Tag Archives: wages

Quote

The law of supply and demand strikes again, this time with truckers for Walmart

It seems to me that the law of supply and demand stops working from time to time. But I think that is wrong, and pieces like this remind me that I am wrong: How Walmart has successfully recruited truck drivers amid a labor shortage crisis.

The reason I think it stops working is because I see wage growth stagnating in many places. But I also see productivity stagnating too, and I think there is a relationship between that. There is some elasticity there that allows wage growth to stagnate but in return productivity growth stagnates too.

In Walmart’s case, the elasticity is gone: if they can’t get truckers, they lose business. It’s simple.  But for businesses without such hard and fast metrics, you might just continue to see slack productivity and slack wage growth.

Wages, Nash equilibrium, and the productivity paradox: a small theory of my own

Economists write a lot about the mystery of why productivity is not increasing, with pieces such as this. There’s even a section on it in Wikipedia.

My own theory is that limited wage increases is also limiting the benefits of productivity aids. How I think this works is so:

  1. Employers wont raise wages for employees.
  2. Employers deploy technology that should result in productivity gains.
  3. Employees take the technology deployed and use them to decrease their efforts.
  4. The employer sees some productivity gains and assumes that is the limit for the technology deployed.

Look at this chart:

In much of the world economy, all the job growth is in the services sector (green line), not the manufacturing sector (red line). Achieving productivity gains in the manufacturing sector is more straightforward: replace people with robots and you are done. It’s not as straightforward as that in the services sector. In some services sector jobs, it is not possible to decrease effort without it being visible. But in many services sector jobs, it is. If employees cannot improve their lives by making more money, they may decide to do so by working less and working right up to the point where they don’t lose their job.

If you look at employment as a game, then we currently have a Nash equilibrium where the employees know that they won’t get paid more working for the same company, because that is the best strategy for the company. Therefore the best strategy for the employee is to minimize their effort without getting fired and while showing little if any productivity gains.

That’s to me is key reason why I think we have the productivity paradox.

I would add that the reason this is a paradox is because no one wants to admit that this is happening. It seems like a failure on both the employers and the employees side. The employee wants to be seen as a good worker and the employer doesn’t want to admit it could be paying more. Instead technology is brought in to solve an organizational problem, which is something technology cannot do.

(Chart from Business Insider).