Predictions of Labor Scarcity Are Premature

In his column at the Washington Post, Robert Samuelson sees the beginning of a new period of labor scarcity:

The good news is that U.S. workers may be retrieving some of their lost bargaining power. The supply-and-demand dynamics for labor look more favorable. As the recovery has continued, the unemployed pool has shrunk. In August, the jobless rate was 4.9 percent, down from a peak of 10 percent. In addition, the retirement of baby boomers reinforces the competition for good workers, exerting upward pressure on wages and giving workers more choice.

Other forces push in the same direction. Immigration seems likely to abate. The huge influx of women into the paid labor market seems to have crested. All this shifts the bargaining advantage to workers. It is unlikely to be offset by the advent of more robots, another trend that has been hyped.

I think that’s tremendously premature. If labor had become scarce, you would expect a sharp increase in wages. As the graph at the top of the post illustrates the increase in the median wage continues to be below what it was in middle of the Great Recession and remains significantly below what it was in the late 1990s. For real household income to return to what it was in 2007 we’d need a decade of wage growth at present rates.

Might we be entering a new period of labor scarcity? For that to happen immigration would need to slow. Given that the brief period of net zero immigration from Mexico has ended, immigration is proceeding at the rate of about 1 million per year, and there’s considerable pressure to increase the number of legal immigrants, that seems unlikely.