Monday, May 11, 2009

How to fix a labor shortage

An old canard in the immigration debate is that, "There are jobs Americans just won't do." Actually, you can fill in the word "Americans" with just about anyone. Indians say the same thing about Bangladeshies, Chinese about the Vietnamese, etc. The trouble is, there's nothing Americans won't do for the right price. The jobs that American's won't do for $5.65 an hour you could probably fill for $15.65 an hour, and you'd have to turn people away for $25.65.

So here's how to fix a labor shortage: make it impossible to fill. If there is a labor shortage so overwhelming that hiring enough people at the going rate is an impossibility, there are three possible (and probably concurrent) outcomes: (a) wages rise and draw in more people, (b) investment in technology or other means to raise productivity, and (c) consumption falls according to its price elasticity. Rising wages and productivity are inherently good, and falling consumption is a function of maximizing utility, so besides filling the labor shortage, you're also improving overall welfare.

An off the cuff response is that these jobs would just be sent overseas, but jobs of this sort are geographically linked (which is why they haven't been offshored already). So the risk of sending jobs overseas is minimal.

So how to create this labor shortage? My personal favorite idea is to increase immigration--for highly skilled workers. In theory (and this is, over course, subject to diminishing returns), every highly skilled worker visa granted creates jobs in a 1:5 ratio. Grant those visas until the number of new jobs created drops to a 1:1 ratio. You could even assign some of these highly skilled workers to figuring out how to create an even greater labor shortage.

All you need to do is create so many jobs that Americans won't do, that Americans will do them.

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