Talent Shortage or Management Problems?

Russian soldiers cleaning a backyard. Talent shortage or management problems? Source

A famous quote attributed to Mark Twain advises, “Buy land, they’re not making it anymore.” That’s how executives think about employees.

Talent shortage tops other strategic issues in executive surveys. When a TV remote starts looking like an airplane cockpit, employees need skills to do their jobs. Companies go to the job market after these employees and find the shortage instead. It’s easy to find this shortage. Just offer a salary low enough.

Another shortage is the real one, when companies pay high wages to folks with skills. Who has this shortage number two? The US does:


Since the 80s, college grads got paid more for their skills, compared to those without degrees. The recent decade looks kind of flat, and filling positions should be nothing new to managers. (And, no, the college premium isn’t about entry positions alone. It also indicates what’s happening with top job openings.)

Other countries, though, should experience problems with finding the shortage, not with finding employees:


Premia are flat everywhere, but in the UK and Germany, for 15 years. Latin America:


Brazil does have a skill deficit and high returns to schooling, which mean the economy really needs more educated workers and firms are ready to pay for them. The rest of the countries have other problems to solve before setting to with skills.

The talent shortage seems serious when productivity differences within countries are high. A firm knows that competitors have skilled workers and succeed, while its own resources and performance are depressing. Since all other important factors, like management, are unobserved, it’s tempting to conclude that best workers create great performance. Partly they do, but this thinking solves nothing. A poorly performing company can overpay for talents, but under weak management, increasing costs offset the small gain in labor force quality.

Money and people are in deficit because of the steam engine thinking: the more coal you throw into a furnace, the faster you go. Though that’s technically true, replacing the engine is a better idea.

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