Puzzling Dynamics of a Hot Job Market

As demand for tech talent outstrips supply higher wages are sneaking up on corporate America. In Silicon Valley high-tech salaries have shot up as much as 15 percent in the past year.

Meanwhile, in the macro, flagging economy, unemployment is low, hiring is brisk and, for the first time, four million jobs are available on the web. Doesn’t it follow that salaries are bound to rise across the board? In theory, yes, but economists are bandying about words such as “puzzling” and “paradox” and little consensus exists about job market fundamentals.

Total online job ads were 4,365,000 in April, an increase of 610,600 or 16 percent from March, according to the Conference Board’s Help-Wanted OnLine Data report released this week. On a year over year basis, job listings have increased by 24 percent, the report added. Management, healthcare and, surprisingly, engineering jobs were the most common listings.

The numbers are open to different interpretations. If there’s really a shortage of [skilled] workers we should see rapidly rising wages and you don’t find that in many places,” says Dean Baker, economist and co-founder, Center for Economic and Policy Research.

There’s a “strange paradox of low unemployment rate and little sign of wage growth,” agrees Brad DeLong, Professor of Economics at the University of California at Berkeley. “If you look at numbers of supply and demand it looks like the labor market is close to full employment. You expect to see rapidly rising wages. It’s a puzzle.”

DeLong points to several possible explanations. “One, the labor market is actually not that strong, there are relatively few people saying they are unemployed, but there are people who would take a job if offered,” he says. “Or second is real salaries are rising, but increases are going into benefits we don’t see.”

Doug Henton, author of the annual Joint Venture Silicon Valley Index, says that there is a growing imbalance between available jobs and available skills. “I think what we’re seeing now is structural unemployment – when there’s a mismatch for the labor force against the type of skills required,” says Henton, an economist and president of Collaborative Economics.

“When we look at the tech industry we are seeing average wages rising significantly in the software industry and also in computer hardware industry – although we’re losing jobs there,” says Henton. His explanation is a restructuring of demand for highly skilled workers. “We are seeing an occupational shift – a shift in type of skills requirements in these industries.”

According to Henton’s report, median household wages in Silicon Valley rose 6.5 percent between 2006 and 2005 amid higher demand for tech workers. Will this same scenario play out across America or the world?