Sunday, March 31, 2019

It’s Like a Driver Shortage…Only Different

A recent report from the U.S. Bureau of Labor Statistics concludes that there really isn’t a shortage of truck drivers, at least as long as we give the labor market time to adjust.

From the report:
"As a whole, the market for truck drivers appears to work as well as any other blue-collar labor market, and while it tends to be 'tight,' it imposes no constraints on entry into (or exit from) the occupation," the report said. "There is thus no reason to think that, given sufficient time, driver supply should fail to respond to price signals in the standard way."

"Economists would not regard high turnover rates and the associated problems of recruiting and retaining drivers in this part of trucking as a long-term shortage. Nor would they call these conditions a 'broken market,' except to the extent that one might use that term for a secondary labor market segment, since the high turnover that marks such a segment is an indicator that the jobs in it are unattractive to many potential employees."

The American Trucking Association (ATA) has taken exception to this report noting that other than during the 2008-09 recession, the industry is facing an on-going, severe and increasing shortage of drivers, especially in the over-the-road, long-haul segment.

I tend to think that both positions are correct depending on your assumptions and perspectives. The BLS economists are correct when they say “given sufficient time” the driver supply should respond to price signals in the standard way. Likewise, the industry is correct when they say the real world has been experiencing a shortage of truck drivers for years and it is getting worse. The real questions are how much time is sufficient for the driver supply to respond to price signals and what do those signals need to be in order to have the desired effect?

The problem is that NO ONE KNOWS THE ANSWERS because, like most things in life, it’s complicated. We like to tell ourselves that the best answers are simple ones. That problems can be broken down into a few root causes and addressed in a systematic fashion. And, often this is the correct approach. Sometimes we do make things more complicated than necessary. Most of us would agree, if there is a simple answer that works, that’s usually the best one, or at least the best one to start with. The trucking industry has been taking this approach for years. Increase pay. Provide better equipment. Get drivers home more often. Be nicer to drivers, have a cook-out and tell them how important they are. Essentially, do a better job of recruiting and retaining drivers than your competition. But don’t expect to solve the problem because the job is what it is and there’s only so much money in moving a load of freight from point A to point B.

There is money and then there is a thing called utility. And this is where it gets complicated. When the economist says that the driver supply “should respond to price signals” they are absolutely correct. And so will the demand for services. Both buyer and seller have their price signals. And it doesn’t have much to do with what those signals used to be or what someone thinks they should be. It has to do with value (utility) relative to other alternatives. Am I willing to drive a truck, under a given set of circumstances, for a certain amount of money? Or would I prefer to exchange my labor, under a different set of circumstances for the same money, or more, or even less. And as a buyer of that labor, whether I’m making something, distributing it or just selling it; what are my alternatives given that the ultimate consumer is only willing to pay so much for the final product?

Thousands of decisions and transactions go into everything we purchase and everything we get paid to do in order to have the economic wherewithal to make those purchases. And everyone, on both sides of every decision and transaction is asking the same question…WHAT’S IT WORTH TO ME. Everyone is living on their own utility curve.

It would appear that labor has decided that driving a truck for the market price, even a rapidly increasing market price, is not a rational choice. And, in a world where quality labor is in demand and has plenty of options, I think it’s unlikely that we will reach a “price signal” within the next decade which will trigger an increase in the supply of truck drivers. The more likely pathway to supply and demand equilibrium will be reducing the demand for truck drivers. Some combination of technological innovation (autonomous vehicles), regulatory changes (longer/heavier vehicles) and redesigned supply chains could ultimately reduce the number of “driver miles” required by our economy. In the meantime, truck drivers are in a seller’s market.

Considering that we’ve been playing around with the wheel for almost 10,000 years, what’s another decade or two? “Given sufficient time” this “tight” driver market will be corrected. Not to worry. You see, it’s like a driver shortage…only different.

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