Sunday, June 21, 2015

The Taboo of Discussing Hours and the Alleged Skills Shortage

[Edit: Added links I meant to go with the original post}

In sales, an effective technique is to identify your prospect's pain point and to offer a solution to their problem. The idea is that while there can be multiple benefits your product offers getting someone to switch requires identifying a real problem that they currently have and fixing it.

So when economists question (I'm also reacting to Matthew Yglesias) why aren't we seeing wages go up among high skill workers if there is a skills shortage my thought is that maybe this is indicating that the pain point for high skill employees* isn't their wage level. Instead, my experiences with being in an MBA program and speaking with other people who would be considered high skilled is that generally the concern is with the long hours and level of commitment required. High skill employees are generally relatively satisfied with their income levels, their unfilled needs lie elsewhere.**

This is a major problem for employers since one of the main traits that employers are looking for is a willingness by the employee to be exploited. They tend to phrase this as a willingness to do what it takes, employees as family, a corporate culture where employees work hard and play hard, or "some overtime required," but the bottom line is that the employer expects the employee to be their dependent and to subordinate the employee's goals to the business's goals. Intense pressure to keep labor costs down, even if a business is incredibly profitable already, limits an employer's ability to differentiate itself by offering easy hours.

These limitations are reinforced by a set of beliefs which regards not wanting to take on additional work as laziness, an attitude of entitlement which regards the demands of an employment contract as being unlimited in return for a wage, and a general view that someone that objects to ever increasing demands on their time as an undesirable employee. By defining a good employee as one who does what it takes and making this a minimal qualification for most any high skill jobs employers render themselves unable to attract people talented on other dimensions, employers want employees that will let them run their business a certain way and put business priorities first and what employees really want is an employer that respects them and their priorities outside work; the goals of each group are mutually incompatible.

The result is a deeply dysfunctional labor market. How can the market price labor efficiently when an individual has no way of knowing how much labor they are selling in a given transaction? While high skill employees are confident that they can meet their minimum salary expectations, they find it much harder to get solid information on how much labor they are selling for this salary. Any source of interview advice will emphasize not asking about how long a workweek is or about vacation and leave policy; too many employers regard it as an automatic disqualification. Employers that are well staffed and don't require long hours are afraid to advertise it for fear of attracting the wrong sort of worker.*** Potential employees also know that employers advertising being one of "the best places to work in X" and to give good work life balance are suspect.**** With all other information sources regarding actual hours worked cut off employees are left trying to piece together the bits of information they can find to help them choose where they want to focus their job search. Problematic for trying to recruit based on the one dimensional measure of salary, one of the key beliefs among most job seekers is that a relatively higher salary for a similar position means more hours. Since this is rarely the pain point among high skilled individuals this means the price signal can't work; since a business won't make any firm statements regarding hours, much less a credible commitment to respect an employees time, the price signal just ends up signalling that a job has potentially undesirable characteristics as it does a higher willingness to pay for the same labor input. Among already employed skilled employees why should they take the risk of jumping to a new employer for a higher wage when their wage isn't their main problem? There is simply too much risk for a marginal 10 or 20% pay bump when what they really want is an extra week's vacation and a 40 hour work week so they can be in time for dinner while still making the same wage they currently are.

There are a number of other issues that I think are leading to broken labor markets. One additional point that I do want to briefly mention is that there is a disconnect between when employers talk about skills and much of what I see in the press. I haven't heard anything from businesses that makes me believe that there is a shortage of trained people with the desired skills, the problem arises from businesses wanting proven talent. This is highly problematic, individuals have no way to respond to these incentives and create additional supply since it requires that an individual gain experience from another employer; something that the other employer has an active interest in NOT providing to an employee who will leave in response to the incentives from another employer. There is no way for the market to respond since the source of supply, the competing employer, gains nothing from the transaction between the skilled employee and the new employer.

* It is a very different situation for low skill employees but with growing inequality it is unsurprising that situations would differ among low and high skill employees.

** There is a small percentage of people willing to do whatever it takes in return for status and remuneration who don't fit this description. My experience in an MBA program at a state research university would put this number at maybe one in ten among this group. For the population as a whole, I would think it is much lower, though for people in elite programs at top schools the percentage is likely much higher. However, for these few individuals we are seeing incomes skyrocket as employers bid for them, these are the folks that are ending up in industries like banking or in leadership programs at top firms. Most people, however, have preferences which begin to discount income relative to leisure pretty steeply once they've reached an upper middle class lifestyle.

*** Of course, these employers often have no trouble recruiting through personal networks because so many workers want jobs that don't ask for insane hours but still pay a wage comparable to the more demanding employers on an hourly basis. Obviously, however, personal networks are the exact opposite of a market and are a throwback to the aristocratic pre-market society of past ages. The fact that personal networks are such an important means of getting a decent job, with a broad understanding that most jobs found on the market are crap jobs, is another strong indicator that the labor market is badly broken.

**** I interviewed at one place that advertised itself as such. Their idea of work life balance is that you had considerable freedom to schedule your work hours but should expect 60 hour weeks, declining to 50 with seniority. Hardly the 40 hours which most naive individuals think is implied by work life balance.

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