The coming labour shortage?

Bingo Pete. The working class in Canada (and I assume the other developed nations) want a living wage for there labour. Hopefully demographic changes can help facilitate this.

“increased migration of unskilled labour will be a persistent feature in Western economies “during this decade and throughout the century” because of the demographic pressures in those ageing societies.”

A possible outcome, certainly: as is ever greater automation.

“… while immigration is not a mandatory solution to labour shortages, the combination of cash-starved governments and higher demographic costs will make it the most painful and most voter-friendly solution.”

Should that be “the most *painless* and most voter-friendly solution”?

Thanks for the post on ARRIVAL CITY, Chris. Labour shortages are almost always a factor when you have economic growth and demographic shrinkage – – You can get somewhere with endogenous growth (ie using productivity gains, technology etc to squeeze more output per worker) but that only works in some sectors and takes you only so far. Also: unemployment and labour shortages don’t always have a direct relationship. You can have high unemployment and large labour shortages if there’s low labour mobility (especially in large federal countries) or if there are sectoral issues. At the height of the crash, in 2009, both Australia and Canada had large labour shortages in the hundreds of thousands. The Merkel government in Germany, despite its current anti-immigrant sentiment, acknowledges it’ll need at least 400,000 immigrants per year to even begin to fill labour shortages. David Cameron’s attempt to cut immigration levels by 10 to 15 per cent met such fierce resistance from business lobbies this years – – who face hundreds of thousands of shortages despite a high unemployment rate (by UK standards) – – that he scrapped it in all but name. Yes, you can raise wages for unskilled work in an attempt to attract more skilled unemployed workers to “down-skill,” and that will work (and is morally advisable) to a point – – but it very soon starts pushing up unemployment rates because at a certain point it chokes off hiring and slows the economy. Within any workable margin, you’re still going to have labour shortages if there’s growth. Again: You’re all suggesting useful alternative options, but large-scale immigration has been the path of least resistance for governments during the past five decades, and given the even higher costs of alternative options today, I don’t see governments (except perhaps Japan, which has opted for endogenous [non-]growth and a reduced standard of living) pursuing anything different. As I write: We ought to plan for what *will* happen, not what ought to happen.

Chris:
I think people would be happy to do those things if they paid a living wage. They currently don’t.

The idea that labor shortages will be a major concern in societies with low birthrates (but high productivity!) is nonsense. It’s a pet idea of a certain school of thought that is stuck in 19th century “demographics as fate” ideology (see Joel Kotkin for a truly bizarre example, http://www.newsweek.com/2010/04/15/400-million-people-can-t-be-wrong.html), and of right-wingers ideologically opposed to social insurance.

Let me point out one data point. In Japan, the bogeyman of an aging society, currently about 64% of the population are of working age. In 1950, that number was only 60%! In 2050 the proportion is projected to decline to 52%, only a bit lower than back in the times of population growth. During those 100 years, productivity will have multiplied, by how much? At least one, perhaps two orders of magnitude I guess. To claim that the decline of working age population from 60% to 52% is among the biggest problems our plundered, polluted, heating planet might face in the next 50 years is positively insane.

Incidentally I collect gems of demographic hysteria. I’m always happy to find new ones.

“The building blocks of Japan’s future are collapsing, in the view of many economists.
Japan has fewer children and more senior citizens as a percentage of its population
than any country in recorded history, but the government does little to encourage
childbirth or enable immigration.”
Washington Post, February 3, 2010

“For three years running, South Korea has had the world’s lowest birthrate… The no-husband, no-baby trend has become a demographic epidemic in East Asia… Collapsing birthrates are alarming East Asian governments, which in coming years will face a demographic crunch as the proportion of pensioners rises and the number of working-age adults declines.”
Washington Post, March 1, 2010

“Germany also faces a demographic challenge, managing a population that is not only graying but shrinking. Last month the government announced that the population dropped below 82 million for the first time since 1995. That means fewer people trying to pay off a growing national debt, with a projected budget deficit of $118 billion this year.”
New York Times, February 11, 2010

“We are living in an age of reverse-generativity. Far from serving the young, the old are now taking from them. First, they are taking money. … the federal government now spends $7 on the elderly for each $1 it spends on children.”
David Brooks: The Geezers’ Crusade,
New York Times, February 1, 2010

“Projections of China’s economic growth seem to shortchange the country’s looming demographic crisis: It is going to be the first nation in the world to grow old before it gets rich. By the middle of this century the percentage of its population above age 60 will be higher than in the United States, and more than 100 million Chinese will be older than 80.”
Washington Post, February 28, 2010

Also: China’s population shrinkage is a non-mythic factor: The cities of the Pearl River Delta are currently importing African workers in order to fill huge labour shortages (though I should note that these shortages, as I document in ARRIVAL CITY, are also a product of tragic housing and urban-development policies in the region forcing millions of workers to move to the lower-pay cities of the heartland in order to have sustainable housing and savings- -see my case studies of Chongqing and Shenzhen in the book).

Labour shortages can help push up low-end wages because labour becomes a seller’s market. That said, in Germany unions are now supporting the idea of a minimum wage (in the past they’ve opposed a minimum wage, arguing that it would push down workers’ earnings; nowadays, the German economy is dominated by medium-sized firms and an informal sector so it makes sense in order to avoid competition for low-wage manufacturing). Wages have climbed slightly though low domestic consumption remains, as we all know, Germany’s big problem, and therefore Europe’s.

It is economic illiteracy to expect either labo(u)r shortages or labo(u)r surpluses over a long-term timeframe based on supply and demand factors. While it is possible somewhat for governments to impact the shape of the labo(u)r market with regulations and/or by subsidising (or penalizing) unemployment, the long term effect of supply and demand shifts will be for production patterns to adjust based on the available (human and other) resources.

(the short term is a different story)

piglet : as a programmer, I too keep an eye on various shenanigans use to justify ‘skilled migrant progams’ … I think wages did get a little out of hand circa 2000 but the reaction to that has a very long tail… although it doesn’t work as expected, the temptation to use two recent graduates @ $25/hour versus one experienced worker @ $50/hour. Future facing mix & mentor arrangements are also pretty rare.

Tim : automation isn’t the panacea people think. The cost of getting a healthcare/assistance device (for example) on the market is ginormous… relevant standards & certification, lots of insurance, lots of hoops… far easier to employ a low wage, minimum skilled person to do the lugging.

And if I can add, it’s quite true that native-born workers really _won’t_ do the sorts of low-prestige, low-paying jobs that immigrant workers frequently do. When there are calls to recruit domestic unemployed, whether in the United States or the United Kingdom, you consistently get low turn-out and high drop-off rates.

happy at 24 > “… automation isn’t the panacea people think. The cost of getting a healthcare/assistance device (for example) on the market is ginormous… relevant standards & certification, lots of insurance, lots of hoops… far easier to employ a low wage, minimum skilled person to do the lugging.”

Really? A “low wage, minimum skilled person” will do the job variably for 2000-2800 hours per year. If s/he turns up. An autonomous assistance device will do it for at least 7600 hours per year, perfectly consistently. Three minimum wage workers or one machine? Oh, and buy five and you can lose a supervisor as well.

The certification and hoop-jumping costs are large, but I’d be surprised if they were greater than those for a new drug or civilian aircraft.

Alas, he foolishly neglects the rapid advance of robotics. Martin Ford has discussed this in detail, as has Marshall Brain. See “The Coming Structural Unemployment Crisis” by Martin Ford, and “Robotic Nation” by Marshall Brain. Gastarbeiters are swiftly becoming superfluous.

What DD and others have said.

To add to what piglet said, Japan has very low female workforce participation, and could address the lower ratio of children to adults by incorporating those women into the workforce. They also have a low retirement age (I think it’s 60) and the longest lifespan on the planet (bar one other country, sometimes). They could easily reduce their social insurance costs and increase their labour pool by changing that – even up to 70. The idea that they’re facing a demographic disaster is, I think, western neo-liberal fantasizing.

“It can be increased, sure. Will it be increased?”

Are you kidding? Do you really think that in a case of an actual labor shortage, when 65 year old Japanese get courted by employers to stay in the workforce at good wages and conditions, do you really think there won’t be a sufficient number of takers? A lot of countries are raising the retirement age while there are NO jobs for older workers. We already know that most of these people will end up unemployed until they can finally retire. If that changed due to a real labor shortage and perhaps a change in the attitude of employers, it is hard to imagine that the legal retirement age will be a limiting factor.

“Do you really think that in a case of an actual labor shortage, when 65 year old Japanese get courted by employers to stay in the workforce at good wages and conditions, do you really think there won’t be a sufficient number of takers?”

In some cases, yes. Will these 65 year old Japanese be picking strawberries, or be janitors, or be taking care of the elderly?

Germany is having problems chiefly because the Turkish economy is doing well, and that is cutting short the number of quality cheap labor heading there who are willing to put up with the crap Germans gives to “guest workers”.

Germany stopped admitting Turkish “guest workers” decades ago. The people of Turkish origin now living in Germany were mostly born there or have been living there most of their lives. Further, as mentioned, people from any EU country can now move freely to Germany (remind me if there are still restrictions on some of the new members).

I don’t think the rest of what you are saying, shah8, is making much sense either.

As an aside, if “400 million (projected American) people can’t be wrong” (Kotkin), then a forteriori 1300 million existing Chinese people can’t be wrong can they? I just wish you guys would take notice of the bizarre nonsense that is being propagated by a growing wave of demographic apocalypticians. This can’t any more be explained as a mere counter-reaction to Ehrlich’s opposite apocalyptic vision 40 years ago. We are seeing a return to 19th century ideology about cradle wars and demography as destiny. I suggest this seemingly anachronistic tendency is part of a broader movement to rehabilitate Social Darwinism.

shah8, last I heard (warning: I am an American) pretty much any citizen of an EU country has the right to travel to, reside work in any other EU country. I’ve heard of large numbers of Polish workers working in the UK and (formerly) Ireland.

Germany would be easy to get to for citizens of many poorer EU countries, and it’s one of the richest (not counting those countries which are basically PO boxes for money).

shah8, if you’re going to include such canards as “passive agressive insistence on disinflation” and “xenophobic workforce” in your description of Japan’s problems, I don’t think you know what you’re talking about. The Japanese are fully aware of the need to change their demographic structure, and they’re coming around to a discussion of workplace reform; none of it has anything to do with xenophobia, but with how they organize their internal social relations, particularly with how they plan to deal with the social insurance issues attached to casual labour; women’s participation in the workforce; and a low retirement age for a very long-lived and hardy generation.

Someone up above asked if the people over 65 who return to the workforce in Japan will be strawberry-picking. The average age of farmers in Japan now is 63, so yes; they will be quite capable of strawberry picking, in fact a large number of retired Japanese choose to spend their days doing exactly that.

I agree with piglet on this. Western interpretations of the “demographic apocalypse” facing the far east are based on smug self-satisfaction. There’s a whole bunch of racist tropes behind it – Asian as robotic worker, Asians as sexually immature or weak compared to the west, jealousy and fear of the Asian economic model and, of course, additionally, the standard neo-liberal scorn for any society that has a strong social insurance system (as Japan has). And, finally, of course, as in most issues related to Japan or Korea, breathtaking and stunning ignorance.

shah8: “Otoh, are you going to try to argue that Germany does not employ hundreds of thousands of migrant workers, despite official policy?”

You probably conflate several issues here. Germany has a significant population of non-citizen workers of Turkish, South European, and more recently East European origin. There is a lot of racist or at least unfriendly attitude among Germans vis-a-vis these Auslaender. That is bad enough but I don’t think it has much to do with the question of whether there is a labor shortage. Back in the 50s and 60s, there was a labor shortage and by official policy, immigrants from Turkey and Southern Europe were invited to come work in Germany. Since the 1970s, those labor shortages have turned into mass unemployment. Of course Germany is still attractive for many people from poorer countries but as I stated above, that doesn’t prove the existence of a labor shortage. It only proves that poor people tend to move to places where they hope to have better economic opportunities, if they can. Germany makes it as hard as it can for these would-be immigrants but EU citizens have the legal right to be admitted.

Interestingly, as I stated before, a few years ago, more people moved away from Germany than the other way round.

shah8, I’m living in Japan and let me assure you that the “disinflation” you worry about is nowhere near as devastating a phenomenon in life here as it seems from reading the wrong articles overseas. Your claim that businesses can’t grow internally is also quite … strange … from the perspective of someone living here.

Regarding workplace reform, a classic mistake made in assessing gender discrimination – particularly the role of women in the workforce – here is to ignore the importance of overall workplace relations. If a man in a middle management position here can’t get more than a week off for any personal reason whatsoever, why would you think companies would allow maternity leave? You talk about a “nice governmental effort” to encourage women to have children – perhaps you’re not aware of the paid maternity leave built into the social insurance system? Or the baby bonus? The problem here is not a lack of economic incentives, it’s a lack of corporate willingness to support them. And this comes down to workplace reform.

You tell me to “call you when the pervasive gender discrimination stops”. You might note that I mentioned above the low women’s participation rate, do you think I’m not aware of why that might exist? See the previous paragraph for more info. This can be changed through workplace reform – currently, a lot of women in Japan are waiting to marry so they can stop work.

Finally, regarding xenophobia. I’m well aware of the barriers to employing foreigners, but I work in a university where the foreigners are paid more than the local staff, and where the foreign students all seem to do perfectly well in their shukatsu (job-hunting) with Japanese firms. Here’s a tip for you: don’t believe anything you read from gaijin in Japan. I could tell you stories… xenophobia is a very strong word and what’s going on in japanese workplaces is much, much more complex than that. For example, if you can find me a British or American company that employs illiterate people to do important jobs then please, do tell. To all intents and purposes, most foreigners in Japan are illiterate, and – in case you haven’t noticed – this is a significant barrier to employment everywhere in the developed world. If when you visit Japan you can’t read a menu, ask yourself how you could work in a restaurant? How is Japan going to employ foreign nursing staff if they can’t read even the most basic medical charts?

Regarding strawberry picking, you misunderstand. Have you ever visited the Japanese countryside? When I said farmer, I meant farmer, not farm manager. You can see them in any spring or Autumn day, bent double in the fields at 70 planting rice by hand, or harvesting pears. Yes, also strawberries. Much of Japanese rice-farming is still very labour intensive, and is done entirely by hand. I have a colleague whose mother-in-law is running a mandarin farm of 500 trees herself at the age of 60 or 65, without any seasonal labour of any kind. So yes, in fact, strawberry picking.

*sg*, you sound like TwoFish.

We probably have a labor shortage here in the US. It’s just that our economy is so dysfunctional we can’t get the labor to the jobs that need doing. And so labor sits idle. For instance, in New Jersey there’s a tunnel (that’s been started) everybody says needs doing, but we can’t raise the money for it. So we have thousands of unemployed. Infrastructure galore, that won’t get repaired because we ‘don’t have the money to build it.’ A massive trade deficit, and resultant millions unemployed, who would be employed if trade were balanced.

Public education seems to suck, and the costs of higher education are skyrocketing, which is going to squeeze off the supply of skilled and management types.

Meanwhile we have the richest rich of anywhere. We have a shortage of limo drivers. We have a shortage of doctors, because way back when they said there was going to be a surplus, and the AMA is a cartel.

Austerity is going to free up a lot of labor, and even more things that need doing, won’t get done.

But do read Martin Ford, (referred to above) over at http://econfuture.wordpress.com/. The issue seems to be whether we make it to the energy future, or choke on our outdated and reactive institutions.

No worries, mate.

It’s possible to be fat and malnourished, too.