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Comment by d2vid | Hacker News Reader

Econ 101 also distinguishes between elastic and inelastic supply. Engineering labor supply seems pretty inelastic - doubling engineering salaries might only raise supply 5% (some students switch majors, some engineers choose to work more hours or retire later). That is the definition of a shortage - there is not enough at any price.

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That seems a pretty bold claim to make that doubling salaries would only raise supply by 5%. During the tech bubble people were coming out of every nook and cranny imaginable.

Yeah... but they weren't producing anything, which caused the crash.

No, what caused the crash was that there was no bigger fool to sell overvalued stock to. Engineers coming out of the woodwork were simply responding to the economic incentives that existed for them (and that's the problem with bubbles, it's that incentives get distorted).

I'm sure d2vid was exaggerating, but engineering labor supply is most certainly inelastic.

this is a long-run / short run criterion. but it is frankly irrelevant and trumped by the OP's analysis. the shortage of STEMs is a myth. People with those skills don't per-se want those jobs. Its like gulf-arabs. They need to import labour to clean their toilets. There is not a "shortage" of skilled labour in the houskeeping sector. At least not in any normal sense.

If no one wants to do a job at X price, it is then by definition a shortage.

Neoclassical economics suggest moving up the price ladder. But as a comment above mentioned, STEM job supplies are quite inelastic. In fact we should expect it to be inelastic, since STEM jobs require more expertise than say general labour.

no one != not one more

there are other options any fixed price x(i): no trade (not one), and equilibrium (no more). If X is floating, the question is different. Then its a question of why X wages are not enough. Its also a question of why the jobs are not made better (not everything is price related, the firm is a hierarchy...). etc.

The US also spends a lot of money subsidizing engineers. It spends $76 billion a year on defense R&D. For comparison, Google's annual revenue is just north of $50 billion.

I don't know how much of that money goes to engineers, but I do know that more than a handful of my engineering friends have been lured to defense. It would be interesting to a study that tried to quantify the distortions, though.

A subsidy is money paid to producers to offset production costs and reduce market prices.

Employing engineers in defense has the opposite effect of a subsidy: it takes engineers out of the commercial job market thereby decreasing supply and raising prices.

https://en.wikipedia.org/wiki/Subsidy

Defense spending goes to MRU's who train engineers who go into the private sector. E.g. MIT receives almost $1 billion in DOD funding each year, which benefits all the companies that hire MIT engineers.

What you described is one type of subsidy. It's not the only type.

From that wikipedia article you linked: "In standard supply and demand curve diagrams, a subsidy will shift either the demand curve up or the supply curve down. A subsidy that increases the production will tend to result in a lower price, while a subsidy that increases demand will tend to result in an increase in price."

Defense R&D increases the demand for engineers and thereby raises their "price". I don't know if it has a significant effect though.

Neither tlb nor cadlin are entirely right about this from an economic standpoint.

The government employing engineers is strictly speaking not a subsidy. It's just an increase in demand. Yes, one type of a subsidy does result in an increase in demand. But causing an increase in demand is not a necessary&sufficient condition for being a subsidy. Because now the government is demanding engineers. It does not decrease supply. Someone who is employed is still by definition part of the labor market. The only person who is not a part of the labor market is someone permanently not looking for work.

Even where we are now I know several people who are going back to school to get their comp sci degrees that were previously anything from teachers to law school graduates. I would argue that 1. This market is elastic and that 2. labor is slower to shift than capital.

Everything is elastic over the "long-term." But things can still be very inelastic over the short term. Like the supply of engineers. In your case, it would take 4 years for those people going back to school to finish their bachelors degree, and, if we're talking about the supply of PhD engineers, 5-6 more years to get a PhD. That's a long time in the tech industry, especially given the tech industry's growth. That's four to ten billion-dollar companies.

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