Back in 2011 and 2012, apple growers in the state of Washington got the government there to declare an emergency. They were expecting a record or near-record crop of fruit but they just couldn’t find enough workers to harvest it all. Faced with a potentially devastating labor shortage, Washington’s governor turned to convicts.
I wrote about it in 2013 and have returned to the story often simply because it best describes a lot more than apple picking during just those few years:
Through her emergency declaration, the apple owners were able to procure criminal labor (or, more accurately, criminals as labor). Male “offenders” from the Olympic Corrections Center in Clallam County were put to work gathering in that massive harvest, earning all of $8.67 per hour. That, of course, was not the true cost rendered to the apple growers since the state had to pick up the tab (or at least part of it) for transportation and security. That amounts to a government subsidy of growers and perhaps even an expectation for future subsidies.
Governor Christine Gregoire’s comment on the situation remains apt. She admitted and explained to one Washington (DC) media outlet, “I don’t believe we have ever done this in history…But it’s either that or the apples rot.”
To be clear, this was never a labor shortage. This was the market, or the economy if you like, telling the apple growers in the Pacific Northwest to let the product rot. If the price of apples was too low for them to be able to afford paying a market clearing wage to harvest everything, that’s not an emergency it is a harsh and unpleasant economic reality.
Washington’s apple growers were not restricted by heroin users among potential labor supply, nor were they prevented from complete fruitage by a surplus of retiring Baby Boomers. The economic climate for apples at that time simply did not support higher wages, therefore there weren’t sufficient workers as producers saw it but it was just the right amount (before the Governor stepped in) for the market.
This fruity saga from six years ago is only missing one recent labor claim. In apple picking, there isn’t going to be a potential skills mismatch. As a low value labor component, so long as you are physically able (which itself isn’t a high standard) you qualify.
The idea of a labor shortage across the entire US economy has simply gotten way out of hand in the same way as the use of convicts to harvest Washington apples. There isn’t a labor shortage in either case, there is only macroeconomic reality which precludes businesses from paying wages that would harmonize all variables to everyone’s satisfaction (including those talking about a boom).
In either case, a skills mismatch would have resulted in the same thing – rapidly rising wages for those who do possess such skills. Furthermore, as pay rates accelerate in that class, it will over time by natural economic law draw more workers into the industry or specific business class. Labor seeks opportunity in the same way as businesses do. If Washington’s apple pickers were willing to pay a huge premium, it wouldn’t have mattered if there was a high skills requirement for the jobs.
But Washington’s producers couldn’t pay because that cost just wasn’t supported by an anemic apple economy. Ultimately, that’s all the enlisted labor amounted to, an admission that this presumed deficiency wasn’t really economic in nature but political. It was a bailout of sorts.
According to the last few months of data from the BLS’s JOLTS survey, including yesterday’s update for April 2018, the demand for labor in the US has again surged. Estimated job Openings (JO) in March spiked to a record high way above prior cycles. In April, they grew a little more apparently confirming the big jump.
That fits the narrative of a booming economy, so Economists begin with the premise that it must be true. It is consistent with the unemployment rate now at 3.8%.
Also according to JOLTS, however, the rate of Hires (HI) has barely budged since last May further diverging from JO. Still around 5.5 million, there hasn’t been much growth at all dating back to 2014 and 2015. This is much more consistent with aggregate income data.
This supposed inelasticity of labor supply (with respect to quantity) is this LABOR SHORTAGE!!!! that in JOLTS works out to a growing chasm between JO (labor demand) and HI (one element of labor supply). In the media, it is these constant stories often about how creative businesses have become trying to fill positions (though higher pay requires no creativity at all).
The problem with the LABOR SHORTAGE!!!! thesis, whether derived from heroin use, Baby Boomers, or any skills mismatch, is obvious on the curves. In each situation there would be clear, rapid wage growth. In fact, these situations could only lead to that result.
This is why Economists and those who support them in the media have become fixated on wage data. For any of this to be true, for the very idea of a healthy or reasonably growing economy to be valid, there must be wage acceleration else the whole thing has been falsified – just like it was in Washington’s unduly large apple harvest.
Unfortunately for everyone, there just isn’t any sign of wage acceleration anywhere. They can talk about “strong” labor market and the unemployment rate, but the curves just don’t lie. Over the past year instead, there are more indications of the opposite condition where wage growth has fallen off (especially in real terms).
Today the BLS revised and updated its compensation figures. Nominal Compensation per hour continues to be visibly, atypically depressed, while in real terms compensation per hour declined for the second straight quarter.
Unit Labor Costs rose by 1.3% year-over-year in Q1 2018, after rising by 1.8% in Q4 2017 and contracting for nearly all the five quarters before that. This measure of labor price pressure should be expanding by at least 3% if not more like 4% to be consistent with past periods where the unemployment rate was so low and the economy actually performing consistent with the rhetoric surrounding it.
There simply cannot be an economywide skills mismatch nor can the opioid epidemic explain the difference between JO and HI, demand and supply for labor. What the data proves, and there is enough time under these conditions to draw some hard conclusions, is that JO like the unemployment rate is an unreliable statistic more likely capturing changes in specific business behavior (placing more online advertisements per actual job opening and completed hire than before) rather than any positive changes in economic conditions.
As noted last week, the matter can be settled by simple common sense just not in any way directed toward a LABOR SHORTAGE!!!! Like Washington’s apple growers, US (and global) businesses are constrained by lack of revenue growth (economy) constantly challenging their bottom lines. They have by completely natural response over-managed their cost structure, the only theory of what’s happening that fits all the facts (including, counterintuitively, stock prices).
In terms of small “e” economics, the labor supply curve cannot be inelastic, it is the demand curve which has become so due to the Great “Recession” having been something very different than a recession. This is all evidence, and proof, of the “L” in the labor market.