Un-Economics

I have a BS in Finance and an MBA. I enjoy learning about finance and economics. They make the world seem "solvable"—as if we lived in a world where a clever realignment of colored squares could make everything just come together at an unexpected ah-ha moment. Graphs intersecting at predictable coordinates, deterministic equations governing entire markets, professors speaking authoritatively and throwing around Latin phrases like ceteris parabis.

Since 2008 I've become fascinated with market failures. A market failure is, very simply, an instance where a pure market outcome turns out to be sub-optimal. The term is not new, but its usage has increased significantly in the wake of the massive housing bubble and ensuing credit crisis. There have been many popular books published on the topic since then; probably the most widely read are Fault Lines and How Markets Fail. 

The attention paid to economic research exploring the very important edge cases where markets do not function in a societally optimal way is a significant shift away from the way in which I was taught economics. The discipline is beginning to recognize that it needs to move on from broad generalizations into evidentiary investigation of specifics.

Anyway. I started thinking about this today because of this article in the Times. You know that "skill gap" that we kept hearing about throughout the election? As in, "we need to provide more retraining so that workers can be prepared for the modern economy"? As it turns out, that's not actually what's going on. There are classes to teach these skills, there are students taking the classes, and there are jobs that are not being filled by those students. The problem is that manufacturers are offering unskilled wages ($10-$15/hr) for jobs that require very significant training.

If I could become a McDonald's shift manager straight out of high school at $14/hr or a skilled factory worker after 18 months of intense training (funded out of my own pocket) at $10/hr, the decision has been made for me by the market. And it's certainly not societally optimal.

Paul Krugman poses the real question on his blog:

Why don't American businesses feel that it’s worth their while to pay enough to attract the workers they say they need?

It's a good question, and I hope someone digs in further. Creating and employing a pool of skilled manufacturing labor is incredibly important to the future of the American middle class.