I feel so old. Back when I learned economics, they taught you that in free markets prices adjusted to bring supply and demand into line. But, these days we keep hearing about how there are labor shortages that can only be addressed by finding lower paid workers in other countries to take the jobs. According to the NYT, the latest case is Poland, where apparently all the construction workers have gone to work in Western Europe. What makes this story especially annoying to those of us who learned the old economics is that the wages of workers in the occupations facing shortages have been falling relative to the wages of workers in occupations not facing shortages. Many economists have sought to explain the relative decline in wages for less-educated workers as the result of skill-biased technical change (i.e. computer technology reduces the relative demand for less educated workers), but how do we reconcile a story of skill-biased technical change with recurring shortages of the workers who we supposedly don't need any more?
-- Dean Baker
