Labor Shortages in a Neoclassical Framework

I keep on seeing organizations like the Wisconsin Manufacturers and Commerce Association cry about worker shortages, as here:

WMC President & CEO Kurt Bauer said Gov. Tony Evers has taken the state’s worker shortage and turned it into a worker emergency.

But if you’ve had any economics course, you’ll have seen this graph:

Source: economicshelp.org

Now, to my knowledge, Wisconsin has not implemented a ceiling on wages that can be paid (such as denoted by wage W1)., so there is no Classical shortage. And the floor (the Federal minimum wage) is not binding, so we don’t have a Classical unemployment. So what are the folks like WMC arguing about?

In reality, what they are saying is that at the wages the member firms are willing to pay, there are insufficient takers. In a neoclassical world, firms should then be willing to raise wages they offer until the marginal worker is willing to take pay at the wage the firm is willing to pay (which in turn should equal — in product wage terms — the marginal productivity of the worker).

Rather, what they are saying is that the labor supply curve of households is too high for their tastes, and that either (1) benefits being paid to the unemployed are elevating the reservation wage of workers, or (2) workers are having a distorted view of the dangers of working in a world where a lot of people are still unvaccinated and the delta variant is spreading quickly. You get the feeling that they kind of wish workers would -down-weight their fears of death and/or sickness, or somehow figure out how to costlessly handle daycare for their children, etc. See this article by Erik Gunn .

I think the term “availability” would better serve the debate than “shortage”.

 

I’m not particularly neoclassical in my views, so if the WMC wanted to provide a different definition for shortage in some sort of formal analytical framework, I’d welcome that. For instance, I have used an asymmetric information model from Shapiro and Stiglitz to analyze why involuntary unemployment might arise, in this post.

In this latter case, it is clear why management would like to cut benefits (actually, in order to eliminate involuntary unemployment, a death penalty or similarly high penalty for not working would do the trick).

So, understand, when a business lobby says there’s a “labor shortage” in Wisconsin mid-2021, they do not really mean there is a labor shortage in the neoclassical sense; merely that no wage that they are willing to pay induces sufficient workers to join.

 

 

87 thoughts on “Labor Shortages in a Neoclassical Framework

  1. Moses Herzog

    They’ve been talking about a “shortage” of semi-truck drivers and nurses for at least half the life of anyone reading this blog who has reached the age of 80. But “strangely”, there wasn’t any talk about a “shortage” of workers when Reagan and his pals were trying to break the labor unions in the early 1980s. I wonder why that is??
    https://www.npr.org/transcripts/788002965

    Reagan was a bastard, pure and simple. Notice you’ll never hear Republicans complain about Reagan’s “big government” interference in the PATCO strike. What would you call having members of the military to come in and take people’s jobs?? If a Democrat President pulled that stunt in a large city where the police union was on strike, you’d never hear the end of it. But a job that in fact takes more skill and even arguably more pressure than a policeman (what average policeman would like to direct multiple 747s down for landing in a limited time frame?? Most of them are lucky to have associates degrees) and all the Republicans say “Amen!!! We killed the unions!!!”.

    And ironically who do the companies that break unions and NYC banks who wanted to bully “Occupy” protesters employ to bully those who are pro-union or working class?? Much of the time it is police both in their official capacity and paid in their off duty hours to bully and commit acts of violence against the working class. The Republicans always claim they “love” the police, because they know when the masses get angry that is the only line between predatory CEOs and their ending when things get rough.

    Reply
    1. Moses Herzog

      https://www.leftvoice.org/amazon-hires-off-duty-cops-to-harass-workers-the-press-and-supporters/

      https://theconversation.com/why-police-unions-are-not-part-of-the-american-labor-movement-142538

      Police are not part of the labor movement, police are enemies of the labor movement, and they always have been. Anyone who thinks different has been asleep at the switch. Police are often (no, not all of the time, but often) knuckleheads who will take a baton/nightstick to the spine of any working class person when they are paid by their masters.

      Reply
    2. dilbert dogbert

      Just watched a video of a pilot flying his family to Aspen for a summer vacation. It was interesting to listen to ATC directing traffic into that busy mountain hemmed in airport. They do this constantly night and day and in nasty weather. A cops job is never this busy or have so many lives in their hands. The wife is a pilot and I worked for NASA so have and interest in ATC. 20 years ago NASA was spending FAA money to get rid of ATC by automation in the cockpit. GPS RNav is now in small planes so they can almost land themselves.

      Reply
  2. EConned

    Reminds me of Jason Furman’s pondering a couple months back that maybe jobseekers haven’t tried lowering their wage requests. I believe he also went on to say the current situation looks like a labor shortage given the characteristic of the market not clearing due to wages not rising.
    No citation just because I can.
    And I will.
    And I did.

    Reply
    1. pgl

      No citation just because you lying as usual. You are not lying you protest? Then put up or shut up – troll.

      Reply
      1. Moses Herzxog

        I don’t think Jason Furman takes to “babbling” often, if ever. But it kind of tells us (once again) a lot about you, that you would label something Jason Furman says as “babbling” when it doesn’t photocopy your own stances.

        Reply
        1. pgl

          So you are now Econned’s BFF? Do you have a clue what this was about? Of course not but that never stopped you for inserting your long winded worthless 2 cents.

          Reply
          1. EConned

            pgl is a great example of what’s wrong with online (or most) attempts at dialogue – he exudes the Trumpian us vs. them mentality and its displayed irrespective of “their” response or the topic at hand. Combative at all costs – never agree with the “enemy”. It’s sad. But it’s hilarious.

          2. pgl

            EConned
            July 19, 2021 at 6:10 pm

            A new art form in trolling. I’m combative. No Econned is Trump’s little minnie me.

      2. EConned

        First, how am I “lying”?
        Second, who said Furman’s tweets are “economic research”?
        Third, exactly how were Furman’s tweets “ incoherent set of babbling”?
        Fourth, Furman is a top-notch economist who is on his P’s and Q’s when discussing economics.
        Fifth, I’ve referenced Furman’s exact views on childcare’s impact on labor during the pandemic a while back (also note CNBC interviews aren’t “economic research).
        Sixth, try not to allow your emotions to get so affected by blog comments and the twittersphere – it can’t be good for your health.
        Seventh, keep honking, PaGLiacci!!!

        Reply
    2. baffling

      a recent WSJ article (yes that last bastion of liberal economics) posed the perspective that a lot of this “labor shortage” is due to people deciding to take safer and better paying jobs with a future, compared to prepandemic. the article argued one reason why the restaurant and hospitality sector (the largest group of current crybabies about the “labor shortage”) has had such difficulty rehiring is that the former workers, especially the good ones, have realized this sector was low paying and had no career growth prospects. people have taken their customer satisfaction skill sets out of the restaurant and put them in the banking sector, for instance, where the work conditions for a bank teller are superior with career growth prospects.
      i have been arguing for quite some time now that the “labor shortage” really does not exist. when you ask any of those snowflakes complaining about a “shortage” if they have tried adjusting their wages to attract workers, you get stunned silence. maybe a business model that is only successful by relying on the underpayment of wages is simply not a good business model.

      Reply
    3. baffling

      “Reminds me of Jason Furman’s pondering a couple months back that maybe jobseekers haven’t tried lowering their wage requests.”
      last time i checked, however, it was not the jobseekers complaining about a “shortage”. it was the employers. those complaining should be the ones making the concessions, don’t you think?

      Reply
      1. pgl

        If Econned even remotely understood that labor demand and labor supply diagram our host provided then he would have to concede your point. But of course Econned does not understand economics at even the most basic level.

        Reply
      2. EConned

        I would think it’s both. Unless your mental model suggests the unemployed are content with their benefits and thus not concerned with their inability to find work.

        Reply
        1. baffling

          again, the employers are the very vocal ones regarding a “shortage”. the employment “shortage” issues really seems to be focused on a few industries, including restaurants and hospitality. those industries have been very slow to raise wages to a level to attract workers, who are getting better wages and benefits in OTHER surging industries. seems like some of the owners and managers in those affected industries would be wise to take a refresher course on the economics of supply and demand, and stop complaining so much?

          Reply
          1. EConned

            You haven’t explained why it is that the “last time [you] checked, however, it was not the jobseekers complaining about a “shortage””. Why are jobseekers content with not finding jobs? All else equal, isn’t a “jobseeker” having some difficulty finding employment or are you asserting a match is made quickly in the current environment? Why are they even seeking?

          2. baffling

            “You haven’t explained why it is that the “last time [you] checked, however, it was not the jobseekers complaining about a “shortage””.

            econned, i don’t have to explain it. that is the reality. you seem to be probing for reasons why this should not be true.

            personally, i think many folks have come to realize that working minimum wage jobs does not cover the cost of child care, so they are staying out of the workforce. and others feel minimum wage does not compensate for the increased risk to their health. but those are simply my opinion of a sector of the unemployed. dilbert provided a link to some discussion of the expiration of unemployment and the return to work. there does not seem to be much return to work in the states that have let unemployment expire, which casts doubt on your assertion that it is overgenerous unemployment keeping people on the sidelines.

        2. pgl

          So when demand exceeds supply you think the price (wages here) should decline. Yes Econned flunked freshman microeconomics!

          Reply
          1. pgl

            “EConned
            July 19, 2021 at 6:22 pm
            I never said that. Yes, pgl failed 8th grade English.”

            No – you just utter gibberish hoping it turns into word salad so you can have it for dinner. Now get back to your first grade teacher and learn how to write the basics. And when it is time to count past 10, remember to take your shoes off.

        3. pgl

          You would think? Seriously? Then provide us with your neoclassical model of why such worthless gibberish emanates from your keyboard if you were actually thinking.

          Reply
          1. EConned

            So, again, pgl shows reading comprehension at an early elementary level. Please go reread and digest the comment you’re replying to because your reply is completely nonsensical.

    4. dilbert dogbert

      Did the job seekers connect their mortgage holders, grocery stores, service stations, child care, state, and local tax agencies to lower their prices??? With some cooperation from them the job seekers could lower their asking prices.
      It takes a village.

      Reply
      1. baffling

        it is rather telling that econned would recommend those working near the minimum wage should reduce their asking price. as if that really solves any problem at all, other than subsiding low margin poorly run businesses.

        Reply
        1. pgl

          Even if there were no wage floor (minimum wage) lowering wages is not exactly how to increase employment in the context of how Menzie’s basic demand/supply framed this. Of course you get this basic model but Econned has not and cannot is he has zero ability to grasp even the most basic economic concepts.

          Reply
        2. EConned

          It’s rather telling that baffling is extracting a recommendation that was never recommended. As if that really solves any problem of rationally discussing a topic, other than making their baffling heart feel good.

          Reply
          1. pgl

            “It’s rather telling that baffling is extracting a recommendation that was never recommended.”

            Now this is definitely a lie per your 1st comment here. You claimed Jason Furman recommended exactly this. Of course you decided to provide no link. So I found the Twitter thread and it turns out that you were misrepresenting that discussion. So either you have been lying from the beginning or you are lying now. But hey – I get it. That is what trolls like you do.

            Baffling – pay no attention to this worthless lying troll. He is not worth the effort.

          2. baffling

            “Reminds me of Jason Furman’s pondering a couple months back that maybe jobseekers haven’t tried lowering their wage requests. ”
            econned, you made this comment. and you followed it up with
            “I would think it’s both. ” which was in reference to employees lowering wage requests to increase employment numbers.

          3. EConned

            pgl – no. I stated “ It’s rather telling that baffling is extracting a recommendation that was never recommended”. And that was in response to baffling asserting “ it is rather telling that econned would recommend those working near the minimum wage should reduce their asking price”. Please try to keep up. It’s obvious to anyone paying attention that my reply was directly to baffling erroneously assigning a recommendation to me. Put up the clown nose you worthless commenter.

    5. Menzie Chinn Post author

      EConned: Correct quote from Furman: “I almost always agree with @BetseyStevenson but the flip side of this is that journalists interviewing workers who say they can’t find jobs should ask them if they have tried lowering their wage requests.” In response to her comment: “Betsey Stevenson @BetseyStevenson · May 4 For all journalists interviewing businesses that say they can’t find workers please ask them if they have tried raising their wages.”. But in the context of May, there was a perceived “shortage”, so mostly one would be asking Stevenson’s question mostly.

      I think Furman was thinking in a sticky wage framework.

      Reply
      1. pgl

        That is what I thought – Econned loves to cherry pick and misrepresent. And when caught on this nonsense he goes off and blames others like baffling. Thank you for the clarification.

        Reply
      2. Baffling

        What furman is saying is that the question econned posed us silly and not reflective of the situation. He was not advocating for that question. Econned did not understand this because that is the exact position he wants to advocate. Otherwise why bring up a silly point? Carlson wannabe.

        Reply
  3. pgl

    Your model assumes a perfectly competitive labor market. Maybe we should consider the implications of monopsony power. Yea I get it that Princeton Steve will have a cow that someone brought up this idea but …

    Reply
    1. Menzie Chinn Post author

      pgl: Well, for sure if there was monopsony power, there would be an inefficient outcome (from a neoclassical perspective, e.g., DWL etc), but still no involuntary unemployment/”shortage” in a classical sense.

      Reply
      1. Moses Herzog

        @ Menzie
        I think pgl missed part of your point in your post (imagine that). That is you are using the neoclassical model, even though you might not believe in it 100%, because in fact even if you “concede ground” (use their own favored economic models) to the usual political crowd who say there is a “shortage” of labor, their own preferred model does not substantiate there is a “shortage”. Which I think is at least 50% of the reason you illustrated the point in this manner.

        That you don’t necessarily have to go to Stiglitz and Shapiro or discuss monopsony to show there is no “shortage” of labor, makes the point even more powerful. I suspect, as I already said, this is >50% of the reason you consciously and deliberately chose to illustrate the point this way, vs the ways Keynesians or New Keynesians might usually use to make the point.

        Reply
        1. pgl

          I missed nothing old drunk one. But nice try anyway.

          I was just trying to expand the conversation in a new direction but I guess you think actually contributing something your usual long winded drivel is somehow being evil. Or whatever.

          Reply
      2. pgl

        I was more thinking that the mechanism a monopsonistic cartel would use to exploit their market power would be to keep wages low but at the same time publicly whine that workers are unwilling to work for a mere $8 an hour and few fringe benefits.

        Oh wait – I’m making the case for a higher minimum wage to actually increase employment. OK – the MAGA hatters will not call me a socialist!

        Reply
    1. Moses Herzog

      I haven’t read your link yet (hope to do so later as I am an Arindrajit Dube fan) but another one to keep an eye on is the end of the “moratorium” on rents due and evictions. The rents compile over the entire time of the “moratorium” and I have yet to figure out when those due amounts build up how that in fact “helps” people in the low-income groups and still unemployed or scraping by as it was anyway.

      Here’s another question, I’ll put it here and avoid making two comments. Has anyone checked with “Princeton”Kopits today on crude oil dropping below $67?? I’m dying to see Kopits’ update posts on this topic, as I know he is an “oil expert”. With roughly 55% of the summer over and Delta variant just starting to grip hold on America, I’m fascinated to know how we get to $100 between now and June. This is exciting to learn how the big players like Kopits figure these things out,

      John Cuckrant!!!!! You out there!?!?!?!?!? We need a Cuckrant update on inflation. What do I always have to beg Cuckrant to update us on inflation??

      Reply
    2. baffling

      this data certainly does not support the position of econned, that unemployment benefits are keeping too many workers on the sidelines. cutting the unemployment benefits does not seem to be fixing the “worker shortage” problem.

      Reply
      1. pgl

        Remember – Econned does not need no stinking data. He does not need even a basic economic framework. He does not need to cite actual source for anything. After all – a troll needs none of these little details.

        Reply
      2. EConned

        I never once stated that was my position. Please stop being emotional and actually read the comments that you’re referencing. This blog is a dumpster fire because of comments such as these.

        Reply
          1. pgl

            And his 1st comment was dishonest as in cherry picking out of context. See Menzie’s comment.

        1. pgl

          Our host presented the full interview with Furman. You have been caught with your pants down. Now run away little liar.

          Reply
  4. macroduck

    The aim of at least some of those who argue that they are unable to hire because of a labor shortage is to fight against any policy which may reduce their ability to hire at lower wages. I’m sure some complainers simply hear the complaint from others like themselves and, lacking the knowledge to debunk claims of labor shortages, simply repeat those claims. Menzie, your point is relevant to this second group, but not so much to the first group. They are the subject of Harry Frankfurt’s writing and, by definition, don’t care what’s true.

    Of course, there are policies which reduce firms’ ability to hire at lower wages. Biden’s folks are going after non-compete agreements imposed on fast food workers, for instance. Supporting household incomes with extended jobless benefits helped maintain demand during a very rough period for the economy, but may, incidentally, have given workers a choice between hunger and dangerous, low-pay jobs. So to heck with the health of the wider economy and of the public, if wage offers have to be raised.

    The true horror for fast-food “entrepreneurs” and the private equity model of healthcare management is that the genie is now out of the bottle. Habits of thought have changed among workers – see baffling’s comment above. The widespread choice to have a better life is likely to have far more influence than any policy change that could be induced by whining about labor shortages.

    Reply
    1. baffling

      amen brother.
      “Biden’s folks are going after non-compete agreements imposed on fast food workers, for instance.”
      non-completes should only apply to those earning the top 10% wage/salary in a company. the stunts that businesses try to pull when a worker leaves is stunning. years ago, at my first job, i remember the boss trying to get me to sign a non-disclosure form as I was leaving, or he would withhold my retirement fund. its this type of behavior that gives the bad reputation to owners/managers in these labor disputes. same behavior trump displays.

      Reply
  5. Steven Kopits

    So let’s take some Massachusetts numbers. In 2020, there were 60 working age people for every 100 population. In 2030, there will be 57. That’s something akin to a 5 pp drop in the PFPR in a decade. That’s a pretty big change.

    And, of course, wages are rising, but the sum total of working people per 100 will continue to fall due to an aging population. Here on Cape Cod, we are in the thick of it. For every seven year-round workers on the Cape in 2020, there will be only six come 2030. What we are seeing right now is effectively demand destruction: very long waits times for health care and understaffed stores, among others. The township here has any number of positions it is struggling to fill. The underlying reality is that the working age population of Massachusetts will decline by 56,000 to 2030, and the 65+ population will rise by 376,000. Part of the loss of workers can be offset by increased productivity, but mostly it will mean lesser services, most notably to seniors retiring on fixed incomes in Massachusetts.

    Reply
        1. Moses Herzog

          You should have at least given him the 3rd chance to get it right. He is a consultant after all.

          Reply
        2. Steven Kopits

          Ah, I know why I had a problem with this. My father’s foundation was called The Little People’s Research Fund — LPRF — and that must have stuck in my mind. They did not do much with labor force participation.

          Reply
    1. pgl

      Gee Stevie – I guess who never looked at the data of labor force participation in the decades before 1990. I guess you never heard of household choices as to perhaps work less, take care of the kids, retire early or anything else. It is nothing but the numbers for you as there are no people behind any of this in your little world.

      Reply
  6. SecondLook

    Sigh

    The goal of nearly every business is to minimize costs and maximize profits.
    Unless, a magic wand is waved and a form of economic humanism becomes the social paradigm, that goal will remain the prime directive…

    move along now, nothing to see here.

    Reply
    1. baffling

      “The goal of nearly every business is to minimize costs and maximize profits.”
      this is not accurate. the concept, and failure, of the company store should illustrate this point. businesses are a part of the community, not a parasite of the community.

      Reply
  7. Dr. Dysmalist

    ” … or (2) workers are having a distorted view of the dangers of working … ”

    Of course, the WMC cannot really adopt this view because, in order to argue that worker’s views are distorted, it (they?) would need to confront the second part:

    ” … in a world where a lot of people are still unvaccinated and the delta variant is spreading quickly.”

    The primary reason that the Delta variant is spreading so quickly is because the share of unvaccinated adults is so high, and this fact is mainly due to the fear mongering from the Republiqan Confederate media, especially Faux Noyse, and especially Cucker Tarlson and his White Power Hour. Of course, Faux and Cucker are putative allies of business trade groups and the GQP, so they are exempt from criticism by so-called conservative groups. As a result, WMC is left with concocting a ridiculous, lame-a** criticism of the Democratic Party and its officeholders. It’s Murc’s Law in action: only Democrats have agency; the poor, put-upon KKKonservatives are simply responding to the deprivations forced upon them by the Democrats.

    We have people who’ve spent decades fulminating that “the market” should be determining what happens on both input and output sides, and they’re being deliberately obtuse about what would constitute the obvious “market solution,” and resisting (ignoring) it with all their strength.

    Such cognitive dissonance is pathetic, really. I’ll save my concern and pity for those who have done all the right things all along and are just trying to keep themselves and their families safe and healthy.

    Reply
    1. noneconomist

      What a sad day in America it is. When women won’t willingly leave their homes and families to accept jobs that would aid the economy simply because they want more money (and….benefits?) to do so.
      Do they not understand how badly KFC needs them?
      Are there no grandparents left to do voluntary child care while their daughters do the right thing and return to work?
      Patriotism. It ain’t what it used to be.

      Reply
    2. pgl

      Cucker Tarlson and his White Power Hour!!!

      It is interesting that even Sean Hannity has abandoned Cucker arguing (finally) that we should get vaccinated.

      Reply
  8. joseph

    Kopits: “So let’s take some Massachusetts numbers. In 2020, there were 60 working age people for every 100 population. In 2030, there will be 57. That’s something akin to a 5 pp drop in the PFPR (LPFR/LFPR??) in a decade.”

    Working Age Population and Labor Force Participation Rate are two different things. You seem to have confused them.

    Kopits: “What we are seeing right now is effectively demand destruction: very long waits times for health care and understaffed stores, among others.”

    Supply and demand are two different things. You seem to have confused them — whether you are talking about supply of services or supply of labor.

    Reply
    1. Steven Kopits

      If you lack supply, Joseph, you raise prices and reduce consumption. I have heard that referred to as ‘demand destruction’, typically related to oil.

      Reply
  9. David S

    Labor “shortages” on Cape Cod are also related to the following factors:
    -Housing costs inflated by regulatory constraints
    -Housing costs inflated by the clustering effects of coastal growth trends that have built up over several decades
    -Housing costs inflated by an ageing population that perceives that decrepit, polluted sandbar as a nice place to go and die

    Reply
    1. Steven Kopits

      David –

      Those are actually some interesting points.

      A key question on the Cape is the limits of development. This particularly so on the Outer Cape — Wellfleet and Truro — which constitute the meat of the Cape Cod National Seashore. Some homeowners in both towns are fighting more intensive development, interestingly led by the township governments themselves. Wellfleet has just approved its first apartment complex at the behest of the town’s Selectmen — using money from the town conservation fund, at that! So the question is whether the Outer Cape is going to follow the model of the Lower Cape and permit high density housing. There are very few communities like Turro and Wellfleet along the entire eastern seaboard, so the question is whether we want to be more like the Jersey shore. Of course, if you don’t build, real estate prices go up with increasing demand.

      A retiring population is indeed a chief driver of housing prices. Thus, Cape Cod — but the Outer Cape in particular — has both a lack of labor and a lack of affordable housing at the same time. It’s a very weird situation driven by the revolutionary changes in US demographics. The Outer Cape is on the front lines of US population trends.

      Cape Cod is a nice place to both live and die. The bigger issue is a lack of death, and the town is essentially aging in place. In the next decade, Wellfleet and Truro will become all but open-air retirement homes. That has lots of implications for governance and taxation. It’s already underway, but more is sure to come. I am happy to write about some of the trends in greater detail.

      I think both Wellfleet and Truro count as decrepit in some sense. Our infrastructure is worse than it was fifty years ago. One of the interesting problems is the limitations of the town administrator model in a rural community. The question is, where does leadership reside? The town administrator is a hired gun. He goes home at five. The town council (a Selectboard here) is made up of locals who don’t know what accounting is (with the result that $765,000 went missing from the Wellfleet accounts in FY21). So who drives through an agenda? No one, it appears. Put another way, the problem is a lack of politics, in the good sense. Vision and persuasion really have no home. As a result, Wellfleet is not so much mismanaged (although it is, grossly) as it is unmanaged, now not for a few years, but for more than four decades.

      Another is the subrosa class war between the Locals and the Seasonals. (The former have the votes and the later have the money. Not a healthy combination.) Thus, beach services are starved and serve as a cash cow for the town. Infrastructure is poor and maintenance all but neglected as a result.

      As for polluted, neither Wellfleet nor Truro are polluted, save recurring problems of nitrates in the groundwater. We are surely overbuilt and over-stressing the Cape’s fragile environment, but we are not polluted, at least not on the Outer Cape.

      Reply
      1. baffling

        steven, have you offered to run for local public office and participate in the local government, as a means to improve all these faults you seem to be keenly aware of?

        Reply
  10. Steven Kopits

    So, to continue this thought. Ordinarily, we think of upward wage pressures as the result of a demand shock, ie, a fast-growing economy. But that does not appear to be true in the current case, at least in the northeast, because we are experiencing a supply shock, ie, fewer workers and more retirees.

    If we assume that wages of consumers are more or less constant — as they would be with retirees, the source of population growth as a cohort — then higher wages cannot be offset with higher selling prices and profits will fall. In such an event, a given sector must shrink to the size of the workforce available. This is then yet another example of a supply-constrained model. This is good for workers (with a caveat), bad for businesses and bad for consumers. And that’s exactly what we are seeing in Cape Cod.

    The caveat for workers is that a substantially larger older population cohort may mean substantially greater dependency and substantially higher taxes, which we are also seeing in Cape Cod.

    Let me also add that I would expect to see the fertility issue in the political race by perhaps the 2024 election. If we want children, we will have to pay women to have them. And that puts an upper limit on taxation, or alternatively represents another call on government funding.

    Reply
    1. pgl

      First of all – it is odd that Princeton Steve is now in Cape Cod. What happened? Did COVID freak you out?

      Secondly inward shifts of the labor supply curve are neither uncommon nor the disaster scenario you have portrayed here.

      Why do you continue to write such incredible nonsense? Oh wait – your new job is Chief Economist for Fox and Friends. That explains a lot!

      Reply
    2. baffling

      “then higher wages cannot be offset with higher selling prices and profits will fall.”
      you seem to think the retirees control the situation. perhaps they need to realize their standard of living simply needs to change. or they need to relocate to a cheaper residence? if Massachusetts permits property taxes to rises the same for all residents, then the cape will evolve as necessary. florida is a disaster because too many long term seniors live a subsidized life due to the homestead rules on property taxes. you have neighbors with similar houses paying vastly different property taxes, based on when they moved to the state. this has exacerbated some of the problems in florida over the last couple of decades, when property value rose dramatically. retirees have not paid their fair share.

      Reply
      1. Steven Kopits

        Baffs,

        I hardly thing you have any idea of what you’re suggesting.

        “you seem to think the retirees control the situation. perhaps they need to realize their standard of living simply needs to change…”

        The average resident of Wellfleet is 59 years old. These are the year-rounders, the shell fishermen and folks who work at the town store. In terms of affordability, their heating oil costs will have risen by $1,000 this year and their taxes (which they voted for), by $500. A lot of these folks make $40-60,000 or are retired on fixed incomes. If you are suggesting that these long-time residents should be squeezed out of Wellfleet, well, let me flatly disagree. As for the Seasonals, these are people typically of pretty solid means. A typical example might be a Tufts professor or a New Jersey banker. Property taxes here are still only about 40% of the level of New Jersey, in significant part because Seasonals subsidize the town, ie, they don’t use the schools or police or fire during the off-season.

        But the standard of living is clearly changing for long-time residents, in part because Seasonals are setting the value of real estate here.

        “… or they need to relocate to a cheaper residence? ” This is indeed the NJ and Hawaii ethos. In Hawaii, retired Hawaiians cannot afford to remain and one told me that a popular destination was Las Vegas. I cannot image a fate worse than leaving Hawaii for Las Vegas.

        “if Massachusetts permits property taxes to rises the same for all residents, then the cape will evolve as necessary.”
        Non-residents are taxed disproportionately.

        We have now arrived at the paradoxical situation that town governments — in Wellfleet, Truro and Provincetown — are leading the drive for high density housing. Bizarre.

        Reply
        1. baffling

          ” If you are suggesting that these long-time residents should be squeezed out of Wellfleet, well, let me flatly disagree. ”
          steven, it appears to me you do not believe in a free market capitalist system. you believe in socialism, where the government will control the value of real estate and set wage standards.
          “I hardly thing you have any idea of what you’re suggesting.”
          i think this statement applies to you, steven.
          i have lived through this situation, steven. i found it appalling that my neighbor had a similar property to mine, and I paid $12000 per year in property taxes while he was paying very close to $2000 per year. because he is older and had been there for quite some time. i don’t really know what a good solution is, but i do know the market was very distorted in florida. something you seem to be advocating for.

          Reply
  11. baffling

    “they’re being deliberately obtuse about what would constitute the obvious “market solution,” and resisting (ignoring) it with all their strength.”
    or you can be like econned, and use the “there are good people on both sides” argument. after all, its the workers fault for not lowering wage expectations to solve an employers “worker shortage” problem.

    Reply
    1. EConned

      Actually, I’ve mostly referenced Jason Furman’s comments. It isn’t about “there are good people on both sides”. Rather that I, like Fuman, appreciate looking at topics from varying perspectives. This contra the approach from many on this blog and elsewhere.

      Reply
      1. pgl

        “EConned
        July 18, 2021 at 7:45 pm
        Reminds me of Jason Furman’s pondering a couple months back that maybe jobseekers haven’t tried lowering their wage requests.”

        But when baffling notes the same idea you said no one was making such a recommendation. Gee Econned – you lie so much you cannot keep your lies straight. Troll on brother!

        Reply
        1. EConned

          Again, you’re misunderstanding my comment. I was suggesting no one on this blog was making the recommendation. Anyone can see baffling was suggesting that I made this recommendation where I made no recommendation. Try again but actually TRY next time.

          Reply
          1. Baffling

            That is a pretty poor explanation. Have some balls and take ownership of your comments. Otherwise you simply come across as a tucker carlson wannabe.

          2. pgl

            See Menzie’s comment. You lied about what Jason Furman was really saying. Caught with your panties around your ankles. Run along troll.

          3. noneconomist

            EC
            He’s looked at life from both sides now
            From up and down and still somehow
            It’s life’s illusions he recalls
            And he really doesn’t know much at. all
            (apologies to Jonie Mitchell)

        1. pgl

          LOL! From someone who takes great pride in poorly labeled graphs. You are the greatest troll of all times!

          Reply

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