The “labor shortage” fallacy

I'm a regular reader of the Wall Street Journal and the Financial Times. They're great newspapers, but I've noticed that both are in the habit of reporting "labor shortages" exclusively from the perspective of employers. That's understandable, given that the WSJ and the FT are aimed at the wealthy business crowd. But a "labor shortage," ...

I'm a regular reader of the Wall Street Journal and the Financial Times. They're great newspapers, but I've noticed that both are in the habit of reporting "labor shortages" exclusively from the perspective of employers. That's understandable, given that the WSJ and the FT are aimed at the wealthy business crowd.

I'm a regular reader of the Wall Street Journal and the Financial Times. They're great newspapers, but I've noticed that both are in the habit of reporting "labor shortages" exclusively from the perspective of employers. That's understandable, given that the WSJ and the FT are aimed at the wealthy business crowd.

But a "labor shortage," as in the case of the Bollywood actors, is often just a case of businesses complaining that they have to pay better wages to attract talent. So when you read these horror stories about a shortage of IT workers or what have you, remember that salaries are responsive to market forces as well. When people aren't willing to supply labor at a given wage, you get a shortage, just as when the price of oil is too low, oil companies aren't willing to invest in new refineries.

I have nothing against the wealthy; I'd love to join them someday. But given how middle class income growth has stagnated in the United States in recent years as wealthy investors have prospered, I don't think we should cry in sympathy when companies complain about labor shortages. Rising wages are what economic growth is ultimately supposed to be about.

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