Economics 101 for WAPO: Supply and Demand in the Labor Market

Print
Tuesday, 07 May 2013 05:16

Economists generally like to see supply and demand determine prices. When there is a shortage of an item then the price is supposed to rise. At higher prices the supply increases and the demand falls, this eliminates the shortage.

For some reason this simple logic was altogether absent from a Washington Post article that was headlined "Germany struggles with skilled labor shortage, shrinking population." Remarkably the piece never once mentions increasing wages. Instead it talks about efforts to bring in foreign workers.

It seems like Germany might be suffering from the same problem that is often the subject of news stories in the United States: managers who don't know how to raise wages. The media have frequently reported on businesses who complain that they cannot find qualified workers.

Since there are very few occupations where real wages have  been rising in the last five years, it seems that few people who run businesses understand how labor markets work. This suggests that there could be large gains to the economy if the government (both here and in Germany) offered remedial economic courses to business managers explaining the basics of labor markets. Then they would understand that if they want more workers they should offer higher wages. This would eliminate labor shortages and then we would no longer have to read silly pieces like this one in the Post.