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Supply and Demand: Workforce Edition

Research & Commentary
December 12, 2014

by Sheila Kennedy

A coming shortage of highly skilled labor is likely to create new kinds of social disparities.

By Sheila Suess Kennedy

Recently, a German economist predicted a significant worldwide labor shortage by 2030.

Technology will exacerbate, rather than solve, the skills gap.

Technology tends to exacerbate the ‘skills gap’.

Though economists have been making the same prediction for some time, this one struck me rather forcefully. Perhaps it was because this economist emphasized that the size of the available workforce in coming years is not a matter of conjecture. In fact, the people in that cohort have already been born. The numbers, as he put it, “are set in stone.”

Nor is it likely that technology will bail us out. It has become abundantly clear that technology creates nearly as many jobs as it replaces. What technology will do, however, is exacerbate the “skills gap” that is currently a major factor in the income disparities we are experiencing. [pullquote] Technology will exacerbate, rather than solve, the skills gap. [/pullquote]

So—we have an emerging disconnect between the workers we will need and those we will have. Can we speculate about the consequences of that widening disparity?

• It is likely that people who are highly skilled in areas of economic growth will do extremely well.
• It is plausible that increasing numbers of older workers—especially in countries where healthcare has extended lifespans—will stay in the labor force longer than is currently the case.
• The business community (which is already deeply concerned about education and job training) is likely to press those concerns even more vigorously. Many larger enterprises may increase their on-the-job training efforts.
• Wages are likely to increase across the board. (Whether this will translate into significantly higher prices is an open question; this is where the ability of technology to increase productivity comes into play.) [pullquote] The economic, social and cultural consequences of the coming labor shortage will be significant. [/pullquote]
• Battles over immigration policy will change dramatically. Countries will compete for workers willing to take the jobs unfilled by declining native workforces.

There are probably many others. But if many or most of these speculative outcomes are correct, the economic, social and cultural consequences will be significant.

On the one hand, it is easy to envision a time in the not-so-distant future when workers are more valued and respected—and better compensated– than is currently the case. The market for labor is not appreciably different from the market for widgets, in the sense that value is set by supply and demand. Companies that fail to recognize that employees are assets don’t compete all that well now. It is likely that they will go the way of the dinosaur in a brave new world of worker scarcity. [pullquote] The market for labor is not appreciably different from the market for widgets. [/pullquote]

On the other hand, the need to address our currently self-defeating policies on immigration and to actively encourage an influx of people willing and able to work is likely to create new and unpleasant cultural conflicts. The need to resolve the skills gap is likely to increase the unfortunate tendency to confuse education with job training. (The failure to distinguish between the two is already wreaking havoc with our universities, the liberal arts and the humanities.)

An older lawyer for whom I used to work had a favorite saying: “There’s only one legal question, and that’s ‘what should we do’?” I think that bit of wisdom goes beyond the practice of law. If the planet is facing an imminent shortage of workers, what should policymakers do? [pullquote] Will policymakers ignore the threat of a labor shortage the same way they are ignoring the threat of climate change? [/pullquote]

And what will it take to make them do it? After all, we also know that climate change will wreak havoc, but our lawmakers have largely dismissed the threat and ignored the need to act. Will they be equally incapable of addressing the coming shortage of labor?

Stay tuned.

Sheila Suess Kennedy, J.D. is Professor of Law and Public Policy in the School of Public and Environmental Affairs at Indiana University Purdue University at Indianapolis. Her scholarly publications include eight books and numerous law review and journal articles. Professor Kennedy is a columnist for the Indianapolis Business Journal and a frequent lecturer, public speaker and contributor to popular periodicals. She blogs at

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