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Fears of Economy-Wide Labor Shortages Are Completely Groundless

March 23, 2012
| Blogs & Op-eds

When looked at from an innovation economics perspective, it is clear that a worker shortage is not only not likely it’s simply impossible, since by definition the output of workers must equal their consumption. It is possible to have a worker surplus, which is what happens when the unemployment rate rises above its frictional rate as it has been for almost four years now. It is even possible to spot occupational shortages, as has been the case with some occupations like computer scientists and engineers. But the converse is not possible. There can be no such thing as a negative unemployment rate. In other words, the demand for labor can never exceed the supply of labor. This is because labor demand is determined by what people consume and that in turn is determined by the amount of goods and services the workforce produces.