Smell the supply and demand?

The New York Times says Japan is running out of engineers. My response:

The red line is the number of people who study engineering. The blue line is the number of engineers that Japanese industry demands at the given salary. If we are at the light blue line, firms want more engineers than Japanese universities produce. In this situation, firms will raise the salary they pay to engineers, more students will enter the now more lucrative field, and we will end at the market clearing yellow line.

My guess is that the equilibrium used to be a a higher number of engineers, and the government is worried. In an efficient market, labor will go where it is most socially useful. The New York Times seems to think that the migration of workers to the arts and service industries is a bad thing, but here in Taiwan Japanese art is everywhere, from the fashion on the streets to the J-Pop on the radio. If Japan is a cultural force here in Asia, why not let that part of the economy grow stronger?

One of the key early insights in Economics was that in any voluntary transaction, both parties are made better off. Markets aren’t zero-sum games. If Japanese are choosing to pursue non-engineering careers, it might change the composition of Japan’s economy, but that isn’t a bad thing. In fact, students’ choice of other careers is making the Japanese (as a whole) better off.

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One Response to “Smell the supply and demand?”

  1. toranosuke Says:

    I am far far from being an expert on the ins and outs of the true details, but from what I’ve seen, it often seems that Japan’s economic policy is based on outdated notions of what is necessary for economic growth. They still have a post-war mentality based on (re)construction, and a boom-time 1970s-80s mentality based on high-powered financial business and engineers.

    You ask me, I think you are completely right. There is no magic number of engineers that the country ought to have – things shift and change, and perhaps the time for engineers is over. Perhaps it is indeed time for Japan to start focusing more on cultural production.

    Most to the point, Japan’s economy has been strongly centrally directed since the end of the War, and perhaps it’s about time for MITI to stop directing the level of engineers, the activities of the banks, the level of production of the car companies, and start allowing the economy to shift as it will. If the people, as individuals, and not as a national whole, desire to be artists rather than engineers, so be it. You’ll be okay.

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