One of the important concepts one learns in studying the way firms work with respect to pricing and markups is the distinction between quantity and price adjustment over the course of an economic cycle. When economists talk of supply and demand, they usually refer to price adjustment, where prices adjust up or down when there is an imbalance between these aggregates. Orthodox economics presumes that prices adjust, for example, to eliminate an excess supply, which they apply to the labour market and conclude that the cure for mass unemployment is wage cutting. The problem is that in many circumstances, firms use quantity adjustments long before they contemplate price adjustments, because the former involves lower costs. The Australian Broadcasting Commission (ABC) ran a story from its business reporters today (November 16, 2021) – As migration restarts, will it hold down wages for everyone? – which has also become a feature news segment on its television coverage today. The analysis presented is seriously misleading. It not only fails to characterise the problem properly but buys into a highly contentious debate about whether migration has negative impacts on the labour market prospects for local workers. It behoves analysts to actually construct the problem correctly before they start taking sides in this debate. The ABC article fails in that regard which is disappointing. Their failure also reflects the lack of diversity in opinion they seek these days. They chose to simply rehearse the arguments presented by one pro-migration analysis as if it was definitive rather than seek expert opinion from neutral analysis. But it also demonstrates why understanding the difference between quantity and price adjustment is crucial to getting the conclusions right.

I have been researching the so-called labour shortage that business types are talking about relentlessly as part of their on-going strategy to undermine the conditions of work and make more profit. In the course of that enquiry, I came across an interesting juxtaposition between two US companies that illustrate a lot of what we have known about for years but have allowed this relentless, neoliberal, race-to-the-bottom to obscure. Well-paid workers with job security, work better and are happy workers. Companies that pursue the ‘race-to-the-bottom’ strategy and seek to build profits by trashing the conditions they offer workers eventually struggle to prosper because their bad reputation undermines their ability to attract productive workers. In the case we discuss today, the so-called ‘labour shortage’ is really just a signal of management caprice. Rather than being a shortage of workers, there is a shortage of workers who will tolerate the indignity of low wages, onerous conditions and capricious management. It is also a union versus non-union type of discussion where the unionised work places generate high productivity and worker attachment, while the non-unionised workplaces find it hard to attract reliable staff and blame it all on ‘labour shortages’.