Here's Why Wages Might Rise Despite Millions Of Unemployed Being Available For Work

Tragically, the inability of our institutions to impart the skills required by the emerging economy hobble not just the unemployed but employers.

A reader recently offered a compelling reason why total compensation costs (wages plus benefits/payroll taxes) could rise even in a stagnant economy with millions available for work: many of those who have been out of work for a long time (or have yet to hold a formal job) are unqualified by experience and professionalism to perform the work that is available.

This is a complex topic, so let's separate the key issues.

1. Inability to perform the available work successfully on a sustained basis is a problem across the entire spectrum from low-skill to high skill. On the face of it, just about anyone who isn't disabled should be able to do low-skill farm labor such as harvesting fruits and vegetables, etc.

But anecdotal evidence suggests many unemployed Americans are incapable of doing this kind of demanding physical labor on a sustained basis: stories abound of native-born Americans working in the fields for a few hours or days and then giving up.

At the higher-skill end of the spectrum, those who have been out of work for years may find that their skillset has been leapfrogged by technology, and it's cheaper/more efficient for employers to poach workers from competitors than it is to train workers who lack the specific skills needed.

The American Model of "Growth": Overbuilding and Poaching  (November 19, 2013)

Though it may seem counter-intuitive to non-employers, it's actually cheaper and lower risk to pay a higher salary to poach a competitor's employee because you can be confident the employee can start producing value on Day One, where if you hire a long-unemployed worker, you are taking the risk the person has lost the ability to perform at a high level, and you're taking on the expense and time required to retrain them.

Training takes time and investment, and it's easier to hire employees from competitors than invest the time/money in training new employees.

More