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What Talent Shortage? The Great American Brain Waste of Our Captive Labor Market

• March 12, 2014 • 2:00 AM

(Photo: 06photo/Shutterstock)

Our biggest businesses complain about a shortage of skilled labor. Instead of calling on the government to act, they should consider workplace policies that are friendlier to women and immigrants.

I don’t have any sympathy for U.S. companies complaining about a talent shortage. Business gets a free ride. Talent assumes the risk for education. (Sorry hometown, you don’t own regional graduates.) Local government will bend over backwards to produce labor for local business demands. And even after business hires the requested workers, it still complains. On top of all of that, corporate lobbyists secure legal protections to restrict the movement of talent from one place of employment to another. All the employer does is critique the system rigged for its benefit.

I’ve noticed two types of brain waste: female and immigrant labor. Both demographics represent a captive market. The employer gouges wages because of some de jure or de facto handicap. The ties that bind women and result in less pay for equal work:

Nearly half the women in the world do not work in the formal economy, and the global pay gap is estimated by the International Labour Organisation to be 22.9 per cent – in other words, women earn 77 per cent of what men earn. …

… Women take the bulk of time off when a baby is born, which affects relative pay. And women’s domestic duties are also regarded as a priority over employment in many countries.

This means women are working what Laura Sherbin, director of research at the Center for Talent Innovation, a think-tank, calls a “second shift”.

“There is pressure from family to quit,” says Ms Sherbin. She points to the example of a senior banker in India. “Even though the family could afford a web of support, she still got up in the morning and prepared all the lunches.”

Such demands mean women need flexibility in their working hours. In many cases, flexibility means a pay cut, especially when countries have no legislation in place to ensure part-time workers are paid the same as full-time workers on a pro-rata basis.

Emphasis added. In commuting terms, women have less geographic mobility. Mother needs to be near the school her kids attend. Less geographic mobility results in less earnings. This is the curse (or dream, for employers) of a captive labor market.

Highly skilled immigrants enjoy tremendous geographic mobility. Yet research turns up the opposite of the expected financial dividend:

“Overeducation is more of a reality for people who come to the United States to be with family,” said Waldorf, co-author of the research. “They have not been recruited by a specific employer, and they often do not find a job that matches their education.”

The researchers found that, throughout the period, the level of education of nearly half of immigrants was above the education requirements for their job, compared with one fourth of men born and living in the U.S. The prevalence of such “brain waste” exceeded 40 percent for immigrants with a bachelor’s degree, 50 percent for those with a doctoral or professional degree and 75 percent for those with a master’s degree. The overeducation prevalence for U.S. natives was 10-20 percentage points lower. Over time, immigrants find suitable jobs, but not to the extent of U.S. natives.

Waldorf noted that prevailing thinking assumes that highly educated immigrants are a significant gain for the U.S. economy and society. But the researchers said that “given the abundance of foreign and domestic talent in the United States, with much of it being poorly matched in the labor market, a policy shift toward attracting even more global talent may actually be backfiring.”

Contrary to the squawking about a national shortage in highly skilled workers, an “abundance of foreign and domestic talent” result in brain waste. The disconnect hurts the foreign born much more than natives. The de jure issue of citizenship puts immigrant labor at a considerable disadvantage. Rules are different for non-citizens. Employers exploit that.

I’m willing to believe we are running out of the low-hanging fruit of ready-to-work graduates. I haven’t noticed employers turning over rocks to plug talent gaps. Thus far, the call is for government to do something. Liberalize immigration. Pay for childcare. Concerning the war for talent, corporations are seeking a bailout.

Jim Russell
Jim Russell is a geographer studying the relationship between migration and economic development.

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