So many myths were busted in today’s Employment Cost Index (ECI) report from the Labor Department, which should put the kibosh on wage inflation claims until…the next Employment Cost report. One of the most important is the longstanding notion that America is experiencing a scary shortage of high tech workers, and will fall hopelessly behind the rest of the world in the innovation race – with dangerous implications for national security and living standards – if the “skills gap” isn’t filled pronto with zillions of brainy immigrants.
The ECI data – which doesn’t adjust for inflation when it comes to detailed occupational and industry data – lacks information on technology workers per se. But it does provide statistics on pre-inflation total compensation (including non-wage benefits) for workers in the “professional, scientific, and technical services” field, which includes engineering and computer services.
Remember that textbook economics and common sense both tell us that when businesses can’t find the workers they want, they tend to react in one of two ways. They either increase pay to become more attractive to existing workers they need, and over the longer- term to draw more people into their field. Or they figure out a way to get the necessary work done by becoming more efficient – say, by buying or developing some gizmo that can replace human beings, or make their current employees more productive. (The textbooks, incidentally, don’t teach that businesses facing labor shortages typically lobby governments to boost immigration levels in order to create labor gluts and suppress wages – which seems to be the strategy of choice in Corporate America nowadays.)
Of course, economics also teaches that employers urgently needing more workers will try various mixes of both approaches over time. But those facing genuine shortages usually can’t afford to skimp on pay. Why, then, do the data on total compensation for “professional, scientific, and technical services workers” show that that’s exactly what’s happening to compensation?
The new ECI numbers covered the quarter ending in June, and deep in the Labor Department website, you can find statistics going back to 2001. Since that June, here’s how pay has improved over each previous June quarter:
Do these look like the kinds of pay raises given out by businesses that are desperate to hire? It’s clear that total compensation increases slowed down considerably once the Great Recession took hold in 2008-09. But why should even that deep downturn have produced the dramatic deceleration revealed here? After all, we’re talking about the industries of the future – sectors and companies that are generating outsized growth because they’ve not only found brilliant new ways to meet wants and needs the rest of the economy already has, but because they’re great at identifying completely new wants and needs. And anyway, the recession ended more than six years ago – remember?
But here’s a finding that’s even more stunning – and destructive to claims of tech worker shortages: For the last three years, total pay for the private sector workforce overall has risen faster than total pay for the professional and scientific etc. workers.
Lying about the hiring picture isn’t exactly admirable behavior, but we’re talking about businesses here. They’re supposed to be obsessed with making money in any legal way possible. But elected officials who swallow their propaganda presumably have a different set of responsibilities. If I can find information debunking their labor shortage claims, so can the politicians. Why haven’t they?