by Adam Juda on Thursday, October 23, 2014
The message is clear: there is a shortage of qualified programmers. News reporters repeat this message over and over. Politicians cry out for a solution. Businessmen are stating that their businesses are being hurt. But the problem isn't a shortage of qualified developers, the problem is that none of these folks understand simple economics.
Let me explain. Under capitalism, there can be no such thing as a shortage. There can only be a shortage of a supply at a given price.
Just recently I was in the process of buying a mansion. My needs were rather straightforward:
- Beachfront property
- At least 5 acres
- At least 6 bedrooms
- In great condition
All of the real estate agents I spoke to said that the supply was there. They all said that my needs could be filled. Yet, I could not find a single offering that fit my budget of $100.
For the life of me, I couldn't figure out the problem. It made no sense! I was willing to pay money, but there was a definite shortage of housing that met my needs. Despite calls to the governor, the president - even the secretary-general of the United Nations, no one was willing to put forth a solution to this supply problem.
I heard accusations - sure. People said I was offering too little money. People said my budget was too small. But who are they to tell me what I should pay? I'm the customer, and haven't they heard that the customer is always right?
Unfortunately, economists have yet to prove that the customer is always right. Instead, economists have demonstrated that goods and services tend to be sold at market-clearing prices. As demand for a good rises, buyers will be forced to spend greater sums of money in order to out-bid the competition. At some price point, the number of buyers will equal the number of sellers and all goods will be sold (in other words, the market will have cleared). A mansion (such as the one that I desired) would likely cost significantly more than $100 because almost everyone in the country would be willing to outbid my desired price.
Businessmen are trying to violate the rules of economics, but unfortunately for them, economic principles can not be bought off like politicians or the judiciary. Businesses are trying to argue that there is a natural price for software engineers that is irrespective of demand. If software engineers don't want to work at the salaries being offered, certainly something must be done!A number of attempts have been made to increase the supply of low-paid software engineers
- There have been attempts to allegations of price fixing by major software companies in which they allegedly agreed to not outbid each other.
- There have been attempts to create new software engineers in three month educational boot camps (with very mixed results).
Businesses have done everything possible except for the one thing economics tells them that they need to do: raise the rates that they are willing to pay. But, these businessmen will find out, just as I have, that refusing to pay market rates is ultimately self-defeating. Just as I was unable to find my dream mansion for $100, businesses will be unable to find qualified software engineers willing to work for paltry wages. They will exit the market for other opportunities or create their own opportunities (via entrepreneurship). Besides, the perception of high salaries will attract new entrants into the field - a market change that will help pull wages down in the long term.
Businesses shouldn't fear. I'm available to teach you basic economics. Of course, if you're unwilling to pay my rates, you could just buy a copy of my book on software pricing. Books are cheap, but ignorance is one of the most expensive items in the entire world!
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