Shortage of labor by rejecting wage offers

This posts refers to an article written by Gary Burtless, Unemployment and the “Skills Mismatch” Story: Overblown and Unpersuasive.

Mr. Burtless says that businesses are complaining about a skills shortage in an environment of lots of job openings. What kind of model might describe this situation? I have one… (link to model)

ED and labor shortage

Labor share represents the strength of real wages to entice workers. The employment rate represents the percentage of workers that will be employed at that labor share. If labor share/real wages fall, less workers are willing to supply their efforts at that wage level. Yet firms will demand more workers… or better said, firms will expect workers to be just as likely to accept lower wages.

Now Mr. Burtless sees this situation and suggests to firms…

“It is cheap for employers to claim qualified workers are in short supply. It is a bit more expensive for them to do something to boost supply. Unless managers have forgotten everything they learned in Econ 101, they should recognize that one way to fill a vacancy is to offer qualified job seekers a compelling reason to take the job. Higher pay, better benefits, and more accommodating work hours are usually good reasons for job applicants to prefer one employment offer over another. When employers are unwilling to offer better compensation to fill their skill needs, it is reasonable to ask how urgently those skills are really needed.”

I agree with Mr. Burtless. Employers expect there to be enough workers who will take whatever wage is offered them. The solution is to offer better wages and benefits. And the aggregate data is showing that firms are not raising wages much.

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