"Business Week" Solves Labor Shortage Mystery

The great labor shortage mystery has been solved!

Throughout the late 1990’s and again recently, business organizations and owners have identified skilled labor shortages as the major obstacle to economic growth.

At the same time, multi-national corporations from Circuit City to General Motors to Citibank have been laying off tens of thousands of experienced employees. It is also well documented that cities like Milwaukee suffer from exceptionally high rates of African American unemployment.

It makes one wonder how labor shortages, layoffs and high rates of African American unemployment can exist simultaneously.

A recent Business Week article may provide the answer:

A global labor crunch, already being felt by some employers, appears to have intensified in recent months. That's in spite of widely publicized layoffs, including Citigroup's plans to shed as many as 15,000 staffers ... Corporations are determined to keep labor costs under control, so they're reaching deeper into their bag of tricks ... Some are lowering their standards for new hires or moving operations to virgin territories other outsourcers haven't discovered ... Economists, of course, will tell you there's no such thing as a labor shortage. From a worker's viewpoint, many so-called shortages could quickly be solved if employers were to offer more money. And worldwide, millions of people still can't find jobs. The strongest evidence that there's no general shortage today is that overall worker pay has barely outpaced inflation.

At the dawn of the Twentieth Century Henry Ford couldn’t find dependable workers. His company's turnover rate was 300%. Ford was, in today’s business speak, facing severe labor shortages. His solution was to double the daily wage to $5 a day. Bingo! As the price (hourly wage) was increased the number of workers willing to work on the assembly lines increased dramatically. Ford jobs became desirable, despite being hard, monotonous and dangerous. The labor shortage vanished.

Maybe there’s a lesson for today’s employers. Or maybe they know, as the Business Week article suggests, exactly what they are doing - keeping labor costs under control!