Law of Supply and Demand Rules Wages
One of the things that keeps the economics profession alive in the face of all its missed predictions is that every now and then, basic economic theory really works. The problem is it usually takes longer than our patience allows.
The basic changes that have been taking place in the national economy are a significant case in point. Who would have believed a half-decade ago, for instance, that wage rates in this country would ever again prove flexible enough to go down? Yet that is exactly what they are doing in some very important areas of the economy and doing so for the simplest of economic reasons--an oversupply of people wanting to do the work and an undersupply of people, put off by noncompetitive prices, who want to buy the product.
Moreover, the change is taking place in those very industries where wages and prices appeared to go up in tandem year after year, labor contract after labor contract, to the point where they seemed to lead the inflationary march.
Basic Economics What force short of government controls could stop this spiral, we wondered. Indeed, we tried government controls, without success. The answer, in the end, was basic economics. Whether because of the failing of management or of labor, in industries that didn’t maintain a competitive edge, where pay scales too often outdistanced those in other fields, correction is under way.
Wages are coming down in a number of ways. In some of these industries, the existing work force has maintained pay levels but consented to and even cooperated in developing plans whereby newcomers to the industry will start at considerably lower levels and may never reach the levels that they could have previously. Steel, autos and airlines are prime examples.
In construction, wages are dropping because non-union construction firms are able to attract workers without matching union pay scales. In the past, there was enough of a shortage of skilled construction help that contractors bid for people among themselves. Now, it often takes less pay to attract needed people.
Oversupply of Doctors The trend is extending to yet another area where rapid growth in demand and a variety of limitations on supply pushed salaries to uncommon heights--the field of medicine. Economists will tell you that the more pay offered in any field, the more people will gravitate to it. Exactly that has happened in medicine, even though would-be doctors had to overcome the disincentives of interminable years of study and a long period of subsistence income to get into the profession.
Now, there is a vast oversupply of doctors. And even though medical care is not one of those economic decisions in life we ordinarily like to consider discretionary, the cost has climbed so high, there is finally significant resistance. Employers are refusing to pay for the all-inclusive insurance as they once did, and doctors are being forced to work for large organizations, collecting paychecks rather than patient fees. The trend may not be very far along, but it has begun.
A Midwest teaching doctor, quoted by the Chicago Tribune, put it unkindly when he said that doctors are like the dinosaurs in their last days, “lords of all they survey on the edge of extinction.”
Are Lawyers Next? The bug also may be biting the legal profession, where practitioner incomes have grown along with fee schedules. There is an oversupply of lawyers, and while it is possible for the increasing numbers to stimulate more legal activity, the evidence from the medical profession suggests there are limits to that. With rules lifted on advertising, enterprising lawyers are offering cut-rate services, a development that begins the process of putting pressure on fees all through the profession.
And so, the law of supply and demand that economists talk about--though usually in terms so complex that we can’t understand them--still works in this massive capitalist society. And while it would be nice to avoid some of the pain involved, it is reassuring to see the system work.
