Labor as a Commodity - II

There are certain assumptions central to viewing labor as a commodity. Incidentally labor here refers to managerial and non-managerial work. Some of these assumptions are:

1. Labor will behave like other commodities.
2. The type of work does not matter.

Lets examine the first of these assumptions. A crucial underlying premise underlying the idea that labor is a commodity is that it will behave like other commodities. Generally speaking, the price and availability of commodities depends on the interaction of demand and supply leavened by the availability of substitutes which in turn are influenced by the same interaction of demand and supply. If the price of a commodity goes up, then its supply can be ramped up relatively quickly. Similarly if the price goes down, then its supply can be decreased relatively quickly. The same argument holds true on the demand side.

This is the case for all commodities except labor. In the short term, the supply of labor is essentially fixed. No matter how high the price may go, the demand for labor will increase only gradually and over a long horizon. This is specially true of technical and professional work. It takes time, effort and money to train a professional. Furthermore, in order to maintain a level of knowledge of a certain profession in a society, a sufficient number of people have to undergo training in that profession. Otherwise the requisite skills will be lost at a societal level as older members of the profession retire and are not replaced. It is certainly not the case that a society can ignore a profession and not train people in it and then quickly ramp up production as demand increases. Once the older members retire or die, there will be an increasing shortage of the required skills which will not be easily replaced.

There is another problem that occurs if labor is treated as a commodity. This is a serious problem that has largely been ignored. Advanced economies require steady input of people into professional services. Research and development are essential for the long term growth of economies. Research is never done in isolation. It builds up on previous work and is increasingly collaborative. However, collaboration requires a critical mass of people knowledgeable in a particular area. Without this critical mass, research is severely hampered. One of the reasons why developing countries lag so seriously with respect to developed countries in research is that the former do not have this critical mass of professionals. However people will only enter a profession if they see future prospects in it. but of they don't enter, then the profession is more likely to be shifted to areas where there is this critical mass mentioned above. Thus a vicious cycle sets in through which an economy can lose needed skills in a very short time - generally speaking no longer than a couple of generations.

So labor does not behave like other commodities. Treating it as if it does has serious repercussions to an economy. These are repercussions that affect the long term growth rate. It should be noted that doing this often increases profitability in the short term, sometimes dramatically so. But this growth comes at a serious long term cost.