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Yep, that's what a labor shortage looks like :) Labor can ask for a price that's higher than the ROI of their labor for many businesses. In comparison, there's

Yep, that's what a labor shortage looks like :) Labor can ask for a price that's higher than the ROI of their labor for many businesses. In comparison, there's an excess supply of unskilled labor so businesses can purchase unskilled labor for minimum wage. Those people survive but do not profit from their time investment, and cannot invest in acquiring skills (aka poverty trap). The issue is that automation drives efficiency, but large corporations are buying most of the limited supply... which crushes smaller businesses and drives down wages of unskilled labor. My answer is that we need to invest in adult education and infrastructure. The labor market is struggling to adapt to demand because the cost of acquiring technical skills is prohibitively high for adults, and struggling consumers have undermined domestic manufacturing chains by both being unable to afford the output and unable to fund competitive infrastructure due to low wages. We need to seek the healthy equilibrium is where most labor has enough demand to personally profit, and enough supply that most businesses can afford to compete.

abakker 9y ago
Excellent answer. Very much agree with the part about automation.
marcosdumay 9y ago
That's not what a shortage looks like. Labor can always ask for a price that's higher than the ROI they would have on many business. That's also true for every cohort of labor. If there's any definition available for "labor shortage", it is what happens when a middle class increases and wealth disparity decreases. But anyway, your point about education stands by itself.
- losteric 9y ago
  Maybe my terminology is off, correct me if so, but when businesses fold because bigger competitors are buying all the resources needed to stay competitive, that sounds like a shortage to me. On the labor side, getting a $120k+ job out of a 4 year/$14k investment also sounds like a labor shortage.
  - marcosdumay 9y ago
    No, that means some business wasn't competitive. When machines were created, many clothing companies folded because cotton become more expensive. It was expensive because machines could make clothes cheaper, so people brought more. Is that a shortage? At any time there's trash on some street that could be picked-up by hand. That's a job in direct competition with yours, yet there's nobody there hand-cleaning the streets. Is that a shortage?
    - losteric 9y ago
      I'm not sure how your second example works, but the first definitely reflects a cotton shortage. This discussion and the original article is focused on analyzing why wages are falling with unemployment. "Businesses are failing because they are uncompetitive" describes most businesses. The question is: Why are the failing? How does that impact down-stream systems? What up-stream systems could have had an impact? Follow the chain of cause -> effect. Ineffective labor cross training into high-skill high-demand jobs -> labor shortages -> only large scale operations can afford to bid -> dramatic efficiency gains -> lower asking price of products -> businesses that couldn't bid collapse due to uncompetitiveness in the new market -> surplus less-skilled labor and economic disparity -> less taxes for infrastructure -> less regional competitiveness -> ... so forth, hypothetically. Which is why I concluded with investing in education (root cause resolution) and competitive regional infrastructure (new growth, avoid another labor glut from overcorrection).
      - tarboreus 9y ago
        Sorry, but you're not using a correct technical definition of shortage, and also (I would argue) not a useful colloquial definition. If cotton is in high demand and therefore the price rises, that does not represent a shortage of cotton. In neoclassical economics, in a free market where price is fully representative of supply and demand, there is no such thing as a shortage. If there is more demand, the price goes up, if there's less demand, the price goes down. As the price goes up, fewer people are willing to buy, and so you eventually get an equilibrium. On the other hand, if an external (non free market) force sets the price, then you will have a shortage. Say, for example, that a bushel of wheat in the Roman Empire would go for 10 dinars in a free market. If Octavian passes a law that says that wheat must cost 8 dinars, the result will be a shortage. Now you have way more people willing to pay for the 8 dinar wheat than would be willing to pay for the 10 dinar wheat, and that discrepancy (the difference in available goods) is the shortage. Price setting (like rent control in NYC) is a common cause of shortage, but there are lots of other causes. Often companies won't jack up prices because gouging has negative externalities (people start to hate you), and this unwillingness technically creates a shortage. In a shortage, you'll see behaviors emerge like queuing (like in the Soviet Union for sneakers) and also the emergence of a black market where goods are sold at the higher price (often with an additional premium attached).

abakker 9y ago

Excellent answer. Very much agree with the part about automation.

marcosdumay 9y ago

That's not what a shortage looks like. Labor can always ask for a price that's higher than the ROI they would have on many business. That's also true for every cohort of labor. If there's any definition available for "labor shortage", it is what happens when a middle class increases and wealth disparity decreases. But anyway, your point about education stands by itself.

losteric 9y ago
Maybe my terminology is off, correct me if so, but when businesses fold because bigger competitors are buying all the resources needed to stay competitive, that sounds like a shortage to me. On the labor side, getting a $120k+ job out of a 4 year/$14k investment also sounds like a labor shortage.
- marcosdumay 9y ago
  No, that means some business wasn't competitive. When machines were created, many clothing companies folded because cotton become more expensive. It was expensive because machines could make clothes cheaper, so people brought more. Is that a shortage? At any time there's trash on some street that could be picked-up by hand. That's a job in direct competition with yours, yet there's nobody there hand-cleaning the streets. Is that a shortage?
  - losteric 9y ago
    I'm not sure how your second example works, but the first definitely reflects a cotton shortage. This discussion and the original article is focused on analyzing why wages are falling with unemployment. "Businesses are failing because they are uncompetitive" describes most businesses. The question is: Why are the failing? How does that impact down-stream systems? What up-stream systems could have had an impact? Follow the chain of cause -> effect. Ineffective labor cross training into high-skill high-demand jobs -> labor shortages -> only large scale operations can afford to bid -> dramatic efficiency gains -> lower asking price of products -> businesses that couldn't bid collapse due to uncompetitiveness in the new market -> surplus less-skilled labor and economic disparity -> less taxes for infrastructure -> less regional competitiveness -> ... so forth, hypothetically. Which is why I concluded with investing in education (root cause resolution) and competitive regional infrastructure (new growth, avoid another labor glut from overcorrection).
    - tarboreus 9y ago
      Sorry, but you're not using a correct technical definition of shortage, and also (I would argue) not a useful colloquial definition. If cotton is in high demand and therefore the price rises, that does not represent a shortage of cotton. In neoclassical economics, in a free market where price is fully representative of supply and demand, there is no such thing as a shortage. If there is more demand, the price goes up, if there's less demand, the price goes down. As the price goes up, fewer people are willing to buy, and so you eventually get an equilibrium. On the other hand, if an external (non free market) force sets the price, then you will have a shortage. Say, for example, that a bushel of wheat in the Roman Empire would go for 10 dinars in a free market. If Octavian passes a law that says that wheat must cost 8 dinars, the result will be a shortage. Now you have way more people willing to pay for the 8 dinar wheat than would be willing to pay for the 10 dinar wheat, and that discrepancy (the difference in available goods) is the shortage. Price setting (like rent control in NYC) is a common cause of shortage, but there are lots of other causes. Often companies won't jack up prices because gouging has negative externalities (people start to hate you), and this unwillingness technically creates a shortage. In a shortage, you'll see behaviors emerge like queuing (like in the Soviet Union for sneakers) and also the emergence of a black market where goods are sold at the higher price (often with an additional premium attached).