Hiring a Research Assistant or a Cowboy

“I need a research assistant at $5 an hour,” he said. “But they are hard to find. In fact, I can’t find one on the market.” This is not exactly the complaint that The Economist reports from Wisconsin dairy farmers, but it would have served equally well to illustrate a common economic confusion. The magazine writes (“Business Has Gone Sour in America’s Dairy Capital,” January 23, 2020):

Farmers complain it is getting hard to find labor, even as wages rise.

It is never hard to find labor on a (at least relatively) free market: it just depends on the price you are willing to pay. It is not only difficult but impossible to find labor below the going wage rate. But at that rate, it is usually easy. If it isn’t, it is because the going rate is below the market equilibrium rate (the wage rate that clears the market in the specific labor category we are considering, that is, the rate at which every worker can find a job and every employer can hire a worker).

When the going wage lies below the equilibrium rate, employers will start bidding up the wage rate, which will rise. (By the way, this bidding process explains why workers are not paid a mere subsistence wage and why wages increase with productivity.) Perhaps the second clause in the quote above, “even as wages rise,” means exactly what economists say: wages rise when labor is difficult to find; if it suggests that labor should be easy to find at any wage rate because wages have risen, it is meaningless.

The next sentence of the Economist article confirms the correct economic interpretation:

Mr Wegmueller can lure part-time help only by offering free accommodation.

In other words, the farmer can find workers by paying higher wages, either by increasing their money wages or by supplying some free benefit, which amounts to a raise in real wages.

As easy as it is to find workers by bidding up wages as necessary, it would be even easier by paying more than the equilibrium wage rate: at $1,000 an hour to milk cows, many physicians and lawyers, not to speak of academics and journalists (and bloggers), would take the job. The farmer wouldn’t be very wise to do so, though.

Note that I am not addressing the migrant-worker issue also raised in the Economist story. It is true that if migrant workers were free to come and work on farms, they would bid down farmworker wages (in their category), thereby motivating a certain number of native “cow boys” to move to other industries. This would be as beneficial as when the price of American mathematicians dropped after many of their Soviet colleagues fled the collapsed Soviet Union and came to our shores. But here, I am only interested in the general complaint about the difficulty of finding employees.

The expression “I can’t find the employees I need” is very misleading. Either I need them because they would bring me more profit than what I would have to pay to hire them, and I will bid up their wages if necessary; or else I don’t need them in any meaningful sense (as the incipit of this post suggests). The Economist did not explain all this, but it seems to have asked the interviewees the economically relevant questions.