September 14, 2006
From the desk of Jane Galt:In which I refine Mankiw's Theorem of Harmonic Convergence
Greg Mankiw offers the following based on George Will's column on Wal-Mart:
Here's a theorem: Any time George Will and Jason Furman agree, they're right.
This is ground-breaking, but I must refine it a little further, to what I will call Galt's Theorem of Tri-Harmonic Convergence:
Any time George Will and Jason Furman agree with me, they're right.
And in the case of Wal-Mart, they're right.
Posted by Jane Galt at September 14, 2006 2:30 PM | TrackBack | Technorati inbound links"); ?>Questions.
Is 25,000 people applying for a low paying job at WMT a sign of how much the Bush economic policies are doing for low wage employees?
Is that evidence against the argument that rapidly rising income inequality is not a problem?
If I were braging about my economic policy I would not look at this data point for support.
Posted by: spencer on September 14, 2006 3:04 PMSpencer's comment reminds me of my observation that much of the disagreement between liberals and conservatives can be explained by their differing points of view. It seems that most liberals view the economy statically rather than dynamically. Spencer obviously grieves for all those poor workers stuck in those low paying Wal-Mart jobs. Rather than allow these abuses to go on, liberals would use governmental power to force Wal-Mart to do better (or eliminate the jobs in the process). The problem is not that close to 25,000 people did not get a job. The problem is that 300+ did.
Meanwhile, I'd love for one of my kids to get a job at the local Wal-Mart. (Like most applicants, they were not hired.) It's not that I want my kids to make a career of working at Wal-mart. I don't. I do think it is a great entry level or transitional job. Wal-Mart pays better than minimum wage and provides better-than-average benefits. They also provide a safe, clean, decent work environment. Why wouldn't a Dad want such any employer for a child (or as a second income for a family)? Most jobs at Wal-Mart are not designed to be career positions. These jobs are perfect for kids going to school, young parents getting established in life, someone looking to get off welfare, someone returning to work after raising a family, or a senior looking for extra income. Not every job can or should be designed to support a family of four. If every job had to support a family, many of Wal-Mart's jobs would be eliminated. In addition, the local grocery store could not hire high school students to bag groceries and BurgerStop wouldn't have any car hops. These jobs are only bad if there is no opportunity to move on to better paying jobs. Liberals seem unable to see this dynamic process for what it is.
spencer,
To answer both of your questions, no and no.
The large number of applicants at WMT is largely irrelevant to any analysis of Bush's economic policies. For this, you need macro theory which tells us, reliably enough, that Keynesian policies like tax cuts and deficit spending will spur growth in the short run but have costly long run consequences.
The large number of applicants at WMT is not evidence one way or the other as to whether inequality is a problem. Whether or not something is a problem is a normative issue. Descriptive statistics about the number of applicants at WMT are, well, descriptive.
Presumably, this is why in Jane's post and the items she links to, there are no claims that the large number of applications at WMT are indictive of anything regarding the Bush economic policies, or the degree to which inequality is or is not a problem. I'm perplexed as to why you would even ask such questions.
The large number of applicants at WMT does indicate that many people see WMT as a place where they would like to work. This constitutes some evidence against the popular charge that WMT is a bad place to work.
Posted by: James on September 14, 2006 3:36 PMActually, I am not a WMT basher. I think WMT is being made a scape-goat for many of our other economic problems. And in this particular incidence I just find it amusing that so many Bush supporters like to use this story of 25,000 people applying for a job without realizing that it is a great example of how the lower end of the economic scale is not participating in this economic recovery--we are not lifting all boats.
The real question is why WMT wages do not reflect the extremely strong productivity gains that WMT experiences. Economic theory says wages should equal an employees marginal product, but in the case of WMT the theory is obviously not working. Actually thing appear to be moving in the opposite direction as over the last quarter century average hourly earnings in retail has fallen from 90% to 75% of total average hourly earnings for the private economy.
And I disagree strongly with your comments. The large number of applicants is prima facie evidence that the economy is not doing very well for the lower end of the economic scale. If things were going well they would have better alternatives and you would not see the long lines of applicants.
Moreover, I did not say WMT was a bad place to work. Your are trying to put words in my mouth.
My problem with both liberals and conservatives is that their arguments usually reflect some theory they heard yeras ago and not the actual facts of the situation. It is just when I go around to the various economic blogs I find that this problem is much more severe on conservative blogs.
Yes, WMT is a good place for a teenager to work.
But you do not have any inflormation about how many of those 25,000 applicants were teenagers so your argument is irrelevant.
Posted by: spencer on September 14, 2006 4:40 PM
Spencer,
I trust that when you speak of "putting words in your mouth"you are referring to the poster above me.
At any rate, if you want to argue that WMT workers are not receiving compensation gains commensurate with their productivity, then it is incubent on you to show that WMT's recent productivity growth came from their workers.
The glut of retail workers relative to demand may indicate that there are economic problems, but the root cause could be any number of things including or in addition to Bush's economic policies. Some economists postulate that there are many factors besides fiscal policy which affect the labor market.
Bush's policies may, in fact, be harmful and I suspect that they are. I can think of plenty to criticize in them. I'm not a fan of Bush and would have no problem blaming him for the economic consequences of many of his policies. But citing the number of applicants to any one firm is not a sufficient argument to justify any such conclusion.
I'm aware that some "reality based" people might be able to convince themselves of nearly anything by citing some descriptive statistic and then asserting the conclusion they wish to reach. If that is your preferred approach to analyzing macroeconomic cause and effect relationships, well, have at it.
Posted by: James on September 14, 2006 6:03 PMSo the average hourly earnings of employees in the private economy have risen from 111% to 133% of the wages in the retail sector? What great news for those people that don't work in the retail sector (you know, like most Americans) !!!
Does anyone have statistical information as to how many of those 25,000 applicants were either currently employed and thought WMT might be an improvement, or were people who were more inclined to remain on unemployment but are required to make a visible search in order to obtain benefits or were adult kids living in Mom's basement who were ordered to go and apply?
Posted by: triticale on September 14, 2006 10:03 PMI just find it amusing that so many Bush supporters like to use this story of 25,000 people applying for a job without realizing that it is a great example of how the lower end of the economic scale is not participating in this economic recovery--we are not lifting all boats.
Or, it could just be that Chicago's economic policies are not lifting all boats.
Posted by: anony-mouse on September 15, 2006 3:55 AMWhat makes anyone think Wal-Mart workers aren't earning their marginal product? I would agree, entirely, with the statement "Wal-Mart employees do not earn their average product", but I suspect marginal product is covered.
Scenario: You've got a big superstore. Employees number 1-20 are going to be important, in so far as they man revenue producing stations such as registers, customer service, the McDonalds, the cutting boards in the deli and the crafts section, etc. Numbers 21-40 are less productive, and handle things like helping customers find whatever they are looking for, restocking, transporting merchandise from wherever the customers abandoned it. Employee number 41, however, kind of is standing around, waiting. His job is to handle random peaks in demands for employee time. (the guy in housewares is helping customer #1, but customer #2 needs help shifting that new vacuum cleaner, cleanup on aisle 6, and everyone is checking out at once. This is a job for Super41!)
Over the course of a 40 hour week, he is producing $500 worth of output, and his last hour worked is worth about $10, on average. And he isn't just some loser - if he were, he'd be fired. He can do any, or many of the first 40 jobs. So he is paid $10 per hour plus some benefits, adding to $500. SO ARE ALL THE REST. The marginal product (the value to the store of the last employee hired - in this case, his) is $500. Now, #1, the woman on register 1 is producing far more than $10 per hour, but if she walked out, #41 could step in and take her place, and they hire someone new to take over as #41.
If Wal Mart were required to pay $15 per hour, they'd fire #41, and maybe a couple of more, depending on the Marginal Products. A few dozen stores would drop below their long-term break-even points, and be closed. Customers would find that, just a little more often, there is no one around to help them when they need it. Prices would be raised, a bit. So, 38 people at each of the 95% of stores that stayed open would be better off, 3 at each of those stores, 41 at the other 5%, and all customers would be worse off - the employees a lot worse, the customers just a little, each, but there are far more of them. (125 million per week I think is the stat I saw.)
The idea is that it is the marginal product of the last equivalent worker - not the marginal product of any one worker equivalent - that is the wage-setter. If Wal-Mart isn't paying the MP, they are stupid - if the last worker is producing more than $10, they should hire one more worker, because he will be producing, say, $12 per hour while only costing $10. (Their labor pool is competitive - hiring one more worker isn't going to raise everyone else's wage by any significant amount. And even if it did raise the equilibrium wage a cent or so, that just means the last guy needs to be producing $10.42 per hour to make $10.01 - not a huge variance from Marginal Product equilibrium.
This, btw, partly explains why wages haven't risen as much as productivity over the last 30 years. As productivity has risen, companies have hired more, which should have driven up wages. But simultaneously, the labor pool has expanded - people work longer, women work more, we have more immigrants, lower transportation costs make it easier to tap foreign labor supplies, etc. This increase in labor supply has mostly offset increasing demand for labor, leaving us at an equilibrium labor market which is much larger in quantity, but at only a slightly higher wage.
Posted by: rvman on September 15, 2006 10:14 AMSpencer hits the marxist nail exactly on the head:
"At any rate, if you want to argue that WMT workers are not receiving compensation gains commensurate with their productivity, then it is incubent on you to show that WMT's recent productivity growth came from their workers."
Why is it that even if the "productivity growth came from their workers" (whatever that may mean--these days productivity growth usually comes from using machines instead of workers), the workers should have the benefits of it?
Posted by: JohnF on September 16, 2006 7:03 PM