Thursday, February 13, 2014

Shortage of Pilots? writes about the pilot shortage as an airline industry fairy tale, and Atrios concurs.

I also do.  The industry may have a shortage of pilots who are willing to work for chicken feed*, but that is not how economic theory defines a labor shortage.  Ask yourself whether we might have a "shortage" of CEOs if the wages offered for that job equaled $35,100 p.a., then ask yourself what you'd expect to happen if there weren't "enough" CEOs at that annual salary: 

Like auto manufacturers, U.S. airlines operate in a two-tier labor market where some people get paid quite well and many others are paid much less. The relatively lucrative long-haul flights are run by the major airlines. Local flights are outsourced to regional operators, which try to keep costs low by paying workers as little as possible. According to the Wall Street Journal, a co-pilot at a regional carrier with five years of experience gets paid about $35,100 in base salary, while a co-pilot at a major carrier with the same experience gets $101,900 in base salary.
Although many commercial airline pilots get their experience and training in the military, those who don’t have to pay as much as $100,000 to get the required education and flying time -- an investment that can't be justified when the wages for new workers are so low. This helps explain why the average age of active airline transport pilots has increased to 49.9 in 2012 from 47 in 2003. Ticket prices have increased, but mostly in response to the rising cost of fuel. If airlines want to replace their aging corps of experienced pilots and continue serving second- and third-tier cities, they are going to need to boost pay and raise ticket prices. Alternatively, they should ditch unprofitable routes. At least that strategy doesn't require making up stories about pilot shortages.
The "skill gaps" argument about what's wrong with some US labor markets turns out to be something similar:  Employers complain not about a shortage of skilled workers as such, but about the shortage of such workers at whatever  wages the employers would prefer to pay.

A different question altogether is whether the simple market models are sufficient to explain what might be happening in various labor markets.  Take the market for teachers.  Because the public sector is a major employer of teachers and because the incentives of the government are not the same as those of profit-focused firms, the simple market models of labor markets (supply and demand as the two blades of scissors)  may not be the best analytical tools for explaining what the average salaries of teachers are.

Yet I've read conservative commentary arguing that the salaries of teachers are fair because the free-market-god decreed them.  Indeed, even pretty clearly noncompetitive labor markets are regarded as somehow automatically fair because they are called markets.

*When compared to the training costs for the job and to the alternative jobs offering the same earnings levels without similar training costs.