EC103-Topic #2: Labor Shortages

Across the U.S. there are many stories that there are labor shortages taking place in certain markets. Aplia has posted a blog regarding the labor shortage issue in the U.S. and U.K., and news stories have cropped up in Washington state, New Orleans, and Wyoming to name a few examples. In most of these cases, there are labor shortages in markets where there is little flexibility to increase the supply of labor in the very near term or even in the “medium” term. It is possible to use basic economic principles that we have already discussed to examine what the cause of these shortages might be, how they might be politically solved, and the economic implications of these possible “solutions.”

Without the use of graphs, you should be able to describe what a shortage (or a surplus is). Briefly discuss the shortage situations in these areas or others that interest you. What is the main principle of a “labor shortage”? High wages attract workers to certain jobs which often require skills or training that may take time to acquire. Other workers are simply attracted to a “job” which they cannot find in their current location, even if it does not require much in terms of skill or experience.

One of the most important things to note in this discussion is that employers demand labor, based on the fact that some consumer has a demand for the product that they produce (such as apples). These products (such as apples that need to be picked) are sold in different markets, and have their own price flexibility (or elasticity). I would like you to take into consideration the power firms who demand labor have at setting the price of their particular good. You must also consider things like the substitutes and complements for that particular good. Remember that an apple produced in Washington, competes for consumers with apples produced in New York, California, and elsewhere.

Questions you might try to answer:
Do these labor situations actually represent shortages in the economic sense of the word?
How might firms go about fixing their shortages? Try to quote an outside source.
If you have another example of a labor shortage, try to briefly describe the situation and why it took place.
What could the state or federal government do to fix the problem?
If the state or federal government decided to enact some political correction, describe some of the unintended consequences.

Also, remember, I want you to keep your descriptions short, basic, and related to classroom content.

NOTE: Read other students comments before posting, and please leave your name with your posting.

AN

18 thoughts on “EC103-Topic #2: Labor Shortages”

  1. The labor shortages that the U.S. and Britian are experiencing are clearly due to a lack of an available, willing, domestic workforce content with low wages. In the post second World War economy of Europe for example, the incredible loss of a male workforce led to a massive influx of immigration. It was not that so much that the wages were too low; instead there were just too few laborers. Germany for example sought cheap labor from Greece, Spain, and most importantly Turkey. First generation Turkish immigrants provided the brute force to stabilize many sectors of the Germany economy and today are the largest ethnic minority in Germany.

  2. These labor situations do in fact represent shortages. The quantity of labor demanded is greater than the wage the supplier is willing to pay. The supplier would have to increase wages in order to be at price equilibrium and since they wont do that there is a shortage for labor at this wage. Some ways that firms could fix their shortage would be by importing more workers, moving to a different location, using better technology that needs less workers, increasing the wage or decreasing the quantity of labor demanded for the job. The state or federal government could fix the labor shortage by bring in more workers or force the farms, New Orleans and Wyoming to increase wages. If the government made these companies increase the wage, the price of apples or agricultural goods would also increase along with the price of energy and products in New Orleans. This price increase would increase the cost of supplying complementary goods like food and machines. The wage increase would not be enough for the workers to keep up with the price of living and many people around the country would suffer. The unintentional consequences would negatively impact consumers around the world. – Kaitlin Siehs

  3. A shortage occurs when demand is greater than supply, thus each situation represents a shortage—either a shortage in quantity of labor supplied versus labor demanded by employers or a shortage in the wages set by employers versus market equilibrium, or both.In agricultural Washington state, a solution would be to raise wages. However, to offset the heightened labor costs, growers would need to increase the price of apples, decreasing the demand for the product (due to rationing), and increasing the demand of substitutes. This is more problematic because more workers will then migrate to the higher paying substitute crop, as explained in Lester’s article.Greater emphasis on education and job-training is another option. This would benefit New Orleans as well as the economy as a whole as it would counteract foreseen retirement of skilled baby boomers. With more education and training, people might have the resources to invent technology to increase efficiency of production. As a consequence, increased demand would cause an increase in the price of education. Also, this possible solution would not aid employers who are looking for lower-skilled workers, such as the apple growers in Washington state.

  4. These labor situations represent shortages, since the supplied amount of labor is lower than the amount of labor demanded by the suppliers. This causes problems for the suppliers seeing as they won’t have the correct amount of labor required to operate smoothly.Firms can fix their shortages by providing enough incentives to entice workers to move to, or stay in, the farming areas. Professor Gary Green of the University of Wisconsin rural sociology department suggests that if companies are not willing to increase wages they should provide better incentives to workers, including high-quality, yet affordable, childcare, inexpensive housing, and better transportation.The state or federal government could help these labor shortages by forcing firms to increase their wages or by providing their own incentives to attract workers to the farming industry. However this could cause unintended consequences to occur. For example, in the case of farming apples, an increase in wages could cause the price of apples to increase. Since there are many substitutes for apples, for instance oranges, consumers would have no problem finding a substitute product at a lower price, which would negatively impact the apple-farming firms.

  5. The labor shortage is being experienced in the US farming market because there are insufficient employees willing to fill the market-place demands for employment at the current level of wages. This comes as a direct result of the tighter immigration policy and the recent crackdown on employers of illegal immigrants, which constitute more than half of the farm workers. There are three possible solutions for this situation: increasing the wages to attract domestic workforce, off-shoring operations to Mexico, or increasing the number of legal immigrant workers. All of these solutions, however, have both advantages and unintended consequences.For farmers who rely mostly on immigrant workforce, it is not profitable to increase the wages to the level necessary to attract domestic workers because their production costs would increase, leading to less competitive prices of farming goods. Therefore, the state would have to intervene by offering subsidies to these farmers to offset the increase in wages. This solution, however, will lead to a large increase in the amount of money already directed at agricultural subsidies. It might also have the unintended consequence of attracting the wrong pool of domestic workers: teenagers who will decide to drop out of school to take advantage of the increased benefits of unskilled labor. The solution of off-shoring operations to Mexico apparently benefits both farmers who would have a hassle-free, stable supply of cheap labor, and farm workers, who won’t need to emigrate illegally. This would, however, have several negative consequences, such as the loss of thousands of middle-class jobs supporting agriculture, or the increased security risks when food for Americans is increasingly produced in foreign countries. The third solution, to ensure a stable pool of legal immigrants that are willing to work at low wage levels, has a series of advantages. Farmers would be able to keep their prices constant and not fear legal repercussions as they would only hire legal immigrants, and farm workers would have a legal workplace at a wage higher than they would have received in their country. There will be no increase in domestic subsidies, domestic workforce will be directed at higher-skilled jobs, food would still be produced in the US, and middle-class jobs won’t be lost. However, there will be increased costs of accepting immigrants in the US workforce: the costs of the immigrants’ welfare or social security, of emergency medical care, and of their children’s education. All things considered, no option offers a perfect solution to the labor shortage issue, as there are negative consequences for each one. It is clear, however, that the government should step in and try to decide on an appropriate method of intervention.

  6. The shortage situation in the US can be directly linked to the crackdowns on illegal immigration. In the UK shortages occur because there are better alternatives elsewhere. The suppliers can not afford to raise wages since revenue is already being lost. With less labor, suppliers produce less and foreign competitors are able to produce and sell more. Therefore, they are able to set prices and have a leading edge over US markets. The state or federal government has the ability to change this but taxes would probably increase. The state or federal government could assist farm owners by compensating the loss of the illegal immigrants and set a wage for current workers. This could attract more workers and productivity would increase. Another option is to import workers. The workers would have to be domestic or immigration laws would be pointless if the state is importing workers from foreign countries.Importing workers domestically would not be as effective. With more emphasis on education in this country more people have better alternatives to do work somewhere else. Since wages can be changed suppliers are able to raise wages to attract more workers. Although the farm owner could lose money in the short term, in the long run that farm would produce more than a competitor whose wages are less.

  7. Qi Qin TanThe skilled or trained labor shortage occurs in New Orleans can’t be resolve anytime soon. There demand for skilled labor exceeds the quantity of labor demand by employers.In most case raising wages does attract workers, but it doesn’t work well in New Orleans. One of the major reasons is that the labor shortage is caused by nature. The workers are afraid of the hurricanes that they are not willing to work in New Orleans. Also they have a higher value for life more than the high pay jobs; it doesn’t worth to trade. One possible solution is that the Government provides the training for workers and replaces the ready to be retired baby boomers. After the training, there is no guarantee that the trained workers will stay and work in New Orleans. They have the intention to leave the poor city and use their skill to find a job elsewhere. After all New Orleans is a poor and dangerous city.

  8. According to the textbook, a shortage only occurs when the amount of a good offered for sale by producers is less than the amount demanded by buyers at the existing price. Whether it is the farmers in Washington or the industrial workers in New Orleans each are dealing with the same issue, a labor shortage. The easiest solution to these problems would of course be to increase the wages that the supplier is willing to give. However, just because a wage increase is the easiest solution does not make it the right solution. Each situation is experiencing a labor shortage for different reasons, whether it is to the new immigration policies or the lack of education in the public school systems. For example, in New Orleans a concentrated effort on improving education of its population would be the right course of action. Even though this may seem costly and time consuming, improving the educational system of New Orleans will not only fix its labor shortage but also it will reduce New Orleans’ heavy reliance on contract labor, which is becoming more and more expensive.

  9. Shortages results when there is more quantity demanded than the quantity supplied. The shortage in the UK has been due to the changes in immigration to the UK. The farmers’ reluctance to increase wages caused the shortage. The causes of shortages in the USA are typical in the real world e.g. lack of skilled labor, poor crop yields, aging populations and falling birth rates.The best solutions would be for the farmers to give in and increase the wages, although this would increase their input costs it is ok because the price of their produce will increase and they will get more revenue afterwards. The federal government may have to invest more in education and training programs so that more people may have the required skills and find jobs. A shortage of social workers in South Africa prompted the government to sign an agreement with the Cuba to train more people, especially the youth. This would alleviate the shortage (allafrica.com). Another solution would be opening boundaries to encourage other workers to come and work in these countries. This however, could have unintended consequences such as creating social problems.

  10. As many of you have mentioned the labor shortage in New Orleans could be fixed by increasing education and job training opportunities. In theory, this seems like a good solution, but the truth is that this would have to be a long-term solution and would not help New Orleans now. The price of goods sold would still increase, people would not be able to afford to live in the city and there would still be an abundance of jobs. The best solution for New Orleans would be to import people from different states or countries to work there. This would increase the job pool in New Orleans and the decrease/eliminate the labor shortage.

  11. erDoug YeatesTechnically the situation in New Orleans is not a systematic labor shortage. According to Donald M. Atwater a “systemic labor shortage occurs when the overall number of new job openings exceeds the number of qualified new entrants in a national economy for a sustained period of years.” The key to this is over a “sustained period of years.” The labor situation that is occurring now was caused by Katrina and therefore it happened instantaneously and not over an amount of time. Though there are shortages all over the state in many different professions, since it has only been 2 years it can not be classified as a systematic labor shortage. As for solutions, the easiest would not be to raise the wages the suppliers are willing to pay. This would cause all prices to go up, sales would then go down because prices would be too high, and substitute products would then have better business. I agree with Brett in saying that education and teaching would help solve the problem in New Orleans but it would not completely solve it. If the state paid the contract labor to occur for a certain amount of time while thousands of people were in a way apprenticed at their new jobs, then after some time the economy could support itself. It would be costly at first, but in the long run it is the best option for getting a ruined economy back on track.

  12. The labor problem regarding the Washington State apple industry does seem like a shortage to me. In fact, it’s basically a textbook definition of one, according to the aplia blog’s explanation. With the low wage rates driving workers away from farm to farm, the farmers are faced with a difficult problem. They risk losing crops by not having them picked, but also, if they raise wages, they lose profit, and if they raise prices of apples, they lose customers. One possible solution could be a government subsidy, if that were possible. This would allow farmers to raise wages enough to bring workers back to their farms to pick, and would allow prices to stay level.It’s an unfortunate situation for the farmers, because if they cannot secure a subsidy, then they will probably be forced to raise wages to try and stay competitive in the apple market. This may be the best solution for the farmers in the long run. Higher wages could produce higher efficiency from workers, and help bring in more profit. Doing nothing won’t help the farmers, though.ben

  13. The agricultural labor shortage in the United States and Britain reveal the new direction and qualifications valued in the job market of developed and modernized countries. Many U.S. and British workers are becoming more attracted to career opportunities requiring extensive training and education which, while beneficial to the advancement of a country, is expensive and could require more federal intervention. In addition, the increased number of illegal workers in the United States prohibits the possibility of raising wages for American farmers. Many employers exploit the system by hiring illegal immigrant farm workers since they will work for lesser wages than U.S. citizens. As a result, the supply of workers exceeds the demand, making it impossible to raise the wages of U.S. farmers. Consequently, there is less of an incentive for U.S. workers to become farmers, and instead Americans pursue careers requiring expensive training. While it continues to be a controversial subject, new immigration policies are issues Congress needs to readdress for the survival and benefit of American farmers. LV

  14. Raising wages seems like a simple and effective solution to these labor problems, but I think that this can only be seen as a short term solution. At first, a raise in wages would most likely attract more workers, which would help with the gathering of apples. The increase in wages would also force the farmers to increase the price of apples. If the price of apples goes up, then the quantity demanded would go down. Substitutes, such as oranges or other types of fruit, would cause the quantity demanded to go down even further. New laborers, brought on by higher wages, increase the quantity of apples produce while the increased cost of apples cause the quantity of apples demanded to decrease. The increased wages would force farmers to decrease the quantity supplied and/or the price of apples to meet the new equilibrium price. Without any new technology, the simpliest way to reduce the cost of producing apples (to be able to reduce the price) would be to reduce wages. This would put farmers back in the same situation they are in now. If the farmers decided to produce a smaller quantity of apples, then they wouldn’t need as many workers. In my opinion, raising wages would only be effective for a short amount of time. Farmers will most likely need the government to step in if they hope to find a long term solution.

  15. The labor shortages discussed in the articles are actual economic shortages; the quantity supplied is less than the quantity demanded. As Doug said, however, they are not systematic labor shortages. In the United States, a crackdown on illegal immigration has created a shortage in the agricultural labor force. Since illegal immigrants account for about fifty percent of the agricultural workforce, the crackdown reduces a large portion of the manpower available. With the decreased number of human resources, laborers have more choice in what jobs they take. As Mike Gempler said, “The highest-paying crop of the day draws people away. They are following the money.” U.S. farmers would have to raise wages to attract more workers. The problem with an increase in wage is that it also causes an increase in the price of the good. Britain’s solution, specifically bringing in workers from another country, may be more effective than the way United States companies outsource jobs. By outsourcing jobs, companies have access to cheaper labor, but they may economically harm the country in which they are based.

  16. The labor shortage in the UK and US is in fact an example of where the demand for workers is high but the supply (workers willing to work) is limited. In America, not only has this been the result because of the crackdown on immigration, but also because the cost of living has become more and more expensive over time. This is a factor due to location- i.e. New Orleans has been subject to hurricane related disasters and thus has a higher price to pay after such a disaster. Also, because there are more opportunities in the country other than working in the farms, the appeal is low which only affects the “supply” of this scenario ( a la UK).This is a problem that only the government can solve. They have made an approach which consisted U.S. farmers going to Mexico where there isn’t an immigration problem, but “full-strength crews of Mexican farm workers” (http://www.iht.com/articles/2007/09/04/america/export.php?page=1). This poses the same problem because there is still a high demand for better incentives (for instance, an increase in wages, a faster and simpler process to attain citizenship, or health care) for both the labor and the firm. Also, immigration is a relatively “sensitive subject” within the government, especially the idea of paying people who are not even citizens of the country, along with the price of the US dollar decreasing which makes it harder to entice potential workers. If increasing wages is out of the question, another alternative would be to cut the input costs. The appeal to pursue such a job is necessary, so anything that can make this not-so-interesting job alluring would improve this problem.There is also a shortage of nurses in America. Being a nurse isn’t a typical glamorous job and the wages is not that great, but it is still rather important within society. At one point in time, because there was (and is) a shortage of nurses in America, the government “outsourced” and recruited nurses from other countries, especially third world countries, providing them with incentives to give them an offer they couldn’t refuse. Citizenship was relatively easy then, but because times have change, it would be more of a problem today to use the same motives to fix this labor shortage problem.Raisa Ramos

  17. The current world market for cheap labor, particularly in China, sought by multinationals firms, has been gradually diminishing. Companies, such as General Motors, Honda, Motorola, and Intel are seeking for higher skilled labors (Vardy, “The World’s Most Surprising Shortage”, The Global Guru). Due to this situation, China is currently experiencing a labor shortage, a condition in which the demand of labor exceeds the supply of jobs. This shortage leads multinational rises the wages of the remaining workers. To cope with this situation, the firms shifted their operation to countries where wages are lower than the previous country. Alternatively, in short term, those firms could increase the supply of jobs; however, given the necessity of firms raising their profitability, that alternative may not be efficient. It can be too costly. Instead, firms may come out with innovative approaches namely, the development of new product or call upon China’s investment in the education of low skilled labor.

  18. Like many other developing countries, Vietnam is facing the problem of labor shortage or inequality for there are insufficient skilled employees demanded to fulfill the market-place at the low level of wages resulted from the economic transformation in 1980s. Inequality in Vietnam will rise over time as the proportion of equally-distributed farming households falls in the economy. Vietnam has had very rapid economic growth since the implementation of the Ðoi Moi, or Renovation, despite a sometimes fitful process of market reforms. The economic transformation in Vietnam, despite its positive impact on poverty, could bring about rising inequality. The inequality causes the disparity in the labor market. In cities, the development of private enterprise could create a polarization of workers between those in high-paying skilled jobs and others, often immigrants from the countryside, who take low-skilled, low-paying jobs. If the best-educated, most productive workers are drawn to the main cities, the wage disparity could be due to differences in worker characteristics rather than differences in wages for the same kinds of workers. Moreover, If employment creation is concentrated in the cities, it would widen the gap between rural and urban dwellers. If there was a lack of opportunity for the poor and an increasing disparity of income, it could contribute to many social problems. We can make empirical predictions of how fast inequality will change as the Vietnamese economy develops by examining the relationship between the decline of agriculture and economic development in other countries around the world. The relationship between income growth and the share of labor in agriculture, and the relationship between income growth and the ratio of agricultural income to total income are both well-established international patterns. If we estimate these relationships from historical data, and we can assume that inequality within the farming and non-farming sectors remains unchanged, we can predict the future course of inequality as a function of economic growth. secular decline in agriculture as the economy grows will increase inequality due to a shift in the composition of households, since Vietnamese agricultural households have much less inequality between them than non-agricultural households. The second effect captured in the projections is that the relative incomes of the average agricultural household and the average non-agricultural household will continue to diverge as the economy grows, causing the between-sector inequality to grow. A way out of rising inequality would be the rapid growth of incomes within agriculture while also preserving the equality of income distribution among agricultural households. Sustained growth in agricultural incomes on par with income growth in the rest of the economy is an historical anomaly. Vietnam escaping poverty will most likely have the unfortunate consequence of an increase in inequality, because historically, sustained development has almost always meant a shrinking role for agriculture. The inequality in the non-agricultural sector in Vietnam is not particularly high by international standards, however, and if unchanged, it provides the upper limit for the effect of the declining share of agriculture on inequality.

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