Supply and Demand: Workforce Edition

Pete, a frequent commenter to this blog, recently sent me a link to a truly thought-provoking Ted Talk. Aided by charts displaying the birthrates of his and subsequent generations, a German economist predicted a significant worldwide labor shortage by 2030.

Economists have been making these predictions for some time. Perhaps this one struck me so forcefully because of the graphics, or because he emphasized the fact that the size of the available workforce in coming years is not a matter of conjecture; after all, the people in that cohort have already been born. The numbers, as he explained, “are set in stone.”

Nor is it likely that technology will bail us out. It has become abundantly clear that technology creates nearly as many jobs as it replaces. What technology will do, however, is exacerbate the “skills gap” that is currently a major factor in the income disparities we are experiencing.

So—we have an emerging disconnect between the workers we will need and those we will have. Can we speculate about the consequences of that widening disparity?

  • It is likely that people who are highly skilled in areas of economic growth will do extremely well.
  • It is plausible that increasing numbers of older workers—especially in countries where healthcare has extended lifespans—will stay in the labor force longer than is currently the case.
  • The business community (which is already deeply concerned about education and job training) is likely to press those concerns even more vigorously. Many larger enterprises may increase their on-the-job training efforts.
  • Wages are likely to increase across the board. (Whether this will translate into significantly higher prices is an open question; this is where the ability of technology to increase productivity comes into play.)
  • Battles over immigration policy will change dramatically. Countries will compete for workers willing to take the jobs unfilled by declining native workforces.

There are probably many others. But if many or most of these speculative outcomes are correct, the economic, social and cultural consequences will be significant.

On the one hand, it is easy to envision a time in the not-so-distant future when workers are more valued and respected—and better compensated– than is currently the case. The market for labor is not appreciably different from the market for widgets, in the sense that value is set by supply and demand. Companies that fail to recognize the extent to which their employees are assets don’t compete all that well now; it is likely that they will go the way of the dinosaur in a brave new world of worker scarcity.

On the other hand, the need to address our currently self-defeating policies on immigration and to actively encourage an influx of people willing and able to work is likely to create new and unpleasant cultural conflicts. Efforts to resolve the skills gap are likely to increase the growing (unfortunate) tendency to confuse education with job training. The failure to distinguish between the two is already wreaking havoc with our universities, the liberal arts and the humanities.

An older lawyer for whom I used to work had a favorite saying: “There’s only one legal question, and that’s ‘what should we do’?” I think that bit of wisdom goes beyond the practice of law.

If the planet is facing an imminent shortage of workers, what should policymakers do?

And what will it take to make them do it? After all, we also know that climate change will wreak havoc, but our lawmakers have largely dismissed the threat and ignored the need to act. Will they be equally incapable of addressing the coming shortage of labor?

Stay tuned.

8 thoughts on “Supply and Demand: Workforce Edition

  1. Humanity has evolved from another face in the forest to a force in, at least, the solar system. Two factors: our knowledge and our numbers. That leaves an absolutely critical fork in the upcoming road. We will destroy ourselves and life itself or we will continue to reveal the mind of God.

    The difference being our ability to unite vs our ego centric desire for independence. Not the independence of freedom, but the Independence of not caring beyond our senses limited to our personal tiny place and time and scale.

    It’s easy to see our work as merely bringing home the bacon. As much of the world supply of bacon that we can carry each day. But, in the end that view misses the purpose of life. To advance life. A purpose that values our contribution to an effort so much bigger than us that we can’t see it all at once.

    Our imaginations are capable of foreseeing through a decades long project to hurl a machine into the great void and have it wander for a decade then park itself in a parking lot of its choosing on a scrap of space flotsom to pry loose some new knowledge for us to use some day.

    “Part of” not “the”. That’s our choice. We can do so much together and so little alone. You’d think it to be an obvious choice.

    It is, apparently, not.

  2. We are at noon-time of our day in the sun. This planet will go on just as well without us. Ants and dragonflies will look back someday and ponder, ” Whatever happened to Adam?”

  3. Sheila’s blog is spot-on! And so are the brief yet eloquent comments from Pete and Earl. My guess is that we should take a tip from the late Ann Landers (Eppie Lederer) and “Wake up and smell the coffee”. My next guess is that we probably won’t. Squabbling and in-fighting will do us in.

  4. I have a couple of questions: in the current climate, is it possible for two or more countries to reach a consensus on any issue; aren’t birth rates highest in the poorest countries without the means to provide education to the masses?

  5. I watched the TED video and once again I wondered how much easier my life would have been had I stayed in graduate school in economics. It’s hard to refute economists prognostications but I’ll go out on a limb and say I just don’t agree with his assertion that there will be a skilled global labor shortage of the magnitude he describes, and even much less so in the US. Mr. Strack certainly makes a logical case for it, but it’s based on two assumptions: 1) that GDP will grow at about the same rate as it has for the last 30 yrs or so, and 2) productivity will grow as a result of technological innovation at about the same rate it has over the same period. Both those assumptions are not hard to quibble with. In the first case, if the future economy has one less skilled worker then it also has one less consumer spending money. If that’s the case, then where does the impetus come from to grow GDP? Someone in the world has to be there to PURCHASE those additional goods and services added to the economy before any business will bother making them available. Multiply this by hundred’s of thousands or millions and what you have is essentially what has been going on in Japan. Their workforce has aged; their birth rate is zero or negative, but I haven’t heard ANY complaints that they have a labor shortage. Why? Because their economy is shrinking, and not growing. There is some evidence of the same trend in Western Europe and even the US, especially in the last five years. Also note that according to Mr. Strack’s charts, the US will still have a labor SURPLUS by 2030, not a deficit – even assuming normal GDP growth! (whatever that is).

    I suspect the US will suffer from some labor shortages, but it will be a skills shortage in specific areas and not at all a people shortage. A big chunk of our current surplus in the US, which is 11.4% using U-6, the BLS measure of “real unemployment”, comes from the 30 year transition of our economy away from ‘making things’. One result is a lot of laid off people in manufacturing and warehouses and those jobs will not likely ever come back. The effect of this never-slowing-down supply of excess labor has been the OPPOSITE of real wage growth and buying power – workers can only buy LESS with their take home than they could before – working the same hours in the same job. As long as this persists, it’s hard to accept a liberal GDP growth assumption. And now that the middle class has been hollowed out, guess what? Yep, consumption is down. And since 70% of the GDP measurement is from consumption, our economy plods along.

    While there have been some significant global benefits from this transition, such as 700 million or more humans now earning wages, one of the social costs to the US was that our workforce was not prepared or equipped to deal with the transition at that pace – practically one generation. Even worse, US public policy didn’t even have it on the radar. The only thing that was important is that our economy be left mostly wide open to other countries’ exports in exchange for our unfettered access to their cheap labor and some sort of fuzzy commitment to our “vital interests”. It is not realistic to expect that displaced, and largely under-skilled laborers, will all “upskill” to make themselves attractive to available jobs, and although many will, it won’t be enough, and GDP will lag. Again, however, our public policy towards education doesn’t really support it in a meaningful way….who can afford to continue to house and feed their family, AND pay for or borrow the funds to back to school or technical training for 1, 2, 4 or more years?? Also, have some of our leaders ever actually TRIED working full time and go to school in a challenging field?? It’s REALLY REALLY hard!

    Oh, and please don’t be fooled by those silly quotes you hear from local and national business leaders about how they can’t find good people to work for them. All they are saying is they can’t find people that are willing to do the job they happen to have available for $10/hr. What works for the supply of oil also works for skilled resources. If the price (wages) go up, then an increased supply will follow (barring any structural constraints such as the fixed number seats in medical and nursing schools).;

    As for technology and productivity, I became of age and was an active participant throughout the emergence of the digital economy and there is no reason to believe that it will slow down. However, it is not realistic to expect that increased productivity will accrue from it at the same pace as the last 20 years have delivered. Major innovations tend to snake their way through the economy in waves and we are still in the wave that includes the use of software to automate a lot of desk work, inventory control and shop-floor management activities in the economy…but we’re on the back end of that wave and not the front of it. It will take new breakthroughs as revolutionary as spreadsheet software to get another burst. And artificial-intelligence-based computing is not going to automate your accountant, your attorney or your physician in our lifetime. It’s just not there (read Walter Isaacson’s excellent new book ‘The Innovators’ for more on this).

    But historically the offspring of productivity growth has been real wage growth and that’s just not happening, and especially not in the US. Even the most recent numbers from the US Bureau of Economic Analysis show that wages in Indiana are still lagging behind productivity. So, again, in THAT environment, why would a firm invest in MORE technology? Their wage costs are declining anyway. So they don’t. They buy their stock back or they buy other companies with their stock and all that cheap money sloshing around in our banking system.

    So, what’s my point? Well, for starters, let’s get our political leaders and policy makers to quit slavishly following GDP growth as a measure of economic well-being. GDP is a measure of sales and government spending. That’s it. That’s all it does. I don’t care about MacDonald’s sales (which are in the dumps by the way because their food is garbage and because it’s no long cheap to the people who used to buy it). What I DO care about is whether the real wages of the workers (ALL of them not just the VP’s) at MacDonald’s are growing. That means attaching MORE importance to growth in real wages than we do to GDP…let shareholders worry about that. The second measure of FAR more importance than GDP is the EMPLOYMENT rate. Both in absolute and relative terms. In other words a 96% employment rate isn’t good for much if only 50% of people of working age participate in the workforce (we’re currently at 60% – very very low). But we’re not at 96% of 65-70%, which would be a near full-employment economy, we’re at 88% of 60%.

    Invest in children; invest in the workforce and helping people re-tool skills; invest in free and FAIR trade (NOT TPP!); support policies that GROW domestic real wages and employment.

    And GDP will take care of itself.

  6. Nothing is set in stone except monuments to wars won, not lost. Remember the pronouncement of the fellow in the patent office back in the late 1800s that all that was to be invented had been.

  7. Great…(using sarcasm). I miss out on all of this. I am 45 and so my generation is the first who will not do better by my parents. Lived most of my work like in some form of a recession. Too young and working at McDonald’s trying to put myself thru my first degree (psychology) which did not produce any financial gain. Went into nursing as there was a recession (1991/1992) or at least it felt like it as I was struggling and my parents have always struggled. Nursing is not a field that is conducive to my personality…I went back to graduate school for a career change…still unemployed and essentially being told I am over-qualified or under qualified and now that there maybe a shortage in workers where for once in my work life-time the worker bee may actually get the compensation they deserve, I will be too old to truly benefit. Blech.

  8. sorry for some of the misspellings…I am using my Ipad and the I systems seem to use autocorrect all the time. Need to figure out how to turn that off.

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