Economy is a complex organism. All economic processes are interrelated. Changes in the labor market can impact wages and price levels. Tight labor markets can have implications for school and college enrollment across the country. Most countries struggle to reduce the number of unemployed specialists in the economy. However, when markets become too tight, companies will have hard time selecting and hiring the best candidates. Meanwhile, the growing pressure for higher wages will lead to inflation and reduce labor effectiveness.
A tight labor market is a dream for many and a reality for the few. From the perspective of economics, it is an example of scarcity, when unlimited demands for labor force exceed the availability of unemployed workers in the labor market (Hubbard & O’Brien 42). A tight labor market also means that the demand for workers exceeds workforce supply. In this situation, firms go an extra mile to recruit and retain more workers. For instance, they hire inmates who are still serving their time in prison.
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This situation will have dramatic effects on wages and inflation. As Hu and Toussaint-Comeau note, when firms bid against each other to acquire and retain the best workers, they also create a new economic situation in which workers feel confident and well positioned to press firms for higher wages (52). For example, Wal-Mart announces that it will raise pay for entry-level workers as a strategy for attracting more personnel. Higher wages translate into higher prices, meaning inflation. As a result, tight labor markets can be responsible for inflation in the economy.
Shortages in the labor market can also influence school and college enrollment across the country. More specifically, tight labor markets will reduce the number of students enrolled in schools and colleges nationwide. When unemployment rates are low and businesses fight to hire more workers, the latter no longer need to be well-educated or well-prepared to be fit for the existing vacancies and jobs. Besides, as more individuals find a full-time job, they simply have no time for education. In a tight labor market, professionals are not looking for a job; rather, jobs keep haunting potentially suitable candidates.
Dozens of developing economies struggle to reduce their unemployment rates. Millions of people dream of having a permanent full-time job. A tight labor market looks like an ideal that so many people would like to achieve. However, in my opinion, it is not healthy economically to have a tight job market. In this situation, businesses cannot select and hire the most qualified and competent employees. They hire candidates whom they would have turned away if the unemployment situation had been different. Not surprisingly, employee productivity continues to decrease. Employees have no motivation to be effective; they will still have a job, regardless of their performance and productivity. Besides, as mentioned previously, tight labor markets contribute to inflation: wages increase, and so do the prices for the most popular goods and services. Ultimately, the social risks of hiring inmates and other incompetent employees should not be discounted. Individuals with a criminal history, individuals who have a psychiatric diagnosis, as well as employees who lack the skills and education required to fulfill their basic professional obligations will put their colleagues and customers at risk. In other words, a tight job market creates serious economic and social tensions and society.
In conclusion, tight labor markets create an unhealthy economic situation. Employee productivity declines. In the meantime, wages increase, leading to inflation. Schools and colleges nationwide experience the lack of enrollees because most people work full-time and have no motivation or time to pursue a degree. Scarcity in the labor market becomes a social and economic risk to businesses and society.
- Hu, Luojia & Maude Toussaint-Comeau. “Do Labor Market Activities Help Predict
Inflation?” Economic Perspectives, 2nd quarter, 2010, pp. 52-63. - Hubbard, R. Glenn & Anthony Patrick O’Brien. Economics. Pearson, 2017.
