It’s an interesting phenomenon that a blue chip financial newspaper can, without adding a big smiley face, run a major headline like yesterday’s: ‘US economy added 428,000 jobs in April despite worker shortages’ . Imagine the number of new jobs created if there was no “shortage”!
At least in the economic sense of the term, there is no shortage labor more than a shortage of oil, ammunition or diamonds: these things are just expensive and more expensive than they have been in the recent past. One can define “scarcity” however one wishes, but if it is defined as “high price” or “increasing price”, we need another word for “unavailable at any price determined by the market”, c That’s how economics defines it.
By promoting the confusion between market unavailability and availability at a price that many consider too high to justify a purchase, the possibility of a useful analysis is forfeited.
The fact that job vacancies appear to be greater than job seekers at a wage rate below the market clearing rate is not, in itself, useful information. For example, I have a permanent position to fill for a doctorate. research assistant at $5 an hour. The fact that there are no job takers does not mean that there is a labor shortage; it just means i don’t need a research assistant at the price these guys and gals are buying on the job market.
We can sympathize with Fed Chairman Jay Powell’s efforts to continue his crash course in economics since being appointed by President Donald Trump, but that shouldn’t stop us from realizing that a statement like the one he just did doesn’t make much economic sense (quoting the same FinancialTimes report):
The demand for labor is very strong and, although the participation rate has increased somewhat, the supply of labor remains weak.
A “moderate” labor supply is not a technical term, so let’s see what it means. That these slaves do not work as much as the political authorities would like? Probably not. Maybe Mr. Powell is just trying to make stupid for his listeners the idea that the supply (curve) of labor is not elastic enough and that it would be so nice, it would make employers so happy , if more people were willing to get started. labor for wages they felt would not compensate for their lost leisure. It would be so good if the workers weren’t such crooks! Or was it just the way some members of the Fed’s army of economists tried to make their boss stupid?
If there is a market imbalance, it would rather be a surplus labor created by minimum wages and coercive union privileges, both of which prevent less productive workers from competitively lowering their own wages in order to find employment. But note that the growth in real market wages that accompanied higher labor demand during the post-pandemic recovery (before inflation spiked) implies that any excess labor employment has been reduced, which the low unemployment rate confirms.
Inflation, a product of new money created to partially fund recent federal government deficits, is a real but different problem. As the Bureau of Labor Statistics notes, “over the past 12 months, the average hourly wage has increased 5.5 percent.” Even if we add the benefits, the increase in compensation is probably lower, and certainly not much higher, than the current estimated increase in the general price level (i.e. the rate of inflation), depending on the index used. Which suggests another problem in the “scarcity” narrative: if the hypothetical temporary gap between the quantity demanded and the quantity of labor supplied existed, there would be strong upward pressure on real wages. Without such increases in real wages, it is no wonder that employers find it difficult to attract workers who abuse wages. Perhaps the lack of strong real (average) wage growth only shows a temporary lag, assuming a recession is not on the horizon.
Somehow, it seems pretty clear that, at least in the overall labor market, there is no more shortage than in any other relatively free, or not too free, market.