More: Jobs and Wages

Posted by: William W. (Woody) Williams

Wow.

Let's just say we received some interesting feedback on the previous post (Jobs & Wages: Whose Price is Right). We appreciate, as always, all comments and opinions but we are especially appreciative when they are intriguing, thought provoking, and lead to new understanding. So... Thanks!

In the spirit of clarification, continued refinement, and spirited response to the opinions of others, here's more...

It is not difficult to understand the situation of people who are caught in a wage squeeze. More to the point, there is deep understanding and great sympathy. After all, we are in the business of IT and compete in that wage market as well. Let's just say it's personal but there is value in stepping back and taking a larger view of the situation.

Let's go back to the housing part of the wages and compensation formula for a moment. If we review the history of home prices in the US, perhaps that will clarify the previous post. It is an eye opening experience.

Take a look at this graph from a New York Times article. It shows housing prices from around 1900 up to the start of the housing price bubble.

There are ups and downs. After all, cycles are the norm in the natural as well as man-made world. Looking at the trend line is a different matter. Over the hundred year (+/-) time period from about 1900 through 1997 - 1998, the median price of a single family home in the US kept up with inflation -- no more than that.

For a hundred years, our home was one of the safest investments we could make. Homes held their value... Returns were not at stock market levels but we got back what we paid for our home plus inflation which is a better return than if we had kept our money in CDs.

In 1997 - 1998 that changed. The bubble began, fueled by a global hunger for asset based credit and real estate backed investments. We're now on the downside of that bubble but nowhere near reasonable or sustainable levels.

In order for the housing market to "get healthy" again, the price of homes should settle, after some fluctuation, to at or slightly above 1997 - 1998 levels. If it does not or if it is propped up artificially, the consequences are dire. There is a tawdry, catastrophic history of what happens when prices are kept at artificially high levels. Been there; done that.

This bubble had and still has a huge impact on our perception of fair wages. The cost of purchasing and maintaining a home is a significant part of our employment and financial survival strategy. When home prices fall back in line with historical trends, our perception of wages and compensation will improve along with our standard of living.

The market will take care of that but, since government is intervening, the process may take longer.

On wages...

There is no dispute that wages in a particular field or job classification are directly affected by the number of qualified candidates on the market... both upward and downward. The previous post made that point clear. That is supply and demand.

One point we did not specifically call out in our previous post -- apologies tendered -- is that wages and compensation for engineering and technical jobs have been on a bubble just like home prices but for different reasons.

Even with increasing numbers of US college graduates in engineering and technical fields since the 1950's or so, median salaries for those fields have increased disproportionately compared with wage increases in other fields. That is indicative of a supply / demand imbalance.

The US is at the bottom of the list in terms of the percentage of 24 year olds holding a degree in an engineering or technical field when compared with the rest of the world. In 2007 the US was 5th from the bottom, just above Kyrgyzstan. We are not, despite the disproportionate wage differential, a powerhouse in producing engineering and technical professionals.

Reference for wage statistics (MIT paper).

Yet our future is highly dependent on just this type of talent. Bill Gates, and others, are generally correct in their assessment that more technically skilled labor is needed than we produce in the US.

In the cyclical nature of things, corrections occur... sometimes they are over corrections. In the area of engineering and technical salaries, a correction is in progress and it should be allowed to progress. The market is, in this case, working and working well. Included in that "working well" assessment is the assistance of a large and highly available global pool of skilled labor.

Until we -- the US -- can produce engineering and technical graduates at a market stabilizing level, businesses will continue to use that foreign labor pool. They should, in our opinion, be allowed to do so freely. As mentioned in the previous post, keeping wages "off a bubble" is a direct driver of lower prices for everyone in the country. Artificially propping up wages is an exercise in disaster with plenty of history to show the dire consequences. Again: Been there; done that; don't go there again.

Granted: At a personal level, we can't eat averages, markets, or cycles for dinner or pay our bills with them. Adjustments and changes are uncomfortable and sometimes we can't agree on what, at a personal or national level, should be done about being caught on the downside of a correction. However at the personal level, adjustments are essential even if we can't agree on a cause.

We can, at a national level, agree on defining what the real, underlying problems are and begin to address them instead of taking one symptom at a time and treating each symptom in a way that hinders our overall recovery. That is the point and conclusion of the previous post.

Gnash it!

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