Does Labor Exist on a Supply / Demand Curve?

Is labor impacted by relative supply and demand? If there is a shortage of trained engineers, will their income go up? If there is a surplus of recent law-school graduates, will their income go down? If we increase the price of labor without altering supply, will demand go down?

In short, is labor effected by supply and demand? Or magically is it the one service / commodity that isn't, just because it happens to be the thing that most of us sell?


Poll is in response to several people that I have seen either explicitly or implicitly argue the latter, that somehow if you increase the cost of labor, you do not decrease demand when supply is held constant.

cpwill said:

Is labor impacted by relative supply and demand? If there is a shortage of trained engineers, will their income go up? If there is a surplus of recent law-school graduates, will their income go down? If we increase the price of labor without altering supply, will demand go down?

In short, is labor effected by supply and demand? Or magically is it the one service / commodity that isn't, just because it happens to be the thing that most of us sell?


Poll is in response to several people that I have seen either explicitly or implicitly argue the latter, that somehow if you increase the cost of labor, you do not decrease demand when supply is held constant.

Click to expand...

Choice #1 is true, but insufficient as there are other market factors which affect the pricing of labor

cpwill said:

Is labor impacted by relative supply and demand? If there is a shortage of trained engineers, will their income go up? If there is a surplus of recent law-school graduates, will their income go down? If we increase the price of labor without altering supply, will demand go down?

In short, is labor effected by supply and demand? Or magically is it the one service / commodity that isn't, just because it happens to be the thing that most of us sell?


Poll is in response to several people that I have seen either explicitly or implicitly argue the latter, that somehow if you increase the cost of labor, you do not decrease demand when supply is held constant.

Click to expand...

No, it's created by congressional laws allowing lowering wages, shipping jobs overseas, and discriminating about races and sexes in wages.

Nothing more, nothing less.

sangha said:

Choice #1 is true, but insufficient as there are other market factors which affect the pricing of labor

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Agreed. The relative price of capital, for example. However, my point is simply that I believe that the cost of labor impacts demand for it, and yet while I find this to be among the most obvious things in the world, I have repeatedly seen several others argue as though this were not true.

cpwill said:

Agreed. The relative price of capital, for example. However, my point is simply that I believe that the cost of labor impacts demand for it, and yet while I find this to be among the most obvious things in the world, I have repeatedly seen several others argue as though this were not true.

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Another factor is the availability of qualified labor elsewhere. If the labor force in one country has few engineers and they demand a premium, but the number of engineers in another country is high and they work cheap, the company will either move the facility of bring in those engineers.

In the case of lawyers, if there is only one lawyer in the area, he will likely starve. Bring in a second and the will both get fat. Create a couple hives of the blood suckers and all the lawyers get rich while the rest of us whither on the dying vine.

code1211 said:

Another factor is the availability of qualified labor elsewhere.

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I'm pretty sure that would fall under "supply".

In the case of lawyers, if there is only one lawyer in the area, he will likely starve. Bring in a second and the will both get fat. Create a couple hives of the blood suckers and all the lawyers get rich while the rest of us whither on the dying vine.

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You know, I was reading a book by the guy who works for the World Bank, and he made the note that countries with a higher lawyers - to - engineers ratio have slower rates of growth. Apparently when you attract your intellectual talent into redistributing wealth rather than creating it, the effects are negative for the nation at large.

sangha said:

Choice #1 is true, but insufficient as there are other market factors which affect the pricing of labor

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Care to name these other market factors and their impacts on the price of labor?

code1211 said:

Another factor is the availability of qualified labor elsewhere. If the labor force in one country has few engineers and they demand a premium, but the number of engineers in another country is high and they work cheap, the company will either move the facility of bring in those engineers.

In the case of lawyers, if there is only one lawyer in the area, he will likely starve. Bring in a second and the will both get fat. Create a couple hives of the blood suckers and all the lawyers get rich while the rest of us whither on the dying vine.

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It is the very intent of our laws to make lawyers necessary. If they were simple, straight forward and did not contain ample "wiggle room" for a myriad of different, yet seeming equal, valid interpretations then lawyers would not be seen as needed. Note that lawyers make the laws purposefully complex to require the services of other lawyers to "decode" them for presentation to judges and juries.

Choice 1 should be true.

But then enters government. Since going off the gold standard, repeated and continuous cycles of labor cost increases and inflation, partly caused by those increases, has left us non-competitive for labor rates in the global market. After all the raise in minimum wage and other labor rates, people today do not, relatively, have any more purchasing power today than when the gold standard was eliminated and minimum wage introduces. Many actually have much less purchasing power today because their pay rate has not always kept pace with inflation.

In the end, all we have done is price ourselves out of the labor market.

ttwtt78640 said:

Care to name these other market factors and their impacts on the price of labor?

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The cost of supplying that labour

Doctors are always going to have a high cost due to the training involved and lenght of training required. To produce a supply of doctors is very expensive in both monetary and labor resources.

Other factors would be living costs. In a place like NYC where the living costs are quite high the cost of labor is going to be high as it would not be profitable to supply labor at a rate similar to the cost of labour in say Kansas

One issue


Treating labour like a raw material can lead to some rather tragic events.

When a supply of bananas, or cattle goes bad due to excess supply, they can rot or be put down due to to high of costs to put them to market. What to do with an excess supply of labour?

DVSentinel said:

Choice 1 should be true.

But then enters government. Since going off the gold standard, repeated and continuous cycles of labor cost increases and inflation, partly caused by those increases, has left us non-competitive for labor rates in the global market. After all the raise in minimum wage and other labor rates, people today do not, relatively, have any more purchasing power today than when the gold standard was eliminated and minimum wage introduces. Many actually have much less purchasing power today because their pay rate has not always kept pace with inflation.

In the end, all we have done is price ourselves out of the labor market.

Click to expand...

The US has a labor cost advantage over Western Europe, Japan and Canada. Only when compared to lower income countries like lesser developed European countries, South Korea and especialy China does the US have a higher cost of labor. I strongly doubt the US would be better off trying to compete with labour rates in Mexico by trying to reduce labour costs to the the current cost of labour in Mexico

Lord Tammerlain said:

The US has a labor cost advantage over Western Europe, Japan and Canada. Only when compared to lower income countries like lesser developed European countries, South Korea and especialy China does the US have a higher cost of labor. I strongly doubt the US would be better off trying to compete with labour rates in Mexico by trying to reduce labour costs to the the current cost of labour in Mexico

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Competitive does not mean lower it to their level. There are still shipping, other costs and other factors which would make us competitive without dropping labor to that cost level. We could not even reduce our labor costs unless we some how lowered costs to the consumer at the same time. But unless we somehow become competitive, we will continue to see jobs disappear. There are other factors, besides just labor costs, that are driving those jobs away also.

Western Europe (or at least Germany for one) and Japan maintain their ability to remain in the market by marketing quality not price. Even then, they have some troubles and Japan has also been outsourcing to cheaper labor markets. I don't know about Germany, but since everyone else in the industrial world is seeing outsourcing, I suspect they are also.

Lord Tammerlain said:

The cost of supplying that labour

Doctors are always going to have a high cost due to the training involved and lenght of training required. To produce a supply of doctors is very expensive in both monetary and labor resources.

Other factors would be living costs. In a place like NYC where the living costs are quite high the cost of labor is going to be high as it would not be profitable to supply labor at a rate similar to the cost of labour in say Kansas

One issue


Treating labour like a raw material can lead to some rather tragic events.

When a supply of bananas, or cattle goes bad due to excess supply, they can rot or be put down due to to high of costs to put them to market. What to do with an excess supply of labour?

Click to expand...

Simply explaining that highly skilled/gov't certified professionals get higher pay, ignores the fact that education/certification time/costs simply makes those qualified professionals more rare, which reduces the supply. The cost of living is a two way street, sort of a chicken and egg deal; raising the rent alone does not make the tenant's pay go up, obviously the tenant had to make enough already to pay the higher rent, that too is the result of supply and demand, the supply of low wage labor in a high cost area is limitted by commuting time/cost and local rents. We are now seeing the effects of an oversupply of labor, high unemployment rates, stagnating wages and lower domestic demand for goods and services.

cpwill said:

Is labor impacted by relative supply and demand? If there is a shortage of trained engineers, will their income go up? If there is a surplus of recent law-school graduates, will their income go down? If we increase the price of labor without altering supply, will demand go down?

In short, is labor effected by supply and demand? Or magically is it the one service / commodity that isn't, just because it happens to be the thing that most of us sell?


Poll is in response to several people that I have seen either explicitly or implicitly argue the latter, that somehow if you increase the cost of labor, you do not decrease demand when supply is held constant.

Click to expand...

The answer, of course, is number one...as anyone familiar with grade school econ knows.

Muddy Creek said:

No, it's created by congressional laws allowing lowering wages, shipping jobs overseas, and discriminating about races and sexes in wages.

Nothing more, nothing less.

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Right....... If that were true, then the wages would be uniform among groups. All the white males make the highest possible, white females are next lowest, then black males, then black females, etc. etc. If that were the only thing determining wages there would be no variation among groups, and no overlap between the groups what so ever.

Oh wait, that isn't the case. Besides what do you think makes companies ship jobs overseas? Would you guess that it is supply and demand?

DVSentinel said:

Competitive does not mean lower it to their level. There are still shipping, other costs and other factors which would make us competitive without dropping labor to that cost level. We could not even reduce our labor costs unless we some how lowered costs to the consumer at the same time. But unless we somehow become competitive, we will continue to see jobs disappear. There are other factors, besides just labor costs, that are driving those jobs away also.

Western Europe (or at least Germany for one) and Japan maintain their ability to remain in the market by marketing quality not price. Even then, they have some troubles and Japan has also been outsourcing to cheaper labor markets. I don't know about Germany, but since everyone else in the industrial world is seeing outsourcing, I suspect they are also.

Click to expand...

Germany of course does outsource, many of its companies have taken production (low skilled) to Poland to supply their German plants

Not to mention the number of German auto plants being built in the US or Mexico. Germany has programs and policies in place though that promote and maintain the high skill levels of german production workers


Lets not forget the US does have a very efficient transportation network, the lowest cost energy, cheap labour when compared to other high income countries. The US is losing jobs only to countries in which it would be impossible to compete on a labour cost basis

Lord Tammerlain said:

Germany of course does outsource, many of its companies have taken production (low skilled) to Poland to supply their German plants

Not to mention the number of German auto plants being built in the US or Mexico. Germany has programs and policies in place though that promote and maintain the high skill levels of german production workers


Lets not forget the US does have a very efficient transportation network, the lowest cost energy, cheap labour when compared to other high income countries. The US is losing jobs only to countries in which it would be impossible to compete on a labour cost basis

Click to expand...

Those "foreign" auto plants in the US, especially BMW and Mercedes, are not really outsourcing. Under the current US Tariff system, if they produce so much in the US, then they don't have to pay full import tariffs on all their products. They don't actually manufacture much here either, they import the parts and only do final assembly in the US.

If our transportation system is "very efficient", I don't want to see what the other guys look like.

Lord Tammerlain said:

The cost of supplying that labour

Doctors are always going to have a high cost due to the training involved and lenght of training required. To produce a supply of doctors is very expensive in both monetary and labor resources.

Other factors would be living costs. In a place like NYC where the living costs are quite high the cost of labor is going to be high as it would not be profitable to supply labor at a rate similar to the cost of labour in say Kansas

One issue


Treating labour like a raw material can lead to some rather tragic events.

When a supply of bananas, or cattle goes bad due to excess supply, they can rot or be put down due to to high of costs to put them to market. What to do with an excess supply of labour?

Click to expand...

You have yourself twisted there. Its not "treating labour like a raw material" that leads to tragic events, its allowing yourself to have an excess supply of labour in the first place. That comes with smart resource management, the same as the bananas or the cattle. The stakes are merely higher.

cpwill said:

I'm pretty sure that would fall under "supply".



You know, I was reading a book by the guy who works for the World Bank, and he made the note that countries with a higher lawyers - to - engineers ratio have slower rates of growth. Apparently when you attract your intellectual talent into redistributing wealth rather than creating it, the effects are negative for the nation at large.

Click to expand...

Since when do lawyers have anything to do with redistributing wealth ?
A great many things affect growth rates. Just knowing the lawyers/engineers stats is far from sufficient.

ReformCollege said:

You have yourself twisted there. Its not "treating labour like a raw material" that leads to tragic events, its allowing yourself to have an excess supply of labour in the first place. That comes with smart resource management, the same as the bananas or the cattle. The stakes are merely higher.

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Unexpected events can cause an excess supply despite smart resources management. An economic downturn, a drought etc.

Treating people as you cattle will lead to tragic events. Which is why running an economy, is not the same as running a society. What is best for one, will not be what is best for the other at some times

Lord Tammerlain said:

Unexpected events can cause an excess supply despite smart resources management. An economic downturn, a drought etc.

Treating people as you cattle will lead to tragic events. Which is why running an economy, is not the same as running a society. What is best for one, will not be what is best for the other at some times

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Not treating human capital like a resource is what can cause them to be mismanaged. You can treat human capital differently, but eventually it will catch up with you.

And when are the interests of one not dependent on the interests of the other? Society has less problems when the economy is growing and running smoothly. The economy has less problems when society is functional and stable. In the modern age where society revolves around human created goods and services, the two are quite inseparable.

earthworm said:

Since when do lawyers have anything to do with redistributing wealth ?
A great many things affect growth rates. Just knowing the lawyers/engineers stats is far from sufficient.

Click to expand...

It is generally bad practice to criticize an finding before you have done any reading into the evidence supplied.

ReformCollege said:

Not treating human capital like a resource is what can cause them to be mismanaged. You can treat human capital differently, but eventually it will catch up with you.

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And if you treat it exclusively like a resource you end up culling some stock like a rancher would do to cattle or pigs.

And when are the interests of one not dependent on the interests of the other? Society has less problems when the economy is growing and running smoothly. The economy has less problems when society is functional and stable. In the modern age where society revolves around human created goods and services, the two are quite inseparable.

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Of course they are dependant on each other, but as I said what would be best for the economy at a specific time may not be best for society. Check the societal conditions in Greece, some of the baltic countries and a few other countries.

Lord Tammerlain said:

The US has a labor cost advantage over Western Europe, Japan and Canada. Only when compared to lower income countries like lesser developed European countries, South Korea and especialy China does the US have a higher cost of labor. I strongly doubt the US would be better off trying to compete with labour rates in Mexico by trying to reduce labour costs to the the current cost of labour in Mexico

Click to expand...

Labor is only a single input. Overall, we still drive up the cost of doing business higher then it is in other countries. Our corporate tax rate is the second highest in the world. Which is ironic because we also get the lowest amount of revenue as a % of GDP from the corporate tax compared to other countries. I would not be surprised if the difference was mostly due to evasion and off-shoring. This drives money out of the country. Apple alone is sitting on a $121B cash pile, with $83B of that offshore. Why on earth do we insist on demonizing companies like Apple, when we should be doing absolutely everything possible to keep them investing here? Who cares if they are morally right or wrong for minimizing their taxes, or how greedy they are or what their duty is, blah blah blah. None of that talk matters, what matters is their money staying here, and being invested here.

By the why do we even need a tax on corporate revenue? It only raises revenue of 1.3% of GDP, and our absurdly high rates seem to drive capital out of this country by the droves. Apple doesn't need to send money to offshore accounts if they aren't being taxed at a corporate level anyways. They can keep their money here, and perhaps invest some of it in new factories here. They have already announced that they are going to move some of their production back into the U.S., so why wouldn't we want them to have as much of their cash as possible on hand when they are planning those new factories?

Anyways, the take away point here is we have plenty of ways of competing on a global scale without attempting to cut our wages in half. But on that note, we shouldn't be aggressively pursuing wage increases regardless. What we need to do, is invest in our infrastructure and attracting capital into our country. If the factories get built, and people get employed, wages will creep up naturally with the resulting economic growth and decrease in labor supply. Labor does follow supply and demand, and if you want to decrease the supply you need to increase the demand.

Lord Tammerlain said:

And if you treat it exclusively like a resource you end up culling some stock like a rancher would do to cattle or pigs.

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Huh? Who on earth suggested we do that? I certainly didn't.

Lord Tammerlain said:

Of course they are dependant on each other, but as I said what would be best for the economy at a specific time may not be best for society. Check the societal conditions in Greece, some of the baltic countries and a few other countries.

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I'm not understanding what your point is here, but right now Greece has a 26% unemployment rate. That is in no way shape or form good for society. They didn't get that way doing what was best for long term economic health. They got that way by excessive social spending and covering it up by converting their debt into other currencies and paying banks to keep it off the books.