In Favor of Labor Shortage

Labor shortages have been a boogeyman for the modern corporation since at least I started paying attention to those sort of things.  Company A can’t find enough of employee type B and there will be a lost opportunity.  That is a danger of labor shortages, but what are the advantages?

In modern times the economy has not grown in pace with the growth in the labor market.  This is by definition a surplus in labor.  In any given field there might be a surplus or shortage of a given type of employee but overall there are more workers than their are jobs.  Clearly from the perspective of both the employed and unemployed it is advantageous to have more jobs than workers (or at the very least a better ratio).  I won’t enter into how more jobs could be “created” in this post nor will I talk about how to reduce or increase the supply of labor.

So what is the cost of surplus labor?  First bad employers.  While I’m not saying that reducing the supply of labor will make bad bosses magically disappear if a labor shortage last long enough it would have the effect of increasing the incentives for better management.  The less workers there are the faster they can move between jobs and the more valuable they are.  Today if an employee quits on average they will have a hard time finding a job.  This creates little incentive for companies to behave.  Their employees are easily replaceable and therefore less valuable.  From an employee perspective the smaller the labor supply the greater his job security, but even more importantly the faster he can switch jobs.  Faster the velocity hiring employees the better the sorting process.  If a employee can quickly and easily find a job their incentive to find a better match increases.  This incentive increases the chances that employers actually find the employee they need. While having more choices can seem like a benefit that is not always the case (though there are definitely instances where more choices are better).  Making a choice between 10 employees is tiring it means that the employer will know less about each potential employee in addition there is always the potential for 9 better choices given imperfect information.  Choices are tiring for humans and often times people are happier with less choices.  Part of the problem with labor surplus is employers think that their perfect employee will have the perfect resume.  This creates the problem of credentialism.  Specifically looking for someone who has exactly the combination of skills and experience.  While this seems rational, and to some extent it is, it often goes way to far.  A persons abilities and character are often more important than their experience (not that experience is unimportant) during a labor shortage companies would be forced to rely on people who might be a partial fit allowing employees to demonstrate their abilities or lack there-of.

Certainly there are many other factors causing the sort of problems I’ve described above.  They can be mostly summed up by crony capitalism and cultural degeneration.  Certainly my position is biased and I would welcome criticism of my arguments.  But I truly believe that in a healthy economy labor shortages should be the norm and the velocity of employee job sorting should be must faster.


4 thoughts on “In Favor of Labor Shortage

  1. The Swiss recently voted against a high minimum wage.

    Also, if you would be good enough to put an RSS gadget on your blog, I would not need to rely on WordPress Reader to follow your blog.

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