Skills-shortages and ‘the market’

What can we do about skills-shortages – the paucity of people with appropriate skills and experience for the needs of our organisation and enterprise? Is the market-mechanism of scarcity-pricing the right way to resolve this?

A quick bit of background: I’m currently retrieving all of my Tetradian blog-posts and reworking them into more structured form so that selected subsets can be republished as more-focused ebooks. It’s a long, tedious process that’ll probably take me at least a month, but it’s also helping me a lot in terms of reviewing where I’ve been, and re-exploring the, uh, rather large scope that I cover here.

Somewhen from late 2009, somewhere about the 310-post mark – out of just over 840 posts to date – I came across this real gem hidden away in the comments of an otherwise fairly innocuous post, pointing to articles I’d recently posted on my Sidewise blog. I’m not quite sure which of those Sidewise posts the commenter was responding to, but it’s probably this one:

  • Where have all the good skills gone?: This article explore a rarely-acknowledged cause of the current ‘skills-shortage’: an incomplete understanding of the limits of automation.

Back over here on the Tetradian blog, someone named Untra Palkaoff came back with this remark:

When you use the phrase “labor shortage” or “skills shortage” you’re speaking in a sentence fragment. What you actually mean to say is: “There is a labor shortage at the salary level I’m willing to pay.” That statement is the correct phrase; the complete sentence and the intellectually honest statement.

Some people speak about shortages as though they represent some absolute, readily identifiable lack of desirable services. Price is rarely accorded its proper importance in their discussion.

If you start raising wages and improving working conditions, and continue doing so, you’ll solve your shortage and will have people lining up around the block to work for you even if you need to have huge piles of steaming manure hand-scooped on a blazing summer afternoon.

Re: Shortage caused by employees retiring out of the workforce: With the majority of retirement accounts down about 50% or more, most people entering retirement age are working well into their sunset years. So, you won’t be getting a worker shortage anytime soon due to retirees exiting the workforce.

Okay, fine. Some specialized jobs require training and/or certification, again, the solution is higher wages and improved benefits. People will self-fund their re-education so that they can enter the industry in a work-ready state. The attractive wages, working conditions and career prospects of technology during the 1980’s and 1990’s was a prime example of people’s willingness to self-fund their own career re-education.

There is never enough of any good or service to satisfy all wants or desires. A buyer, or employer, must give up something to get something. They must pay the market price and forego whatever else he could have for the same price. The forces of supply and demand determine these prices — and the price of a skilled workman is no exception. The buyer can take it or leave it. However, those who choose to leave it (because of lack of funds or personal preference) must not cry shortage. The good is available at the market price. All goods and services are scarce, but scarcity and shortages are by no means synonymous. Scarcity is a regrettable and unavoidable fact.

Shortages are purely a function of price. The only way in which a shortage has existed, or ever will exist, is in cases where the “going price” has been held below the market-clearing price.

I’ll admit I was a bit underwhelmed at being told “What you actually mean to say is…”, and likewise the irksome arrogance around “the correct phrase … the intellectually honest statement” and suchlike. To be blunt, yes, I had indeed meant what I’d said in that post – not merely what Polkaoff had apparently wanted me to say – and I’d said it with good reason and a lot of careful thought, too. Oh well.

Anyway, what follows is a mildly-edited version of my reply there:

For basic-level skills – up to the 100-hour mark, and maybe even the 1000-hour mark – yes, I would probably agree with Polkaoff: the rather crude current concepts of ‘the market’ would probably provide a practical incentive, and enough of an incentive, for people to shift their skills-base.

But I fear Polkaoff may have badly missed the point for true skills capable of operating in the complex-space and above. There, one of the primary drivers for skills-shortages is not money, but time: it takes literally years to bring someone to that required level, and no amount of throwing money at the problem is going to change that. (Okay, there’ll be plenty of people who would claim to solve it with money alone, but I can guarantee that the skill-levels will be inadequate to the task.) And that, of course, assumes that the aptitude for the skill exists in the first place: for example, just how many people are there in the world who are even capable of understanding the deep-math of nuclear physics, or the subtleties of a financial market? For those tasks, and at those levels, the skills-shortage will always be real.

In some of the larger countries – such as the US, Germany or Britain – it’ll often seem that there are plenty of people with a high general-education level and a significant amount of experience, ready for retraining to whatever technology might be required. Yet in most of the countries I’ve worked, the technical-skills pool has always been very small – hence a constant problem of overload, frequently at risk of burnout, and, again, a very real skills-shortage which no amount of throwing money at the problem would resolve.

In short, I fear that those comments imply an over-idealised notion of the capabilities of ‘the market’, and perhaps not enough experience or understanding of the difference between training and skill, or what the development of real skills actually requires in real-world practice.

To give one very simple rule-of-thumb, if it’s possible to do a certification for the ‘skill’ by a multiple-choice exam, it’s not a skill: at best, it’s a training – and not capable of handling real-world complexity without experienced help. And whilst it is relatively easy, and quick, to train people up to do the same tasks that computer-systems already can, it is not easy, nor quick, to develop their skills beyond that point. In IT, for example, the people we need most are not those who merely operate the machines, but those who can define the capabilities for new computer-systems, and/or can take over beyond the capabilities of those computer-systems – in other words, can deal with the real world, rather than some convenient yet literally unrealistic pre-packaged Taylorist abstraction.

There are also several real challenges around motivation and risk-management. What’s often forgotten is that whilst personal opportunities may arise from a developing a new skill, there are also very real personal risks around opportunity-cost and the like – and also the risk of investing in a skill that, by the time we become competent in it, the skill itself has lost its market-value. Narrow specialist skills are in high demand, because that’s what gets things done: but the trap – and the risk – revolves around how long those specialist skills will remain in demand. When the skills-market is stable, over decades or more, those risks remain small, and it’s worth putting in the five years or so to become a truly competent specialist in some narrow domain. But when the technologies and context change not on that safe timescale of decades, but of years, months or even weeks, those risks loom very large indeed – and that fact definitely does affect how and why people choose to develop some skills rather than others. And for the skills that people don’t choose to develop, or for which there’s not been enough time for enough people to develop the required levels of skill, yes, there are going to be real skills-shortages – a real scarcity that crass notions of short-term ‘scarcity-pricing’ and suchlike will not be able to resolve.

An assertion that “Shortages are purely a function of price” betrays a serious lack of understanding or knowledge about how the real-world really works – such as understanding the complex intersections of the transaction-economy, attention-economy and trust/reputation-economy, as described in another of the SideWise posts. Of course, those who come out with such assertions would be in good company in that lack of real-world understanding, because it seems most current economists make much the same myopic mistakes – which is precisely why our current economy is in such a chaotic mess…

So apologies if this seems rude, but I truly do not believe that anyone who comes out with an assertion such as “Shortages are purely a function of price” can have thought about this in any depth at all, beyond the most simplistic of price-centred economic models: and hence they really should not inflict that lack of thought anyone else. There’s a crucial distinction here between competence, non-competence and incompetence: competence I deeply respect, wherever and in whatever form it occurs; for non-competence, I’ll happily help wherever I can; but I have no time or tolerance to waste on flagrant incompetence of that kind. I certainly cannot – and will not – take those kinds of critiques seriously, anyway.

Bah

Oh well.

Your comments, perhaps?

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2 Comments on “Skills-shortages and ‘the market’

  1. Tom – HDI and Robert Half Technology recently studied the “skills shortage” in the technical support industry in a report called “The War for Talent.” There were 1285 respondent organizations from 33+ countries.

    It most certainly is not just about money. It’s about the ability to learn, grow and advance, and also about the types of perks offered by organizations–above and beyond money.

    The report is publicly available–no registration required, free for the taking–at
    http://www.thinkhdi.com/topics/research/war-for-talent.aspx

    Full discplosure: I’m the writer of this report.

    Thanks,
    Roy

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