[mahyarm]

Wages don't grow because there isn't a shortage condition for labor. If there was a shortage, the price of labor (wages) would increase.

From what I've read, it became fed policy to make sure this labor shortage condition doesn't happen around the 1980s as a response to the stagflation of the 1970s. It was believed that one of the causes of the inflation was wage growth.

From what I understand, wages tend to go up when the red line is below the blue line in this graph, and you'll notice the red line is under the blue line a lot more before 1980 vs after. You'll also notice interest rate spikes start around the point where the red line meets the blue line, and spikes of unemployment happen soon after.

https://fred.stlouisfed.org/graph/?g=3uOu&utm_source=direct&...

[randomdata]

> If there was a shortage, the price of labor (wages) would increase.

If price of labour was increasing, that would suggest that there isn't a shortage[1].

"In economic terminology, a shortage occurs when for some reason (such as government intervention, or decisions by sellers not to raise prices) the price does not rise to reach equilibrium. In this circumstance, buyers want to purchase more at the market price than the quantity of the good or service that is available, and some non-price mechanism (such as "first come, first served" or a lottery) determines which buyers are served."

What I believe you are saying is that we have reached equilibrium, so there is no pressure to push prices up or down when measured across the population as a whole (individuals may still see increases and decreases).

[1] https://en.wikipedia.org/wiki/Shortage

[krath94]

I don't know if we have reached equilibrium. But I think it's more complicated when it comes to the labor market to just say "oh ok, we'll raise wages to get rid of the labor shortage." This is especially true if the shortage is in a high skilled position. For example, if there is a labor shortage in software engineers, raising wages won't help, at least not right away, because people will need to learn the skills required to do the job and maybe go to college before they can fill the shortage gap. I don't think people are sitting there saying "I need a job, but you won't pay enough so I'll stay unemployed," at least not in the higher skill fields.

[randomdata]

> For example, if there is a labor shortage in software engineers, raising wages won't help

As long as it prices businesses out of the market it does. Mom and Pop probably cannot compete with Google and Facebook, so when the price rises Mom and Pop will stop hiring developers. When they do that reduces the demand for developers. With reduced demand, the existing supply comes closer to meeting the needs of what demand remains.

Demand, of course, does not measure what someone would like to have, it measures what they are willing and able to pay for. And a rising price usually means that more and more will no longer be able to pay the price (money isn't infinite). I expect not even the likes of Google and Facebook are willing to pay infinitely (the value of having a developer stops at some price point), so eventually even one of them will have to step out of the market if price reaches that level, leaving all of the developers in the world theoretically available to work for the last company who can still afford them.

This is why shortage and rising price typically do not go together. As long as the price is rising, then demand should be falling (especially when it is something like labour that quickly loses appeal with rising price), until the point that the supply and demand meet.

[mahyarm]

I meant it in the more casual sense, of low supply and constant / high demand.

[MrBuddyCasino]

I wonder how that will work out for the euro zone, where national economies are so different. The Czech Republic already has labor shortages.