News Flash: Boston Globe Discovers Law of Supply and Demand

Today I saw a headline in the Boston Globe that I had to respond to:

India high-tech industry out of workers

How can a country of a billion inhabitants be out of workers? As the Information Technology in India matures, they are gradually taking on more and more challenging assignments, which require a more skilled workforce. And that is bad, why?

For now, industry is keeping up, but only barely. A powerful trade group, the National Association of Software Services Companies, or NASSCOM, estimates a potential shortfall of 500,000 technology professionals by 2010.

On the most basic level, it’s a problem of success. The high-tech industry is expanding so fast that the population can’t keep up with the demand for high-end workers.
Notice the steady state analysis of the problem: a shortfall of 500,000. Would it not seem reasonable that if they paid their workers more for the scarce resource it might become less scarce? Well, the reporter thought of that:

A shortage means something feared here: higher wages.

Much of India’s success rests on the fact that its legions of software programmers work for far less than those in the West — often for one-fourth the salary. If industry can’t find enough workers to keep wages low, the companies that look to India for things like software development will turn to competitors, from Poland to the Philippines, and the entire industry could stumble.

You would think the author would notice the connection between the cost labor and its supply, but he appears to have completely missed it. If there is a shortage of something, you have to pay more to get what you need. When you do pay more, people who would otherwise choose careers in other fields will instead select the Information Technology industry. At the same time, if you pay more, there are some IT outsourcing assignments you can’t get because your wage rates are too high. As a result of this wage increase, the need for workers will tend to decrease.

How can you possibly say with a straight face that there is a shortage of 500,000 workers, when that very shortage will change the dynamics of the industry so that in the end there will be no shortage at all?

I think there is a severe shortage of reporters who understand economics.

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