Workers, Wages and the Labour Market: Question 6

Worked solution

Part (a): Calculating the labour shortage

At the wage rate of $22.00 per hour, the quantity of labour demanded by firms exceeds the quantity supplied by workers:

$5000 - 4200 = 800$

So there is a shortage of 800 drivers at the original wage rate. Firms want to employ 5000 drivers but only 4200 people are now willing to work at $22.00 per hour.

Part (b): Factors affecting the supply of labour

Besides the wage rate itself, how many people are willing and able to supply their labour to an occupation like long-haul truck driving depends on:

• The size of the working-age population with the required licence or qualifications. Long-haul driving needs a specific driving qualification, so the pool of eligible workers is limited to those who hold it.
• Non-monetary factors, such as the physical demands of the job and time spent away from home. A physically tiring job that keeps workers away from their families for long stretches is less attractive to potential entrants, all else equal, than a similarly paid job without these drawbacks.

(Other acceptable answers include net migration of qualified drivers, or the availability of alternative jobs offering similar pay for less demanding work.)

Part (c): How a free market resolves the shortage

The ageing workforce and stricter immigration rules mean fewer people are willing to work as drivers at every wage rate, so the supply curve for long-haul truck drivers shifts to the left. The demand curve, which reflects firms’ willingness to employ drivers, is unaffected, since nothing about the demand for haulage services has changed.

Because this is a free, unregulated labour market, the wage rate is not fixed by a union or the government. At the original wage of $22.00 per hour there is now a shortage of drivers (from part (a)), so firms competing to fill their vacancies bid the wage rate up. As the wage rises:

• Movement along the new supply curve means more people are willing to work as drivers than the 4200 originally willing at $22.00 per hour.
• Movement along the demand curve means firms are willing to employ fewer drivers than the 5000 they employed at the original equilibrium, since drivers are now more costly.

The market settles at a new equilibrium wage rate above $22.00 per hour and a new equilibrium quantity of drivers below 5000 (though above the 4200 who were willing to work at the old wage), unlike a wage floor imposed by a union or government, the free market wage can adjust to clear the shortage rather than leaving it unresolved.

Part (d): A long-run response by trucking firms

Rather than simply raising wages, a trucking firm facing a persistent driver shortage might invest in capital equipment, such as automated or self-driving truck technology, to reduce how many human drivers each haulage journey requires. This is a form of substituting capital for labour: as driver wages rise, capital becomes relatively cheaper for the firm to use, so firms have a stronger incentive to adopt technology that reduces their dependence on scarce drivers.

(Other acceptable answers: improving non-wage working conditions to attract more entrants without raising the basic wage, or funding training programmes to expand the pool of qualified drivers over time.)

Final answers

• (a) Labour shortage $=$ 800 drivers.
• (b) Any two of: size of the qualified working-age population; net migration of qualified drivers; non-monetary factors such as physical demands or time away from home; availability of comparable alternative jobs.
• (c) The supply curve shifts left; in a free market the wage rate rises above $22.00 per hour, and the quantity of drivers employed falls below 5000 (but stays above 4200) as the shortage is resolved through the wage rate adjusting.
• (d) Any one of: investing in automation/capital to reduce reliance on drivers; improving non-wage conditions; funding training to expand the qualified pool.