How to make the economy great again: raise pay

Raising pay works.

Trucking industry players have been complaining for a few years about an acute shortage of labor in their industry, as demand for trucks rises but people resist launching a career in a somewhat unpleasant, low-prestige industry that has a hazy cloud of disruption by automation hanging over it.

So just recently, J.B. Hunt, the biggest trucking company around, announced that it did something radical — raised pay 10 percent — and the company says it’s working.

That’s going to be grist for the mill of those who think the very idea of a labor shortage is incoherent. But I think it’s worth actually spelling out. It’s easy to imagine a situation where your company has enough customer demand that it would be profitable to add some additional workers at your current pay level (to keep longer hours, say), but it would not be profitable to add additional workers if the price of adding them was an across-the-board pay increase.

There’s a real sense in which that’s a shortage.

But the solution is what we just saw from Hunt. Someone has to go ahead and do it anyway. That could mean accepting lower profit margins as the price you have to pay to increase sales and grow the business over the long run. It could mean charging higher prices. Either way, what it means is that the most aggressive, highest-productivity firms are going to grow and the others will lose workers and die.

A strong economy is a beautiful thing. But it isn’t literally good for every single person. In particular, while J.B. Hunt seems to be doing well with booming demand for truckers, some lesser trucking companies may be undone by higher wage demands. Full employment doesn’t necessarily serve the interests of the entire business class.

A strong labor market solves many problems

A signature aspect of the prolonged Great Recession is the degree to which it discredited capitalism in American society. The obvious example of that is debt-burdened college graduates who flocked to Bernie Sanders and “socialism.”

But a more striking example is the small army of business executives who spent years whining about a “skills gap” and calling for more government programs to change workers.

If you think about that for a second, you’ll see that the idea that a bunch of Labor Department bureaucrats can effectively train marginal workers to perform valuable work in the modern economy involves a nearly utopian level of faith in the state. The right answer to this problem is, obviously, that private businesses should hire underqualified workers to save money and then train them.

It’s not that private business executives are geniuses and government bureaucrats are dolts. But the nature of market competition is companies that are bad at training will just be bleeding money and will stop, while companies that are good at it will gain a competitive edge.

The problem, obviously, is that from late 2000 through to this spring, the labor market fluctuated between “generationally awful” and “kinda weak.”

In an economy like that, having worker training as an organizational competence doesn’t pay off, and companies’ ability to do it naturally atrophies. But that will start to change. J.B. Hunt is handing out raises to attract and retain truck drivers. Some other company may find that it can undercut them on pay by hiring inexperienced workers and training them.

There are plenty of problems that market competition can’t solve, but there are actually quite a lot of problems that it really can address. You just need a strong labor market to make the good stuff happen.

This is why even though nobody wants to agree with President Trump, I think he’s basically right to urge the Fed to show more patience with the interest rate increases. The process of getting the economy working again, with big employers retooling to be prepared to either pay higher wages or invest in training, has huge upsides, but it’s only going to happen under pressure.

This is an abbreviated web version of The Weeds newsletter, a limited-run newsletter through Election Day, that dissects what’s really at stake in the 2018 midterms. Sign up to get the full Weeds newsletter from Matt Yglesias, plus more charts, tweets, and email-only content.

Source link

Share with your friends!

Leave a Reply

Get the latest world news
straight to your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.