Are Raises Bad for America?
The Fed's hawks think so. But pay hikes have yet to spark inflation
Changes in the nature of American labor markets lead the more dovish economists to argue that, yes, maybe one day tight labor conditions will trigger inflation, but it isn't happening yet. They point out that there isn't much evidence of statistically meaningful inflation in either the latest consumer or producer price indexes. The 0.3 percent July increase in consumer prices announced last week, for example, was right in line with expectations and didn't reveal wage-induced price pressures.
Besides, raising interest rates too much, the inflation doves argue, will choke off growth that is finally reaching Americans who haven't really benefited from the eight-year economic expansion. For example, Larry Kudlow, chief economist at Schroders in New York, points out that there are still nearly 6 million American adults who are unemployed. Says Kudlow: "You've got a lot of job resources out there."
Blue-chip bounty. The sector where workers are truly scarce, however, is information technology, with some 400,000 jobs reckoned to be open. Texas Instruments, the semiconductor company, has 800 jobs it hasn't been able to fill in Dallas. To find warm bodies, the company pays $1,500 to any employee who recruits a new worker and gives him or her a chance to win a new, fully loaded Ford Explorer that's parked in the lobby at headquarters. Even so, a shortage of experienced chip designers has pushed starting salaries up from $55,000 to about $65,000 over the past five years.
But Roger Coker, TI's director of staffing for the United States, says the company is using every trick in the book to fight labor cost creep. It has started offering stock options to more employees, making them available not just to vice presidents but to all managers. That eases some of the pressure for increased salaries. The company is also fighting in Washington to allow more foreign engineers and designers to take jobs in the United States on temporary H-1B visas. In addition, it is using the Internet to hire 28 percent of its experienced engineers and 17 percent of its new college graduates, which greatly cuts the cost of recruitment.
Just as Sprint and others are tapping new urban workers, TI is scouring smaller rural communities for talent. When Coker got wind that a factory was closing in Wichita Falls, Texas, his recruiters went there and found 13 workers, whom the company relocated to Dallas. Meanwhile, TI is pushing for major new productivity gains by increasing the size of silicon wafers, for example, which will reduce the cost of each chip cut from the wafer. The net effect, says Coker, is that "I don't see labor costs translating into the pricing structure of our products."
The reason high-tech employers have trouble finding people--even at a time when folks remain unemployed or underemployed--is the mismatch of jobs and skills. But employers are attacking the roots of that problem, forming alliances with local educational institutions to create more workers with the right skills. A recent example is a $70 million technology and engineering institute that major employers in Omaha unveiled on August 21. "It used to be that we would go to recruiting fairs and take what we could get," says Bill Fairfield, chief executive of Inacom, a $4 billion computer services company that helped spawn the institute. "But today we're trying to shape the students."
advertisement
