my colleague Rich MacDonald, and we survey local area businesspeople about current and future conditions of their firms. Except during the recession of 2001-02 (-03 up here, since the closure of Fingerhut in Jan. 2002 set us back relative to the rest of the business cycle), businesses have consistently reported that they have trouble finding additional labor, and particularly that which is skilled. In our August survey we found that 22.2% of area businesses reported they were having more difficulty attracting qualified workers (only 4.4% reported less.) As a result, we asked a special question in the last survey on what firms spend on employee training. Almost one in four said they spend more than 5% of their budget on employee training and development -- the national average is about 2.5%.

Thus stories about GM laying off 30,000 workers focus on an excess supply of labor while deeper data shows a shortage of human capital. Firms are spending more in making investments in their own workforce. This demand for skilled labor will quite possibly also lead to increased demand for older workers, which would soften the blow raising retirement ages or the age at which one qualifies fully for Social Security. Indeed, what sense does it make to give skilled labor an incentive to not work?

UPDATE: Chad notes in an email:

The sad thing is that this story from the WSJ will likely receive little or any attention elsewhere.

"US Manufacturers Looking For Workers" isn't a good lead for network news.