Labor Supply and Wage Formation Under Skill Shortages and Labor Market Tightness

Abstract

Over the past two decades, the shortage of skilled labor has become a central issue in economic policy debates across industrialized nations. Reports from governmental, supranational, and intergovernmental organizations highlight concerns about the scarcity of skilled labor. Against this backdrop, my dissertation investigates labor supply and wage-setting in the context of skill shortages and contributes to the literature on labor market mechanisms under such conditions. It focuses on the example of nursing, as this profession not only plays a crucial role in public health but is also among those most affected by skill shortages in many developed countries. The first three main chapters of my dissertation address labor supply-related questions. Chapter 2 analyzes occupational retention among nurses and identifies factors associated with varying duration of employment in the profession. Chapter 3 examines nurses’ preferences for job characteristics and assesses how these characteristics influence the attractiveness of nursing jobs. Chapter 4 explores how these preferences differ across individuals and investigates the factors associated with this heterogeneity. Chapter 5 shifts the focus to labor demand and examines whether, and to what extent, wages respond to skill shortages. I use a variety of data sources and methodological approaches to address each research question as closely as possible and provide empirical evidence on key aspects of labor market behavior under skill shortages. My findings offer insights for relevant agents in the healthcare sec-tor and, where applicable, inform broader labor market policy discussions. Political and employer actions to increase the supply of skilled labor could focus on raising wages, offering permanent contracts early in the career, and addressing objective as well as subjective job characteristics. Preference heterogeneity underscores the importance to differentiate work arrangements to align with individual preferences and circumstances. The finding that wages only partially respond to shortages highlights untapped potential to use wage adjustments as a tool to address skill shortages.