Wednesday, August 29, 2007

Spigot-like labor force

From Business Week
A North American economist at Merrill Lynch (MER), [David Rosenberg] is one of a number of economists who say the concerns about too few workers are vastly overblown. Rosenberg recently studied the issue and put out a report entitled Is There a Labor Shortage? If employers are having trouble filling jobs, "perhaps they're not looking hard enough," he says.

The issue may not be the number of workers, but rather the level of pay. Economists like Rosenberg argue that in a market economy, there's really no such thing as a true shortage. If you want more of something, you can pay more and have it. When employers say that there's a worker shortage, what they really mean is they can't get enough workers at the price they want to pay, the argument goes. "While it makes for nice cocktail conversation, the data aren't saying there is an acute labor shortage in this country," Rosenberg says.
Rosenberg argues the simplest way to gauge whether there's a worker shortage is to look at the price of labor. According to the basic laws of economics, the tighter the supply of labor, the more it should cost. So if the economy were operating with full or near-full employment, we would be seeing an "explosion in labor compensation," he says.

The price of labor, however, is hardly surging....
"Employers are very quick to raise the specter of a labor shortage, but often it's another way of saying they can't find the workers they want at the price they're paying," says Jared Bernstein, senior economist for the Economic Policy Institute, a left-leaning think tank in Washington. "They are unwilling to meet the price signal the market is sending, so they seek help in the form of a spigot like immigration."
"I'm a trained economist," says Bernstein. "I can't sign on to the idea that there are jobs people won't do at any price."
Even more so than the US, the UAE has a spigot-like labor force (and a drain-like labor force!).

We hear claims that there are some jobs Emiratis simply will not do. But we don't really know that because wages have never risen to see whether there is a wage sufficient to draw them into those jobs. The spigot from abroad has remained open -- employers can easily obtain work visas and import laborers. Unemployment amongst Emiratis is not what economists would call unemployment; you are unemployed if you would take a job at the current wage but cannot find one.

We hear claims that western expats in the UAE are dissatisfied with their pay. But if they were in a meaningful sense they would be leaving in large numbers. They aren't. Wages have not climbed significantly because the wage being paid matches the alternatives foreign workers could get elsewhere.

We hear claims that there are shortages in critical areas like government teachers and nurses in government hospitals. But there is no shortage. Rather the government simply is not paying a market wage. (I hasten to add teacher and nurse "shortages" are chronic issues in the US as well. See here, for example.) It is in a perpetual position of replacing workers who move on as soon as they can find better pay and working conditions. Such as a job elsewhere in the region. Or even in the US.

The UAE labor force is spigot-like. But it is also drain-like as well.

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