> For example, if there is a labor shortage in software engineers, raising wages won't help
As long as it prices businesses out of the market it does. Mom and Pop probably cannot compete with Google and Facebook, so when the price rises Mom and Pop will stop hiring developers. When they do that reduces the demand for developers. With reduced demand, the existing supply comes closer to meeting the needs of what demand remains.
Demand, of course, does not measure what someone would like to have, it measures what they are willing and able to pay for. And a rising price usually means that more and more will no longer be able to pay the price (money isn't infinite). I expect not even the likes of Google and Facebook are willing to pay infinitely (the value of having a developer stops at some price point), so eventually even one of them will have to step out of the market if price reaches that level, leaving all of the developers in the world theoretically available to work for the last company who can still afford them.
This is why shortage and rising price typically do not go together. As long as the price is rising, then demand should be falling (especially when it is something like labour that quickly loses appeal with rising price), until the point that the supply and demand meet.
As long as it prices businesses out of the market it does. Mom and Pop probably cannot compete with Google and Facebook, so when the price rises Mom and Pop will stop hiring developers. When they do that reduces the demand for developers. With reduced demand, the existing supply comes closer to meeting the needs of what demand remains.
Demand, of course, does not measure what someone would like to have, it measures what they are willing and able to pay for. And a rising price usually means that more and more will no longer be able to pay the price (money isn't infinite). I expect not even the likes of Google and Facebook are willing to pay infinitely (the value of having a developer stops at some price point), so eventually even one of them will have to step out of the market if price reaches that level, leaving all of the developers in the world theoretically available to work for the last company who can still afford them.
This is why shortage and rising price typically do not go together. As long as the price is rising, then demand should be falling (especially when it is something like labour that quickly loses appeal with rising price), until the point that the supply and demand meet.