Is A Great Labour Shortage Coming? By Richard Freeman

 This paper is a useful corrective to some of the more apocalyptic projections of looming generalized labour shortages in the US, Canada and elsewhere. One of Freeman’s key points is that we should not care about a decline of GDP growth, only about GDP per capita, and that we should focus more on increasing productivity than on increased labour supply. He also notes the changed situation with respect to global labour demand and supply, the pontial for offshoing lots of jobs; and the (inevitably) poor record of labour force projections. Finally, as Freeman notes, a tight job market is just what workers need to redress the major shift in bargaining power to employers of the past three decades. I would, however, quibble with the paper to a degree. In the case of Canada, at least,  there is pretty compelling evidence of demographically-driven looming skills shortages in some specific areas (the skilled trade; health care professionals.) (The paper cost $5 to download.)

NBER Working Paper No. 12541
Issued in September 2006
NBER Program(s): LS

(Available for download from www.nber.org)

—- Abstract —–

This paper assesses the claim the the US faces an impending labor shortage due to the impending retirement of baby boomers and slow growth of the US work force, and that the country should orient labor market and educational policies to alleviate this prospective shortage. I find that this analysis is flawed, by making growth of GDP the target of economic policy and by paying inadequate attention to the huge supply of qualified low wage workers in the global economy. My analysis shows that the projections of future demands for skills lack the reliability to guide policies on skill development, and that contrary to the assumption implicit in the shortage analyses, demographic changes have not historically been consistently associated with changes in labor market conditions. I argue that if there is to be a shortage, the country should allow the competitive market to raise labor compensation rather than to adopt policies to keep labor costs low.