For years, demographers have been warning that Germany could face a labor shortage as its population ages. In eastern Germany, such scarcities have already become reality. Competition for talent is fierce -- and businesses are becoming more generous. ...... These developments show that the lack of skilled workers is no longer an economic problem but a structural one. Well-trained individuals are becoming the most important and scarce commodity in a modern industrial and service society. This doesn't just apply to Germany, but in hardly any other country is the outlook quite as dramatic.
I think this story puts the recent headlines about Google's brain drain into proper perspective. It's akin to China's scramble for energy to support growth. What does this mean? Labor is capital:
If labor is capital, then we have lost the automatic tight connection between spending and employment. Firms can vary their output with little or no variation in employment. This explains how we can have a “jobless recovery,” meaning a large percentage increase in output without a comparable percentage increase in employment. For firms in today's economy, labor represents an investment. Firms hire workers in order to develop capabilities that will eventually produce output more efficiently. The return on an investment in workers may take as long or longer to realize as the return on investment in a machine. The return on investing in workers may be at least as uncertain as the return on investing in equipment.
The dominant model in play today has firms attracting talent (see the above East German example). Various "bottlenecks" restrict these flows and the resulting mismatches could (I predict will) turn the migration on its head. Companies willing and able to move where the talent is will have a competitive advantage. This is a return to the economic geography that birthed cities such as Buffalo. Production needed to be near the scarce commodity. Bad mortgages and protectionist labor markets are eating away at geographic mobility.
Labor is one of the least mobile forms of capital. To the extent that this movement is restricted privileges the regions that produce the most talent. Regions that improved educational attainment rates through inmigration are in a tough spot. They will be competing with each other for the labor that can still move, driving up the price for that talent. Companies will find it increasingly attractive to move to Pittsburgh if they can't outbid Google.
Moving your company from Ann Arbor to Austin for better access to talent is myopic. It looks good now, but is a bad bet longterm. Ann Arbor is struggling to attract the right people. The suggested policy solution is to be more like Austin. That's the migration game, yesterday's economy. Produce more talent and the companies will come knocking.