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What’s the Difference Between an Engineer and a Half-priced TV?

TVs

President Obama’s recently announced immigration reforms, which in addition to offering deportation amnesty allow foreign graduates of U.S. universities to stay and work longer, are a step in the right direction for U.S. companies desperate for high-skilled workers with science, technology, engineering, and mathematics (STEM) skills. However, despite overwhelming evidence of a STEM shortage, Hal Salzman, a Research Associate with the Economic Policy Institute,once again claims that workers are available if companies are only willing to pay for them, stating “[Companies] may not be able to find [high-skilled workers] at the price they want. But I’m not sure that qualifies as a shortage, any more than my not being able to find a half-priced TV.”

After reading this, I was able to come up with a few reasons why engineers are not comparable to half-priced TVs, why this analogy falls apart, and one very important similarity which Salzman’s argument overlooks.

First, while the hypothetical TV was half-priced, companies are already paying top dollar for skilled workers. STEM workers earn twice the national average, with a median wage of $78,270 in 2012.

Second, TVs, as consumer goods, are usually not essential. If you have to wait for your TV, it probably will not be the end of the world. However, industries are unable to produce, compete, and innovate without human capital inputs. Going without means conceding a significant advantage to foreign competition, which means fewer jobs, less innovation, and less economic growth for the United States.

Third, unlike a discounted TV in a store, there are not enough engineers and other STEM workers to satisfy the existing demand. There are currently 201,600 unfilled job-openings requiring STEM skills and while 48 percent of all entry-level jobs that require a Bachelor’s degree or higher demand STEM skills, only 29 percent of recent graduates have STEM degrees. Even during the recession, there were two job listings for every unemployed STEM worker.

The TV was half-priced in the first place because ostensibly supply was greater than demand. Imagine 10 customers all looking for a TV walk into a store with only 5 TVs. What happens? Of course, the price of TVs goes up as customers offer competing bids. We see this among STEM workers too, as workers with STEM skills have salaries rising 2.6 times faster than average U.S. salaries. Eventually, the bidding comes to a conclusion, and there are five winners and five losers in the impromptu auction. No matter how high the bidding goes, not everyone is going to get a TV.

So what do the losers do? According to Salzman, the customer should simply stand in the store and wait for the manufacturer to produce another truckload of TVs. After all, price has adjusted upward due to scarcity, so supply must be adjusting upwards as well. As Salzman states, comparing current shortages to the shortage of petroleum engineers after the oil boom: “Employers started offering more money, more people started becoming petroleum engineers, and the shortage was solved.”

The problem is that this is going to take a long time. Revamping the U.S. education system to better educate students or trusting the lure of high salaries to lure students into science classes could only conceivably yield results several years down the road.

Which brings me to the only reason engineers are like TVs: the store you are currently standing in is not the only store that carries TVs. Customers are going to leave and go find another store to buy from instead of standing in line for the next shipment to come in. Comparably, companies who cannot hire domestically are going to look to locate abroad, where rigid immigration rules have not severely restricted the amount of available STEM talent. The Compete America coalition estimates that we lose half a million jobs for exactly this reason each year. Without these workers, American companies will not and cannot remain in America. Unfortunately, lots of jobs, not just ones with STEM demands, will leave with them.

The disconnect between Salzman’s petroleum engineering example and our current predicament is that there was a global shortage for petroleum engineers and that petroleum engineering cannot easily be outsourced. Furthermore, the petroleum engineering industry is one of the few STEM jobs in which production cannot occur anywhere in the world, as these industries have to locate near the source. In other sectors, production can and has offshored.

Additionally, the U.S. did rely on foreign labor to fill the gap. Many workers were recruited from abroad to fill the shortage instead of waiting for the U.S. education system to produce more talent, and currently 10 percent of petroleum engineers in the United States are non-citizens. What did that do to unemployment in the field, which Salzman is so concerned about? Petroleum engineering unemployment is currently 37. Not percent. People.

Salzman’s redistributionist mind-set is grounded in a simple equation: workers vs corporations. Restrict the supply of workers and corporate profits go down and worker wages go up.  Salzman is not concerned with overall rates of innovation and U.S. competitiveness, only with who gets a bigger share of a smaller pie. Perhaps if we could reverse the clock and go back to the 1950s, when the United States faced little foreign competition, a chronic shortage of STEM workers would only reduce innovation. Today, the cost of the restrictive and redistributionist policies that Salzman and other protectionists propose will result in not just less innovation but reduced U.S. competitiveness and fewer jobs.

 

Photo credit to Athena Lao, Flickr

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About the author

Adams Nager is an economic policy analyst at ITIF. He researches and writes on innovation economics, manufacturing policy, and the importance of STEM education and high-skilled immigration. Nager holds an M.A. in political economy and public policy and a B.A. in economics, both from Washington University in St. Louis.