Yes, we do agree. The word ‘shortage’ is often misapplied.

Indeed, this would come up as a ‘contractual’ type solution – which is what I would like. I just wasn’t sure if it was particularly enforceable. If it is enforceable, then we could definitely set up some interesting industry training schemes.

Another more easily implementable response would be to bond doctors and nurses so that they had to repay their fee subsidies if they emigrate.

“I make these points because I think we too often focus on wages as the solution to under- or over-supply but it’s far more complex than this.”

I think we tend to use wages when we mean “overall job attractiveness”, obviously adjustment can come through non-monetary outlets. I’ve heard that the problems you mention are a factor in NZ too where the structure of public health contracts doesn’t allow for the regional variation necessary to attract people to places that are unpopular or with high costs of living.

Indeed, if we have a case like the one you mentioned with nurses then training is aimless – as the human capital already exists.

If we have a case like that, we have to ask why these people are not choosing to participate in the labour market, which is what you were saying.

However, when we do have cases where there are shortages of human capital, training devices can be useful – however, I suspect they will be under-allocated because of the ‘positive spillovers’ in other countries.

Ultimately I think we agree that policy needs to be clear about what type of ‘shortage’ we are facing before we implement a solution.

I agree that higher wages will assist but again there’s many factors in play as was pointed out in the research. In fact the real value of the research, from my perspective, is that it revealed how wasteful initiatives to increase the supply, through more training, were.

My post wasn’t on wages – it was on whether labour mobility reduced the incentive for government to invest in skilled labour, so in a sense I was looking at one of the complications you are talking about.

“In fact, there’s no skill shortage, but there is a labour shortage – there’s something like 3 times as many registered nurses in NSW as their are jobs”

Whenever this is the case the labour mobility argument doesn’t not hold – as there is sufficient human capital avaliable, it is just not being allocated. Higher real wages would be a useful allocation mechanism here. The infrastructural problem are also important – however they should impact on all labour types.

I make these points because I think we too often focus on wages as the solution to under- or over-supply but it’s far more complex than this.

For a good discussion of the different kinds of shortage, check out this report by NILS labour economist, Sue Richardson

Good point, I agree that I defined the problem poorly. However, as long as doctors can’t extract the full surplus from their investment decision there will be a ‘shortage’ of doctors in equilibrium. In a sense I might have to assume something like a social benefit in order to get that – which would be something the government would want to subsidise. In the case of mobile labour markets, the government does not receive the full return from its investment, and so will under-invest.

“AD > AS permanently and constant inflation?”

How do we measure ‘shortages’, that might go some way to explaining the discrepancy

NZ has a shortage in almost every labour market, which doesn’t make any sense. AD > AS permanently and constant inflation? But most medical systems (globally) have shortages because the price is always below the marginal cost. NZ might be worse than most because supply response for doctors is sluggish, and (government funded) demand growth has been very strong over recent years.