There are other articles about shortages of farm labor, hotel workers, and EMTs. Why is the market so slow to respond to these shortages with increased wages? If truckers don’t want an $80,000 a year job, why doesn’t it quickly become a $100,000 a year job, or a $120,000 a year job?
My theory is that there’s a resistance to market forces in terms of setting wages based on career prejudice. We (capitalists) like to think the market will set the wages, but at some point a manager in HR needs to make a decision that a hotel worker actually warrants a $55,000 salary instead of a paltry hourly sum. Those HR managers don’t view hotel workers as being worth that kind of money so there’s a reluctance to use an increase in wages to solve the shortage.
Short answer: because there is a perpetual pressure to keep costs low, and wages are a big cost. There is often a false economy here, but the short-term benefits of not paying more are often weighed more heavily than the longer-term demerits of doing so.
In addition, the first company to do so puts themselves at a competitive disadvantage as they are increasing costs in comparison to their rivals without an increase in profits to offset it (note that this doesn’t apply in highly specialized industries where increasing pay in order to attract sought-after individuals can produce a benefit to the company). This disadvantage doesn’t apply in the case of an across-the -board increase, usually imposed by the government (e.g. a minimum wage increase or raises for government-paid workers).
Finally, of course, this sort of thing used to be rectified by the unions, but forty years of concentrated unionbusting has greatly weakened their negotiating power.
As a business owner, of course your initial reaction to a market where what you used to pay is no longer sufficient is going to be “I pay these guys $x, and that is what they have been worth”
If $X is no longer sufficient to keep the workforce that your business needs then you have 2 choices.
Pay more
Go into a different business or with a different model.
The sticky moments come when paying more than X makes you not profitable. Then you start to look at other options. Outsourcing, automation etc
I think all prices are sticky to a degree. People think it “just isn’t right” to spend more or receive less than they are used to for a large variety of things, from salaries to gas prices to housing prices. Much of the time it is irrational.
I think the notion that feelings or prejudices are involved is pretty flat earth in this situation. Businesses, unless very small and pathetic, think in terms of numbers and risk.
I personally know several counter examples to this in Fortune 100 companies. One boss I had undercut HR recommendations for new hires, because, I think, he felt he didn’t get paid enough and resented them getting paid as much as the market demanded.
I suspect many businesses got anchored to hiring during the recession when people were happy to get jobs.
Let’s say you have a hundred drivers at 80k per worker.
What’s the marginal expenditure of hiring another worker? Well, it’s 80k at current prices, supposing a competitive market with a highly elastic supply of workers at that price.
But what if the market isn’t competitive? Trucking is a specialized skill. Not every burger flipper can switch jobs over the weekend, and not everybody would want to given the stresses of the job. The supply isn’t necessarily going to be so elastic at current prices. As you indicate, the price needs to go up in order to attract more entrants. So what if the supply of workers with those highly specific skills is already tapped out at 80k, so that you need to raise wages higher, let’s say to a 100k, in order to attract an additional worker into the market.
This is a much different situation. What’s the marginal expenditure of hiring another worker at 100k, when the rest of your work force of a hundred drivers is at 80k?
It’s not 100k. In this made up example, it’s actually closer to 2,000k: a marginal expenditure of two million dollars to hire the extra worker. Internal pay equity is a big fucking deal. You can’t just bring in a new greenhorn worker, with less skills and less experience than your entire fleet, at a higher wage than your talented veterans. That shit is not going to fly. If the supply of those workers is inelastic, then that means you have to bump pay for all previous workers in order to bring in a new worker. When you bump pay for that novice, you’re also going to have to bump pay for your entire previously existing workforce. That can be hellaciously expensive. Specialized trades are like that. Outside of competitive labor markets, companies can easily get stuck with sharp wage constraints. If they could keep hiring at the current wage, they’d do it. But if literally every employee on payroll has to get a raise in order to hire new people, then that’s a much different cost, and it’s much more sharply felt.
This is why in specialized trades, there can easily be a “shortage” of workers: quantity demanded exceeding quantity supplied, at the current wage. They’d like to hire more people, if they can do it at the same wage as everybody else they already have. But that doesn’t mean they can afford to bump the wage much and still stay in business.
So they complain. Loudly. Repeatedly. For all the world to hear.
It’s like a form of advertisement. The complaints are a way of trying to make that labor supply more elastic. “We have jobs at good money (as long as you’re willing to be paid similarly to the fleet we already have.)” Forever and always, when there are firms with specialized workforces, and thus must face inelastic labor supply for their open positions, they are going to be complaining LOUDLY about the stresses of finding qualified workers (at current wages).
In truth, truck drivers aren’t a made up example. It’s a real example. Shortages of truck drivers have been a problem in that industry for twenty years - and the problem as described is exactly right.
Wages for drivers HAVE gone up, slowly. It’s a really lucrative job, as compared to the training and expertise needed. But a firm cannot just jack up wages overnight.
Maybe it’s not a question of wages. Maybe it’s something else.
Let’s take the most generous comparison possible.
Since most truck drivers are men, and since (for whatever reason) men tend to earn more than women, let’s focus just on the men.
The median wage for a man working a full-time job is $991/week.
For convenience, let’s round this up to $1,000/week, or $52,000/year. Let’s say that the $80,000 mentioned in the Washington Post article is standard. That’s almost a 54% increase relative to the median wage.
And yet those jobs are going unfilled. This very strongly suggests that, in this case, money is not the motivator that the OP assumes it is. If a 54% increase in wages is not sufficient motivation to change jobs, then why would you assume that a 100% increase would be a sufficient motivation? Maybe–and quite likely–there are other factors involved.
I personally have considered the possibility of becoming a truck driver multiple times. But I want to be home every night, AND I don’t want to go through the hassle necessary to get (and keep) a CDL.
It may be hard for the OP to believe, but there really are things that are more important than money.
I can see why people think this, but it is not true because of some factors not considered in this analysis. I speak from experience doing salary administration in an even more specialized area, Bell Labs, where most hires were PhDs. It is true for other places also.
New hires are paid based on market rates, since they can choose between companies with pay being a major factor. Existing hires have barriers to shifting jobs. Therefore, starting salaries rise much faster than raises. In bad markets you hardly hire anyone so there is not a lot of people coming on with lower starting salaries. Salary inversion, where new hires are paid at or near the rates of existing employees - even ones with good performance - is common.
So the claim that existing employees must get raises to match new starting salaries is not true.
There are a couple of other factors. First, since salaries are not publicized the existence of salary inequities is not well known. I was not aware of them until I became a manager and saw all the numbers. Second, changing jobs entails a certain risk, not true for taking a new job out of college, say, which reduces mobility. That’s especially true for specialized jobs with relatively small number of potential employers.
It is possible that unionized jobs won’t have this issue since the union would have a better view of salary distribution, but they are rare in specialized industries.
Not to mention that from an individual business’ viewpoint the question of whether raising salaries increases the pool is less important than whether it solves their immediate problem.
I think the misery is baked into the current wages; the reason it’s already an $80k a year job instead of a $50k a year job is because it sucks, and they had to increase wages to find more people who are willing to sacrifice the “things more important for money” for, you know, money. Personally, I know there’s a price point where I’d quit my job, chuck deuces to my family and become a long haul trucker, and I’m sure you have your own. For me that’s around $250k a year, as I could work for 2-3 years and have all my kids colleges paid for, but I assume that trucking companies would find an equilibrium well below that.
Aren’t many truck drivers unionized? I think that impacts the analysis pretty significantly.
Wages are also a lever that is difficult to unpull. Once I raise someone’s wages, I’m not going to be able to decrease them very easily. That makes me err on the side of cautiousness. Many other expenses are keyed to wages as well, so often it’s cheaper to give bonuses rather than wage increases. I’d much rather give a person a $20K bonus than a 20K raise, or even a 15K raise.
Commercial airline pilot used to be considered a pretty glamorous, high-status job. And in the very old days, there used to be four people in the cockpit and four engines on the wings. When the jet age came, technology allowed combining the navigator and flight engineer jobs. Later on those duties became highly automated. These days, the only reason there are two pilots in the cockpit and two engines on the wings is if one of either breaks down during the flight.
There’s a constant push-pull between cost and pricing. If you’re a public school, you depend on taxpayers for your money. Many of those taxpayers don’t have children in your school and don’t really see why they should pay anything. If you’re a trucking company, your customers want a cheaper form of delivery, so you shift to using tandem trailers. Sure they may sway more and be harder to drive, but you only need half the drivers.
One of the hallmarks of climbing the corporate ladder was reaching the point where you had your own secretary. Then automation cleared out so many secretaries that the C-suite executives can’t find people with the skill set to be a C-level assistant.
And if some of those changes lead to fewer people wanting to go into that line of work, well, we’ll just have to automate more, put more kids in the classroom, or accept lesser qualified employees who will work for what we pay.
This seems a very good explanation of why come vertical skills and the companies that use them can’t just raise wages (and you didn’t even get into the loaded labor costs, that could potentially make the bottom line even higher). Wages have been rising in the trucking industry, but I think another factor is some folks are probably scared off by the speculation about automation and AI playing larger roles in the future and basically starting to impact the jobs down the line. If you are a young kid who is looking for a pathway forward, and one of your choices is go to go a trade school for a year or so to become a long haul trucker, then seeing speculation about how the industry might be using automation and AI to drive the trucks in the future might make you reconsider where things will be in 20 or 30 years…when you are at the height of your career if you are 18 today.
I think that the OP is using ‘the market’ too loosely. In SOME labor markets for various reasons labor costs aren’t being increased (or they are, but on the back end in the loaded rates not in the take home pay part). In others, they are rising. You get the impression from reading some articles that labor rates in the US have stagnated for some long period of time (‘since the 70’s’, since the ‘90’s’ or whatever), but this isn’t true across the board. It’s true in some fields or industries, but not in others (and in some, automation has gutted their labor market, making it a shadow of what it once was)…and often, not even across the board in the same industry.
Because you are thinking about it backwards. Wages are not a market driver. The market (indirectly) drives wages - with mostly downward pressure. If you are smart enough to command sick skills in some rarefied specialty, you write your own ticket. The rest of us are just working stiffs.
Does this apply to the examples in the OP? Truck drivers are paid by the mile much of the time and that rate is known and publicized among drivers. Truck driving is pretty much the same job no matter what the company so changing jobs is not the huge change it could be in other professions.
What most stories about worker shortages do not mention is that demand is dependent on price just like supply is. If there is demand for 100,000 new truck drivers at current rate, if you increase the price of trucker labor demand will go down.
Demand for trucking is already too high though, or at least too high for the given supply of drivers. That’s why there’s a shortage. So yeah, wages should go up, demand will drop some, and once they find that equilibrium the shortage won’t exist. That’s how I understand economics 101, at least.
Who exactly makes job decisions based on how the salary compares to the median wage? You compare the offer or your salary with wages in your sector. Which take your issues into account. I’ve never seen a discussion of engineering salaries that even mentions the median wage for everyone. I bet that’s even more true for CEO salaries.
Wage increases might not be immediately useful for the industry as a whole, depending on how much training is required. For instance people today have the perception that IT jobs pay a ton because Google and Facebook have high starting salaries, so CS departments are getting swamped. But the supply won’t be available for at least four years and maybe more.
I don’t know the specific situation of truck drivers. Hellestal posted as if it was universally true that increases in starting salary for new employees drove increases in the salaries of current employees, and I was giving a counterexample.
However if employers are complaining of a shortage, there is clearly an imbalance. Where the equilibrium is is another matter. I’m not sure how elastic demand for truckers is, but certainly if an increase in pay caused a million people to go to driving school, the shortage would be eliminated and wages might fall again.