Should-Read: Dan Alpert looks at the guts of the labor market in the housing sector and sees a “scissors crisis”: It is not that a labor shortage from a limited supply of skilled construction workers is pushing up wages and prices in the housing sector. Instead, slack demand is keeping contractors from being able to profitably offer construction workers the compensating differentials they need to make it sensible for them to supply labor to the sector:

Dan Alpert: The Case for Aggressive Public Infrastructure Spending: “There is substantial slack in the U.S. economy…

  • A substantial change in this recovery relative to earlier recoveries:
    • Over 60% of net jobs in Low-Wage/Low-Hour sectors
    • Rotation out of LWLH expected long ago
    • Nowhere to be seen
    • Dominance of LWLH contributing substantially to slowdown in productivity growth
  • Perceived labor shortages related little to robust demand:
    • Related to low margins in construction
    • Hence need to hire construction workers at average service-sector wage for profitability
    • Not labor shortage in sense of inability to hire–rather inability to pay a premium (and remain profitable)
  • Job openings still openings “at a price”
    • Price is wage less than required for compensating differential
    • End demand still too weak to make offering higher wages profitable
  • The private sector has done all it reasonably can
    • Yet the U.S. labor market remains a shadow of its former self

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