Labor Shortages: Myth and Reality

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To be sure, there are plenty of economists who agree with employers that there is a serious labor shortage. "We are physically out of bodies," says Edward Yardeni, president and chief strategist for investment firm Yardeni Research. "We've run out of homegrown labor, and become more and more dependent on immigration, legal and illegal."

Employee costs are not an accurate yardstick, Yardeni says. He says workers are currently paid according to how productive they are, and it would be destructive to raise wages "willy-nilly" to attract more workers. That is, employers can only afford to pay workers in keeping with their value, and not solely to fill positions. "In a competitive global marketplace, the only way you're going to pay workers more and manage to stay in business is to tie compensation to productivity," says Yardeni.

Just Pay More?

But some economists and worker advocates argue the concept of a labor shortage is simply being used to keep wages down. "Employers are very quick to raise the specter of a labor shortage, but often it's another way of saying they can't find the workers they want at the price they're paying," says Jared Bernstein, senior economist for the Economic Policy Institute, a left-leaning think tank in Washington. "They are unwilling to meet the price signal the market is sending, so they seek help in the form of a spigot like immigration."

Many employers look to workers from abroad when they're having trouble hiring. In agriculture, an estimated 70% of the workers are undocumented immigrants. In construction, foreign workers play a key role. And technology companies such as Microsoft (MSFT), IBM (IBM), Google (GOOG), Intel (INTC), Oracle (ORCL), and Sun Microsystems (SUNW) have been active participants in visa programs like H-1B, hiring foreign workers for computer programming and project management positions in the U.S. They've even joined together in lobby groups like Compete America to advocate for more foreign workers, both temporary and permanent.

Such moves infuriate American workers in engineering and computer science. "We don't believe that there is a labor shortage," says Kim Berry, president of the Programmers Guild. "There is perhaps a shortage of people willing to work at the salary being offered because those rates are now being set by visa programs like H-1B. But you'll attract the best and brightest [U.S. workers] if the price is right," (see BusinessWeek.com, 8/6/07, "Skilled Workers Deserve True Visa Reform").

The truth may involve shades of gray. "There is not a general labor shortage in the U.S.," says David Wyss, chief economist for Standard & Poor's, which, like BusinessWeek, is a unit of The McGraw-Hill Cos. (MHP). "There is a shortage of people willing to do grunt work for low wages—the kind of shortage you want—and a shortage in high-skilled jobs like scientists and engineers."

Still, Rosenberg, Bernstein, and other skeptics remain wary of proclamations that workers simply can't be found. "I'm a trained economist," says Bernstein. "I can't sign on to the idea that there are jobs people won't do at any price."

Herbst is a reporter for BusinessWeek.com in New York .