In its narrowest definition, a labor shortage is an economic condition in which there are insufficient qualified candidates (employees) to fill the market-place demands for employment at any price. Such a condition is sometimes referred to by Economists as "an insufficiency in the labor force."
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The rate of growth for labor and capital is the most important determinant of economic expansion. An aging population and a contracting workforce may curb U.S. economic expansion for several decades, for example.[1]
Techniques for measuring the existence and level of shortages in the labor force of a nation's economy are complex and controversial. Sometimes alleged labor shortages are used by employers to justify the importing of temporary foreign labor (in the U.S., this would mean using the H-1 or L-1 Visa Program to import each foreign worker). Mainstream organized labor groups and other critics of such practices argue that the laws of supply and demand ought to correct such shortages as more citizens enter a field when wages go up due to the shortage. The more cynical critics charge that companies seeking foreign labor are in fact hypocritically lobbying the government to allow them to evade the free market rules that most such employers claim to cherish, simply so that they may hire cheaper and/or more docile employees.
Wage levels have been suggested as one way to measure a labor shortage. However, this often does not match people's common perceptions. For example, if wages alone are the best measure of labor shortages, then that would imply that we should be importing doctors instead of farm workers because doctors are far more expensive than farm workers. However, there are institutionally-imposed limits on the number of doctors that are allowed to be licensed. If foreign migrant workers were not allowed into a nation, then farm wages may go up, but probably not enough to approach the wages of doctors.
The Atlantic slave trade (which originated in the early 17th century but ended by the early 19th century) was said to have originated due to perceived shortages of agricultural labor in the Americas (particularly in the American South).
The Programming Wisdom Center has identified a possible conundrum whereby there may be a skills shortage from the employer's perspective but not the employee's perspective. This can happen when many "sub-skills" are involved in the selection process, such as requirements for multiple programming languages and computer tools often found in technical job ads. The phenomenon may account for seemingly contradictory complaints from both large companies and technical professionals regarding visa worker quotas.[2]
The theory suggests that the more skills that are involved, the higher the gap between primary matches and secondary matches. Combing the globe for candidates allegedly increases the chances of a better match. However, it may reduce the chance of a citizen being hired even though on the average their skills are on par. In other words, having a wider choice reduces the chances of a citizen being the best candidate due to probability field increase alone rather than lack of skills on the citizen's part.
A comparable analogy would be the opening of Jewelry store B next to the existing Jewelry store A. Even though store A may have similar prices and selection, their sales will still likely slide downward. A given customer will now purchase from the new store B half the time. Unless more customers in total come to the area, store A sales will be cut in half.
The solution proposed by proponents of free trade appears to be more and tougher education.