The first idea to come to my mind, on reading this article, is that companies do not produce jobs and attempt to sell them to potential employees. Rather, potential employees produce labour, which they attempt to sell to companies (or, in the case of entrepreneurs, which they use to produce goods or services for sale).
What kind of predictive power does this belief have? I.e. why does this inversion mean that the labour market is “different”, but performing the inversion “stores don’t sell goods to consumers for money, consumers sell money to stores for goods” does not make the goods market similarly “different”?
It is not the inversion which makes the labour market different; rather, it is the nature of labour. The inversion merely highlights this difference.
why does … performing the inversion “stores don’t sell goods to consumers for money, consumers sell money to stores for goods” does not make the goods market similarly “different”?
Simple. Goods are, as a general rule, produced by a mix of raw materials and labour; some wood, some tools, and a few other bits and pieces in the hands of a competant craftsman can turn into a rocking horse.
The consumer’s money is also produced by a mix of raw materials and labour; a mechanic obtains raw materials from his employer, labours for some hours, and obtains money. This mechanic may then return home and spend his money on the rocking horse as a gift for his child.
Either way around, whether it is seen as spending money to obtain a rocking horse, or spending a rocking horse to obtain money, the transaction is similar; something that is produced, from raw materials, using labour, is exchanged for something that is produced, from raw materials, using labour.
The job market is different because labour is not produced from raw materials using labour. Labour that goes unused is not stored for later, but lost entirely; labour cannot be resold (though the products of labour often can).
What kind of predictive power does this belief have?
This is difficult, because my knowledge of economics is relatively poor. However, I shall attempt a few predictions:
Since labour not used is lost, and worthless, people will prefer taking a job with a low salary to remaining unemployed; even when that low salary is insufficient to live off of.
Since unskilled labour can be produced, in roughly equivalent quantities, by almost anyone, market forces will tend to push the cost down, far below what allows the labourers to live in any reasonable comfort.
Skilled labour is rarer, and thus can be sold for higher salaries, but the process of obtaining those skills is long; thus, if there is a particular demand for a certain skill over and above the available (finite) supply, it will take a long time (possibly years) for the market to adjust. In that interval, the market is likely to adjust by finding ways to temporarily manage without that skill, where possible. The article above talked about frictions; this may be the largest friction in the job market.
On the other hand, if a market for a given skill has significantly more supply than demand, then the producers of this type of skilled labour may find themselves unable to sell their labour for much more than unskilled labour, regardless of how much effort it took to obtain the skills in question.
On the other hand, if a market for a given skill has significantly more supply than demand, then the producers of this type of skilled labour may find themselves unable to sell their labour for much more than unskilled labour, regardless of how much effort it took to obtain the skills in question.
See the many creative and performing professions, where labor costs are often comparable to working retail, as examples. Those have more of a lottery flavor to them than unskilled labor does, where the best artists/musicians/actors/athletes can make much more than the median, but the median is often low. (If you’ve ever seen a sign lamenting that teachers don’t get paid as much as professional athletes, go to the BLS website and compare their mediansalaries.)
Labour, on the other hand, can be produced at very little cost, but must be used in some manner at the time and place of production and can only be produced at a limited rate per person.
There are many goods like labor in this respect. Airplane seats on a flight. Seats in a restaurant at dinner time. Minutes of talk or megabytes of data in a cellular smartphone network.
Restaurants and air transport are notoriously competitive businesses, notorious in that the ability to lose money investing in these markets is well-storied. Maybe labor, or at least unskilled labor, is, or should be, just as notorious. We have a supply of it that it is not at all tied to demand, how many people bring an unskilled worker into the world in response to market demand?
IN the case of seats in restaurants and airplanes, and to a lesser extent cell phone minutes, much is sold below the average cost to produce it. The lowest fares paid on a flight are typically much less than half the highest, or even average fare. “Nighttime and weekend” minutes on cell plans are typically “free,” producing no marginal revenue to the cell carrier, simply given away to attract customers who might buy some daytime minutes. Restaurants will have early bird specials and charge less at lunchtime because seats are empty, and will publish coupons and groupons when their seats are empty during prime time.
And still even with these price reductions, if the market clears with too many empty seats and the price drifts down below the marginal cost of serving a customer, restaurants remain unfilled, airline flights are cancelled (putting airplanes into unemployment).
So can the unskilled have a fire sale, as it were, on their unskilled hours of labor? Not with minimum wages enforced. In the US, even unpaid internships are being attacked as “illegal exploitation” of the people who want them by the people willing to grant them.
Anyway, the fact that labor is a “good” like airplane seats, restaurant seats, and cellphone minutes, that can’t be saved to be used later, does make it harder to get full utilization of the supply. Good catch!
We have a supply of it that it is not at all tied to demand, how many people bring an unskilled worker into the world in response to market demand?
I was under the impression that this actually was the case a few centuries ago- colonial American fertility was significantly higher than European fertility.
So can the unskilled have a fire sale, as it were, on their unskilled hours of labor?
Yes, they can, and yes, throughout history, they have been; and this fire sale involves selling the labour for less than it costs to produce, where the production cost is equal to the cost of food and shelter sufficient to keep the worker and his family alive and in reasonable comfort. (Not luxury, mind you, just comfort).
This leads to clear humanitarian problems (historically, slavery was a major one), and I’m pretty sure that the entire point of the minimum wage is to avoid said humanitarian problems by making the fire sale impossible.
There are many goods like labor in this respect. Airplane seats on a flight. Seats in a restaurant at dinner time. Minutes of talk or megabytes of data in a cellular smartphone network.
You are right, there are clear and strong similarities here. There is still one important, though minor, point of distinction, and it is this; it takes several years and quite a bit of food to create a new labourer (while an entire new restaurant with plenty of chairs can be created in a mere few months, or faster if the building is already in place). This introduces a fairly major friction to the task of increasing the supply (major enough that if more labour is necessary than can be easily supplied, an employer might look to automation instead, or even go out of business).
But yes, labour is clearly the same category as cellphone minutes or restaurant seats. Which is interesting; I hadn’t realised that there were other goods in the same category...
Yes, they can, and yes, throughout history, they have been; and this fire sale involves selling the labour for less than it costs to produce, where the production cost is equal to the cost of food and shelter sufficient to keep the worker and his family alive and in reasonable comfort. (Not luxury, mind you, just comfort).
This leads to clear humanitarian problems (historically, slavery was a major one), and I’m pretty sure that the entire point of the minimum wage is to avoid said humanitarian problems by making the fire sale impossible.
It is NOT generally true that slaves were “paid” below a living wage. That would mean that healthy slaves were brought in, not fed enough to stay alive, and then died. In fact slaves were fed not only enough to stay alive but enough to breed and to feed babies, and their babies grew up to be slaves,
Slaves were not paid enough that they would voluntarily do the jobs they did. But they were paid enough to stay alive, and even to reproduce.
I am sure that many, even most slaves were in fact paid enough to stay alive (more specifically, they were probably fed and housed on the job); just not enough to stay alive in what I would consider reasonable comfort. And, in at least some cases, not at all once they were too old to work. (Some would have, I’m sure, been brought in healthy and than starved and died, through sheer incompetence on the part of the owner if nothing else; but those would have been the exception rather than the rule).
What kind of predictive power does this belief have? I.e. why does this inversion mean that the labour market is “different”, but performing the inversion “stores don’t sell goods to consumers for money, consumers sell money to stores for goods” does not make the goods market similarly “different”?
It is not the inversion which makes the labour market different; rather, it is the nature of labour. The inversion merely highlights this difference.
Simple. Goods are, as a general rule, produced by a mix of raw materials and labour; some wood, some tools, and a few other bits and pieces in the hands of a competant craftsman can turn into a rocking horse.
The consumer’s money is also produced by a mix of raw materials and labour; a mechanic obtains raw materials from his employer, labours for some hours, and obtains money. This mechanic may then return home and spend his money on the rocking horse as a gift for his child.
Either way around, whether it is seen as spending money to obtain a rocking horse, or spending a rocking horse to obtain money, the transaction is similar; something that is produced, from raw materials, using labour, is exchanged for something that is produced, from raw materials, using labour.
The job market is different because labour is not produced from raw materials using labour. Labour that goes unused is not stored for later, but lost entirely; labour cannot be resold (though the products of labour often can).
This is difficult, because my knowledge of economics is relatively poor. However, I shall attempt a few predictions:
Since labour not used is lost, and worthless, people will prefer taking a job with a low salary to remaining unemployed; even when that low salary is insufficient to live off of.
Since unskilled labour can be produced, in roughly equivalent quantities, by almost anyone, market forces will tend to push the cost down, far below what allows the labourers to live in any reasonable comfort.
Skilled labour is rarer, and thus can be sold for higher salaries, but the process of obtaining those skills is long; thus, if there is a particular demand for a certain skill over and above the available (finite) supply, it will take a long time (possibly years) for the market to adjust. In that interval, the market is likely to adjust by finding ways to temporarily manage without that skill, where possible. The article above talked about frictions; this may be the largest friction in the job market.
On the other hand, if a market for a given skill has significantly more supply than demand, then the producers of this type of skilled labour may find themselves unable to sell their labour for much more than unskilled labour, regardless of how much effort it took to obtain the skills in question.
See the many creative and performing professions, where labor costs are often comparable to working retail, as examples. Those have more of a lottery flavor to them than unskilled labor does, where the best artists/musicians/actors/athletes can make much more than the median, but the median is often low. (If you’ve ever seen a sign lamenting that teachers don’t get paid as much as professional athletes, go to the BLS website and compare their median salaries.)
Yes, those are good examples.
There are many goods like labor in this respect. Airplane seats on a flight. Seats in a restaurant at dinner time. Minutes of talk or megabytes of data in a cellular smartphone network.
Restaurants and air transport are notoriously competitive businesses, notorious in that the ability to lose money investing in these markets is well-storied. Maybe labor, or at least unskilled labor, is, or should be, just as notorious. We have a supply of it that it is not at all tied to demand, how many people bring an unskilled worker into the world in response to market demand?
IN the case of seats in restaurants and airplanes, and to a lesser extent cell phone minutes, much is sold below the average cost to produce it. The lowest fares paid on a flight are typically much less than half the highest, or even average fare. “Nighttime and weekend” minutes on cell plans are typically “free,” producing no marginal revenue to the cell carrier, simply given away to attract customers who might buy some daytime minutes. Restaurants will have early bird specials and charge less at lunchtime because seats are empty, and will publish coupons and groupons when their seats are empty during prime time.
And still even with these price reductions, if the market clears with too many empty seats and the price drifts down below the marginal cost of serving a customer, restaurants remain unfilled, airline flights are cancelled (putting airplanes into unemployment).
So can the unskilled have a fire sale, as it were, on their unskilled hours of labor? Not with minimum wages enforced. In the US, even unpaid internships are being attacked as “illegal exploitation” of the people who want them by the people willing to grant them.
Anyway, the fact that labor is a “good” like airplane seats, restaurant seats, and cellphone minutes, that can’t be saved to be used later, does make it harder to get full utilization of the supply. Good catch!
I was under the impression that this actually was the case a few centuries ago- colonial American fertility was significantly higher than European fertility.
Yes, they can, and yes, throughout history, they have been; and this fire sale involves selling the labour for less than it costs to produce, where the production cost is equal to the cost of food and shelter sufficient to keep the worker and his family alive and in reasonable comfort. (Not luxury, mind you, just comfort).
This leads to clear humanitarian problems (historically, slavery was a major one), and I’m pretty sure that the entire point of the minimum wage is to avoid said humanitarian problems by making the fire sale impossible.
You are right, there are clear and strong similarities here. There is still one important, though minor, point of distinction, and it is this; it takes several years and quite a bit of food to create a new labourer (while an entire new restaurant with plenty of chairs can be created in a mere few months, or faster if the building is already in place). This introduces a fairly major friction to the task of increasing the supply (major enough that if more labour is necessary than can be easily supplied, an employer might look to automation instead, or even go out of business).
But yes, labour is clearly the same category as cellphone minutes or restaurant seats. Which is interesting; I hadn’t realised that there were other goods in the same category...
It is NOT generally true that slaves were “paid” below a living wage. That would mean that healthy slaves were brought in, not fed enough to stay alive, and then died. In fact slaves were fed not only enough to stay alive but enough to breed and to feed babies, and their babies grew up to be slaves,
Slaves were not paid enough that they would voluntarily do the jobs they did. But they were paid enough to stay alive, and even to reproduce.
I am sure that many, even most slaves were in fact paid enough to stay alive (more specifically, they were probably fed and housed on the job); just not enough to stay alive in what I would consider reasonable comfort. And, in at least some cases, not at all once they were too old to work. (Some would have, I’m sure, been brought in healthy and than starved and died, through sheer incompetence on the part of the owner if nothing else; but those would have been the exception rather than the rule).