When one uses simple models that can yield extremely powerful insights. This is certainly true of the model of demand and supply. In response to an excess demand for labor for example the demand and supply model predicts that the wages should rise in the market continuously.
The example of oilfield workers bears testimony to the validity of this prediction. Unfortunately however simple models can rarely explain the reality in the labor markets, many may wonder why. Recently in The Wall Street Journal there was an article about a severe labor shortage of skilled craftsmen that exist in many parts of the country. The article points out that firms attempt to deal with excess demand pressures in a variety of ways besides raising wages. Also that while wages will eventually rise in the face of a labor shortage as the demand/supply model predicts they often respond to changing market conditions rather slowly imparting a certain amount of inertia to process in the short run.
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