Labour market shortages and mobility
Posted March 2, 2008on:
Kiwiblogblog raised the issue of labour shortages in New Zealand. As well as mentioning the labour shortages in New Zealand, they also stated that similar labour shortages exist overseas. Some of these shortages (eg doctors) have existed for a long time, all around the world. However, if this is the case why isn’t the wage rising to try and take care of these shortages?
When looking at this problem, the first issue that springs to mind is that doctors are skilled workers – therefore they need to spend time and money (with a significant opportunity cost) in order to become a doctor. However, once they have done this training, they can be subject to ‘hold up’ as the knowledge they have trained to learn in industry specific. Given this, the wage may not fully reflect the investment they put in to get the job in the first place and there will be an undersupply of doctors.
My first best solution would then have some sort of incentive contract between the prospective doctor and the hospital that they will work to go for. However, such a contract is likely not enforceable and is subject to too many information asymmetries to work.
As a result, the government may be able to intervene and subsidise doctors training – thereby reducing the cost of becoming a doctor and increasing the supply of doctors. However, because of labour mobility the government cannot ensure that the whole gain of paying for these doctors to get training will accrue to society – as some doctors will move overseas once they are finished. If this is the case, governments will ‘under-invest’ in doctors relative to the globally optimal level, as there are spillover effect to other countries.
If this is the case, then it makes sense that we have a global shortage in certain professions. The only solution I can think of off the top of my head is that the country that benefits by getting a doctor from the other country should pay for the investment cost of producing that doctor. This would convince governments to increase the subsidy for training doctors and lead to a more globally efficient outcome.
Do you guys have any ideas – or can you give me a better reason for why we have a global shortage of some types of labour?