Labor Shortage: Population or Government Control?

If you ask a good freshman in Economics 101 what causes the shortage, you’ll get a quick answer, almost but not quite: demand exceeds supply and, for some reason, prices haven’t risen enough to stop. Lack Yes, that’s it. That’s it in a nutshell. Needless to say: shortages occur because prices are too low. At the end of the story.

This semi-automatic answer derived from basic economics, however, has eluded a bunch of economists who really should know better. Since they have advanced degrees in this subject they should know better.

What questions were they facing? That was: Why the shortage of workers? They correctly rejected COVID as a causal agent, but instead resorted to demographics as an explanation: baby boomers are retiring. a lot, and leaving job slots unfilled. For example, according to a CBC analysis of the issue: “Boomers are exiting the workforce in droves, leaving more jobs vacant than there are people to fill them.”

Instead of pointing to wages (the cost of hiring labor) not rising, these economists are looking at population. Here’s a summary of CBC’s survey of Canadian economists: “It’s not because there are fewer job openings — remember that asking for help? It is that fewer workers are available to fill them. And the reason, 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 Armin Yalnijian, an economist and Atkinson Fellow on the Future of Workers, “It’s the slowest train on the planet. It was predictable 60 to 65 years ago and we did nothing about it. We knew this transition was going to happen.” Well, if so, why haven’t wages risen enough or nearly enough to make up for this shortfall? Just as nature abhors a vacuum, the market avoids scarcity. No, we have to dig a little deeper to get to the answer.

So, what is the answer? And, how did government intervention get involved in the story? This may only be speculative, but we must address the question of why wages have not already risen sufficiently to offset the obvious demographic contribution to aid? One possibility, and it’s only a guess, is that not only is giant boomer retirement easily predictable and thus well known, but the fact that it may not last forever. Soon, its effect will diminish. Suppose wages really did rise to a level that would eliminate the labor shortage. When the population effect begins to dissipate, the compensation of workers at a higher level will temporarily decrease, lest we be presented with the opposite disadvantage, a surplus of labor and unemployment.

But what employers want to lower wages? In our hyper interventionist economy, this would be considered exploitative. Many of the country’s overzealous Marxists will have a field day bashing the evil profiteering employers. The government will punish such heartless capitalists.

Food for thought.


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

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