Question

Wages are determined by the interaction of supply and demand in labor markets. The shortages of workers in many industries will impact the wages that both firms will need to offer, and the wage workers will receive. Explain how firms will be able to deal with the shortage of workers in a strong labor market

Answer 1

Labor shortages occur when employers struggle to fill labor vacancies because of insufficient labor applying for jobs. Labor shortages can occur in geographical regions or in occupation with special requirements in terms of skills or functions.

One of the basic way where a firm can deal with the shortage of workers is by increasing pay to attract more workers.

A firm can invest in training the existing workers and enhance their benefits overall so that they can contribute even better and cover up for the shortages.

Firms should identify ways where they can replace the labor shortages with technology and robotics. This may be expensive initially but will definitely help in the long run.

Firms can also increase the tendency to look abroad for hiring more skilled labor at a cheaper cost.

Another way could be of looking at labor intensive market where labor is cheap and outsourcing to countries such as India, China, etc.