Economists find supply and demand to be a very useful way to describe markets, including labor markets. Yes, supply and demand models sometimes fail, but such cases are notable precisely because such models usually work so well. In fact, arguably no model in social science works as well; it is the crown jewel of economic theory. In a supply and demand based labor market, buyers and sellers mostly take prices as given, and assume that they can’t change prices much. Given this assumption, they try to achieve their goals by varying how much labor they buy or sell. Note that supply and demand doesn’t require that everyone know everything, or that they always do exactly what is best for them. It is actually a pretty robust and useful model of human behavior. True, workers often acquire very specific job skills, after which there may be too few sellers or buyers of each specific skill to make for a competitive market. At that point people may reasonably believe that their behaviors can change relevant prices. But for each specific skill there is usually a large pool of workers who are similarly able to learn that skill, and another large pool, this time of employers, with skills they’d like this same pool of workers to learn in order to do their jobs. There is thus a pre-skill labor market with pools of similarly-able-to-learn workers, and with employers who have similar-tasks-to-learn. If these pools are large, and if they do not coordinate to limit the wages they accept, then supply and demand analysis will apply well to this pre-skill market. Thus while it may be hard to predict the specific wages that workers will earn after they learn a specific skill, we can more confidently predict that, in the pre-skill labor market, similar workers will reasonably expect to earn a similar net compensation after they train. Also, employers trying to attract similar workers should expect to pay a similar net compensation. (Of course “wages” include not just cash, but other forms of compensation such as status markers, connections, and resources including information access and computing power.) Consider how such pre-skill labor markets change when we introduce ems built from cheap signal-processing hardware, who are able to substitute in most jobs for ordinary human workers after they’ve acquired relevant skills.
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