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A Recession-Era Economic Myth Goes Up In Smoke

For years, the media was filled with stories about jobs going unfilled due to a lack of qualified workers. Now we know how wrong they were.

Women Operators by George Agnew Reid, 1919. Wikimedia

Facing a tight labor market, employers are starting to hire workers they previously considered unqualified. Once-picky companies are realizing they can’t sleep on imperfect applicants, lest their job vacancies go unfilled and profits sag. The trend is great news for those typically excluded from the job market, such as formerly incarcerated people. It’s also a victory for left-wing economists, dealing a blow to the supply-side argument that inadequate worker skills are to blame for high unemployment.

A new article in the New York Times profiles people on either side of the hiring desk, and they all confirm that corporations are diving uncharacteristically deep into the labor pool to fill vacancies. “We see employers really knocking on the door of our organization in a way that we haven’t seen in probably twenty years,” said a Minneapolis nonprofit director whose organization helps formerly incarcerated people reenter the workforce.

“Our company is looking for new ways to find pools of people just because of our hiring needs being so high,” said one recruiter, whose company in Wisconsin has just begun employing currently incarcerated people at market wages.

This relaxation of hiring standards is a stinging rebuke to right-wing economists, who for years assured us that the main reason for the stagnant post-recession employment rate was that workers themselves didn’t have the right stuff. Throughout the slow recovery, journalists from major papers made a cottage industry of finding CEOs complaining that their hiring searches were coming up empty. Conservative commentators chalked up high unemployment to a so-called “skills gap”: companies needed more qualified workers, they insisted, than were currently on offer.

But something wasn’t right. If companies really needed qualified workers, why weren’t they raising wages to attract them? Or why weren’t they lowering their qualification standards or offering training to less experienced new hires? If companies really did have jobs that desperately required filling, they would have been working harder to fill them. Some flagged this inconsistency early on. “The reason markets adjust,” wrote management professor Peter Cappelli in 2013, “is because the participants, in this case the employers, eventually learn that they either have to raise their pay or lower their expectations in order to get the workers they need.”

The right wing’s explanation for lagging unemployment rate was a classic supply-side argument. The trouble, the argument went, was that firms weren’t getting what they needed to flourish — in this case, an adequate supply of skilled labor. The Left countered with a demand-side perspective: The reason for high unemployment was that ordinary people, not companies, weren’t getting their needs met. If they had more money in their pockets, ordinary people would increase their spending, demand for goods and services would rise, and that would create more jobs. More jobs means lower unemployment, which means greater bargaining power for the already employed, who won’t have to worry about their position being undermined by vast reserves of cheap labor.

At the time, left economists pointed out that even as employers were supposedly yearning for acceptable candidates but unable to find them, wages weren’t rising. “If employers cannot get the workers they need,” wrote Dean Baker in 2013, “then they raise the wages they offer to pull workers away from other employers. This is how markets work.” The fact that this wasn’t happening, Baker and others argued, was evidence that there wasn’t a real labor shortage, and that the “skills gap” was just another name for corporate whining. Employers were putting up job ads, sure, but they were also being hyper-selective about who they hired — for instance, refusing people with criminal convictions — a good sign they weren’t really in need.

In questioning the validity of the skills-gap narrative, Peter Cappelli pointed to the absurdly high standards employers held:

For every story about an employer who can’t find qualified applicants, there’s a counterbalancing tale about an employer with ridiculous hiring requirements. One of my favorites is a job ad for a cotton candy machine operator — if you’ve never seen cotton candy made, it is not rocket science — where the requirement for applicants was demonstrating prior success operating similar cotton candy machines. To test whether his company’s hiring standards were too high, a Philadelphia-area human resources executive applied anonymously for a job in his own company. “I didn’t make it through the screening process,” he notes.

We’ll know when there’s a real labor shortage, Cappelli concluded, because we’ll see absurd hiring conditions start to abate and employers taking what they can get — or, as Baker argued, we’d start to see rising wages as companies tried to lure qualified applicants away from competitors.

Left-wing economists argued against the skills-gap theory throughout the slow post-recession recovery. The stakes are higher than just being right; the idea of a skills deficit or mismatch naturalizes unemployment as a market-dependent inevitability, blames individual workers for not being good enough to land a job, and obscures the collective responsibility to drive down unemployment in order to economically empower the majority of people. As Dean Baker and Jared Bernstein put it:

Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.

Now, as companies begin radically altering their hiring practices, these left-wing skeptics are being vindicated. It turns out that having a criminal record doesn’t make a worker incapable of wiring tail lights for $14 an hour. Employers were bluffing, and their highly publicized complaints about inadequate labor availability were just that — corporate whining.