If you ask a good freshman student in Economics 101 what is the cause of a shortage, you will get a quick answer, almost but not quite by rote: demand is greater than supply and for some reason, price has not risen so as to stop the shortage. That is it. That is it in a nutshell. Not much more need be said: shortages are caused by prices being too low. End of story.

This semi-automatic answer emanating from basic economics, however, has eluded a bunch of economists who really ought to know better. They ought to know better since they have advanced degrees in this subject.

What is the question they were facing? It was: why is there a labor shortage? They correctly rejected COVID as a causal agent, but instead have resorted to demographics as an explanation: the baby boomers are retiring en masse, and leaving job slots unfulfilled. For example, according to a CBC analysis of the problem: “Boomers are exiting the workforce in droves, leaving more job vacancies than there are people to fill them.”

Instead of pointing to wages (the price of hiring workers) not rising, these economists are looking at demographics. Here is the CBC’s summary of its survey of Canadian economists: “The reason isn’t that there are fewer jobs opening up — remember the help wanted signs? It’s that there are fewer workers available to fill them. And the reason for that, economists say, can be traced back to the post-war baby boom.”

But this has been predicted for years. It has been widely recognized. For example, according to Armine Yalnizyan, an economist and Atkinson Fellow on the Future of Workers, “It’s the slowest-moving train on the planet. It was predictable 60 to 65 years ago, and we have done nothing about it. We knew this transition was going to happen.” Well, if so, why have not wages risen sufficiently or even approximately, so as to obviate this shortage? Just as nature abhors a vacuum, the market abjures shortages. No, we have to dig a little bit deeper to approach an answer.

What, then, is the answer? And, how did government intervention become involved in the story? This can only be speculative, but we must address the issue of why wages did not already rise sufficiently to obviate the obvious demographic contribution to the help wanted ads? One possibility, and this is only a guess, is that not only is the massive boomer retirement easily predictable and thus well known, but so is the fact that it cannot last forever. Soon enough, its effects will lessen. Suppose wages had indeed risen to levels that would have obviated the labor shortage. When the demographic effect started to dissipate, those temporarily high levels of worker compensation would decrease, lest we be presented with the opposite difficulty, a surplus of labor and unemployment.

But which employer wants to lower wages? In our hyper interventionistic economy, that would be deemed exploitative. The many merry Marxists in the country would have a field day lambasting evil profiteering employers. The government would penalize such heartless capitalists.

Food for thought.

 

Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of An Austro-Libertarian Critique of Public Choice (with Thomas DiLorenzo).