The business often talks about labour shortages in the hospitality sector. Economist Akaki Tsomaia responded to the mentioned issue by publishing an extensive explanation and opinion on the social network regarding the problem.
According to the economist, a salary increase is expected in the fields where the shortage problem is observed.
“When we talk about the labour force deficit we have to look at the problem according to the laws of the free market. The arguments that the Georgian nation is lazy, uneducated and unqualified have no scientific explanation. A shortage is caused by an opportunity to buy a good or service below the market equilibrium price,” states the economist.
According to him, the current situation is caused by two factors, increased demand for goods and labour.
“In general, initially it is dependent on economic growth and secondary - on increased production. In order to meet the higher demand for goods, production needs to increase. Producers can reach this by increasing the productivity and efficiency of the labour. Prices and wages will rise at equilibrium according to the increased demand. However, the gross demand is more free-flowing than wages. Wage adjustment requires several quarters, maybe even more than a year.
In academic terms, the law of demand will eventually achieve its goal when the real and expected inflation are equal. The mechanism works as follows, the increased foreign demand causes businesses to employ more labour. However, it cannot do that with the current levels of wages. The producer is left with two choices, to either increase productivity or attract more labour through higher wages. As increasing productivity is not easy and requires innovation, they choose the latter. Increased wages and increased input costs will cause a rise in product prices. The subsequent field will experience decreased quantity demanded driving the GDP back down to its short-term equilibrium” states Akaki Tsomaia
He also focuses on how much businesses should raise wages:
“Wage setting is dependent on the market elasticity. The elasticity is not only dependent on the qualification required for the job but on many other factors as well. Who’s to say that a waiter does not deserve a said wage? Who determines that a Nobel Prize winner or a surgeon is appropriately qualified for the job and its wage? After all, they will never make more than an actor or an athlete. The laws of the market do not work like that, they are determined by the demand and the supply, caused by scarcity. Let's look at some major factors:
1. Traditional non-tradable resources such as technical innovation became tradable as a result of globalization. For non-tradable resources, we could not expect to achieve the same global price equilibrium, but the market for goods and products became internationally tradable, allowing us to equalize prices worldwide to some extent. However, the input costs and barriers, such as transportation costs, different competition and different regulations do not allow perfect competition globally. Labour is even harder to transport, making wages even more location specific. On the other hand, companies now have to compete on a global scale as a lot more opportunities are available today to study or work internationally. The gap between wages is decreasing and the trend is clear.
2. The unemployment benefits and what is the minimum wage an individual is willing to accept to work? The higher the benefits are, the higher the minimum wage the individual is willing to accept, thus driving up the wages. Governments are to blame for causing this problem. If we look at the statistics, the rate of labour force engagement is around 50%, which is critically low,” explains Akaki Tsomai
