Arnold Kling  

A Macroeconomic Puzzle

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Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops.


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COMMENTS (38 to date)
Peter H writes:

The minimum wage has risen by about 40%, and there has been a $2000/full time employee/yr health insurance mandate passed and about to be imposed on employers, meaning the cost to employ a worker lawfully has risen substantially, despite burgeoning labour supply.

Jody writes:

Sprinkles!

(Or it seems like a bit more fun to be in control of your own toppings. Plus federally mandated rising labor costs matter some too.)

Jeff writes:

Wait, there are self-serve frozen yogurt stands now? That's a new one on me.

Do they also have vending machines with forbidden objects from places men fear to tread?

OneEyedMan writes:

Of course they've raised the floor wage on low cost work. But by-the-pound steam tray food has existed for decades, so I don't see how that can be the explanation. I wonder if someone realized that people buy more if they have to fill up their own cups and see the price afterwards.

Steve writes:

OK, well, these stores are not a bargain proposition. If you look at their advertising, the angle is choice, creativity, portion control. So, maybe we could rephrase Arnold's question as, "how can the market support a new discretionary good when so few people are working?" It is possible people are switching. I don't spend less on quick-serve Mexican food now than I did four years ago, but I spend that amount at Chipotle, not Taco Bell. Note that equivalent meals at Chipotle often cost less than at Taco Bell and, per ounce of food, I'm fairly sure Chipotle averages less than Taco Bell, too. Arnold's phrasing implies he suspects something else is going on. One might infer he is puzzled as to the origin of the discretionary income to support these stores. I think he is saying "people are unemployed, therefore broke, therefore it is unexpected that a new dine-in dessert concept would succeed now." So, the only one of those conditions that is not true is that people are not broke. For various reasons, which Arnold is fond of noting, to be un- or underemployed in America today does not necessarily mean you are broke. You can have your yogurt and eat it too.

Wayne writes:

Micro answer to macro puzzle:

At for the more popular ones, they are all franchises. For the individual, entrepreneurship is a great hedge against un-/under- employment. For the parent company, losses are dispersed.

Ben writes:

The competitive advantage is on the demand side, not the supply side.

I don't entirely understand why, but my girlfriend has next to no interest in full-service yogurt, but absolutely loves self-serve.

stephen writes:

global warming

For real, though...the yogurt is really good. its easier to get it yourself than to have to tell somebody else (which is part of the appeal). Its hot out.

And there happens to be 9% unemployment because of a housing bust a few years ago.

David writes:

I'd imagine that maybe those kinds of shops have fairly low startup costs. You just need dispensers, freezers, and space, right?

I'd also imagine that it's an indicator of the unevenness of the recovery. The sort of mid to high end consumption and the use of disposable income in buying Frozen Yogurt could reflect that the targeted demographic is doing better than average. You also probably see these shops in places with less unemployment. Much more in the DC metro area than in the rust belt.

Christopher writes:

Self-serve frozen yogurt and unemployment aren't correlated. Self serve anything and cost of employment are correlated. If it was cheaper to hire someone, there might be more frozen yogurt employees.

Julius writes:

Based on the previous comments, I think it would be helpful to clarify that by noting unemployment is at 9%, you are implying there is a large pool of employable people and asking why they aren't being hired.

honeyoak writes:

perhaps before it the capital required for such an establishment was to expensive.

Guy in the Veal Calf Office writes:

You don't have to queue to order & receive your food, you don't publicly announce your choices, and kids think its way more fun.

Joe Cushing writes:

If you consider broader enemployyment is 20%, that leaves 80% of about 150 million people who are availible to try a new fad. Also, any of the 20% have some income. Maybe they don't take a tropical vacation this year but they can afford a frozen treat.

Another issue: the economy stopped contracting long ago. This leaves employed people more willing to spend. I'm starting an e-business selling stuff people don't need--live coral. I think it will do fine. Even in Michigan brick and mortar stores are crowded with customers.

Milton Recht writes:

http://www.pinkberry.com/

Competitive differentiation response to Pinkberry, which is not self serve. If you haven't heard of Pinkberry, ask the nearest educated working female. Chances are they know about it even if there is not one nearby.

ajb writes:

To spell out the obvious to some commentators, if employers could hire workers for below the minimum wage and give out no benefits of any kind, unemployment would certainly be a lot lower. Ditto for anything that raises the cost of labor, including risk of discrimination lawsuits, wrongful firing, etc.

MattW writes:

Just like a few have said before me, it's not about people who are looking for jobs, it's about people coming up with ideas to make money for themselves that sometimes involves hiring other people, but in the case of yogurt does not.

Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops.

I guess what passes for a puzzle in macro is simply a review question that could be found at the end of chapter three in an intro micro textbook.

The Sheep Nazi writes:

The basic explanation is: people don't actually really like each other all that much. Give me a world any day, where I can supply myself with yogurt, or whatever, without having to look at your face.

stephen writes:

I guess the question is how many shops would have been something else, with higher labor overhead, if it were not for health care, regulation, or whatever.

Maybe there is something there, but it could just be a fad.

I think the more interesting development may be food trucks (as far as the effect of regulation and labor costs)

Mike Rulle writes:

Hmmm. A while back someone came out with the idea of self service grocery stores, then many years later self service gas stations. Your question implies their is a "now" reason. In theory Labor should be cheap now, floored by minimum wage. Shops can hire part time and not supply health insurance etc. So I admit to be missing the macro link. I think it is a good marketing concept. It may not be related to macro conditions at all. It might be both a cheaper and more popular way to sell yogurt retail. In my upscale hometown all these types of stores---non self serve---opened and closed even during the boom. This could be a response to that.

Mike Rulle writes:

Further, presumably there is lower demand as well, given 9% unemployment, perhaps implying the need to find a way to lower prices. Lowering costs help lower prices. This assumes this idea was born out of current economic conditions, and perhaps it was---but it need not have been.

Seth writes:

One of my first official jobs was as an employee in a Frozen Yogurt 1.0 store.

Those seemed to die out in the 90s and 00s. I was expecting something special when I walked into one of the new-fangled self-service Frozen Yogurt 2.0 shops.

I was perplexed when I found nothing more than a rearranged FY 1.0 shop. The Taylor frozen yogurt machines that I had to breakdown and clean every night brought back some memories (and I could tell by the taste of the yogurt that perhaps these machines were not cleaned each night).

I wrote about that here.

To your macroeconomic puzzle, so far, I've noticed that the FY 2.0 shops employ about the same number of folks as the FY 1.0 shops except, perhaps, in the busiest of locations.

dave smith writes:

I'll agree with those who say this question is motivated by the increase in the min wage. And I'll add that this represents the power of the market to substitute and economize in the face of regulation: If a yogurt shop can't hire someone for 5.00/hour to scoop m&ms on frazzleberry yogurt, then we'll figure out how to get the customer to do it for free! And think it is fun!! Minimum wage indeed.

Peter St Onge writes:

Perfectly logical. Unemployment is 9% because it is costly (regulations, mandated benefits) and because it's risky (Amity Schlaes' regime uncertainty).

If hiring gets costlier, we get capital substitution together with high unemployment. So much for the 'reserve army' of unemployed.

twv writes:

I think that the correct answer has been given several times, above. But that isn't stopping me from offering something in addition:

The remaining employed population has begun spending more money on consumer goods, expecting a major bust to completely destroy the economy any day now. They want to store up good memories of what life was like before it got really bad. Think of it as a doubly Epicurean capital investment.

Bryan Willman writes:

I think The Sheep Nazi is on to something, and some trends in point-of-sale marketing might add to it.

Today, any local grocery store, if you talk to a human teller they will be compelled to ask if you have some kind of loyalty card. If you say no, some of them will twist your arm to get one (to the point where I say ring up or I call the attorney general about bait and switch.)

With a machine, you can just ignore it.

A similar reduced "social friction" is part of the success of amazon - not only is one-click easier and faster, it cuts off endless questions about "wouldn't you also like..."
(The network solutions domain registrar is the canonical example of driving people away by asking too many irrelevent upsell questions of somebody trying to do something simple.)

SOOO - go visit one of these stores and see how much social "friction" there is - can you build you entire order without talking to anybody in a very short time? That would be a clue.

Bryan Willman writes:

By The Way Arnold ....

This, and your klingcast, both suggest you view, or think business people ought to view, large pools of unemployed people as a resource to exploit.

But in the various businesses I've worked at during startup, rapid growth, or founding, this is not so. People are to be hired only when absolutely required (all sorts of pain in hiring and firing) AND THE VALUE OF THE VENTURE IS NOT ABOUT CHEAP LABOR.

It's about some unserved market, some new technology or service. A new device. About self-serve yogurt. I have *never* heard a conversation of the form "well there are lots of unemployed people right now, let's hire them to do..." Never.

What's more, every employer I've ever dealt with, including me myself, prefers new graduate or currently employed people. So a very large pool of people who have been unemployed for 52+ weeks is NOT an opportunity - it's a hazard to avoid...

Sticky wages likely helps explain why people are fired, but I don't think it explains nearly as much of why they are not rehired.

[While on this rant, doesn't PSST/competitive advantage suggest that people who have been out of work have poor competitive advantage. Why should I hire them?]

dilys writes:

I agree I'd rather "do it myself" than explain my wishes to a low-level employee. Even more important, the yoghurt is priced by the ounce ($.45). That makes an ordinary serving more expensive, but gives me the option of a mini-dessert, a trend ("bites") that I'm also noticing on semi-upscale restaurant menus. Of course, an employee could measure out an ounce at a time, but it's the innovative space that is also self-serve where this is now available.

Decline of the West writes:

Here are a couple of reasons:

1. Too many MBAs--what will those eager, pimple fresh degree holders think of next to help out the bottom line and further their careers? Just look at some of the posts herein...

2. Non-degree holders in Western countries feel it beneath them to scoop ice cream, flip burgers, and generally take orders.

Mr. Econotarian writes:

Check out the Jack in the Box ordering machine.

I believe it saves 1-2 employees per store where installed. And it works really well!

Kristie D writes:

Since the increase in popularity of frozen yogurt shops throughout the past few years, a number of franchises have developed and joined the industry. With competition at its highest, corporations are able to increase profit by establishing self-service shops, versus full-service shops, which decrease costs enough to keep corporations open and stay in the industry. The emergence of self-service frozen yogurt shops are seen as an advantage in the eyes of the producers although the reduction in labor demand from these companies does not help our unemployment rates. The rise in unemployment is caused by a number of factors, such as the increase in minimum wage, and most likely has very little to do with self-service yogurt shops.

David T. writes:

I used to work at an ice cream shop in college.

I sometimes gave customers more ice cream than I was supposed to, and got big tips in return.

Naomi writes:

It has anything to do with labor costs. The self serve places actually require the same amount of staff, if not more. You end up needing someone in the back doing all the prep work, someone standing out front to facilitate/monitor the tasting of flavors, and one cashier. At the non-self serve place I work we easily manage with only 2 people working at a time.

Plus, the responses about the fact that self serve is more attractive to customers is also true.

Ivin writes:
Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops.

The question itself is somewhat vague and misleading. Let me first rephrase in a more technically correct form:

"Explain why, despite the fact that roughly 9% of the national workforce is reporting that they cannot find a job, consumer trends such as self-service yogurt are able to be profitable to the point that they experience considerable growth in sales and customer base."

The answer to your question is that you have incorrectly implied a linkage between reported employment status with consumer demand. Self-serve yogurt is able to "emerge" as a consumer trend so long as they are able to identify geographically-focused areas where average income is high enough to allow for consumer spending above and beyond "necessity" items. This doesn't mean that there is no unemployment in these areas, only that there is sufficient demand for this service at the given levels of income locally to support a successful business venture.

The short and pithy version of this answer is that "All economics is local." What this means is that national averages tend to get the spotlight, but for a business person, all that really matters is the local economy. So localized income and localized unemployment are far more relevant than any national average. And since self-serve yogurt only needs a localized consumer base to succeed, there is no reason to posit anything but the weakest of links between a national unemployment measure and a localized business success.

Cheers,

Ivin

G.L.Piggy writes:

It's sort of like operating a soda fountain, I would think. Back in the olden days there were "soda jerks" and what-not. Today, barring places like McDonalds where drinks are sidepieces in value meals, soda fountains are set up inside of a convenience store. People get their own sodas of various sizes and pay at the front of the store. It is just as easy to make your own frozen yogurt as it is to concoct a fountain drink (suicides anyone?).

Since yogurt is sort of a status/health thing a profit can be made off of having only yogurt as the product (same can't be said of soda anymore). People say "hey do you want to go get a froyo or whatever", and I assume that's how they talked back in the olden days too when discussing sodas.

Redbud writes:

"Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops."

Why is self-service popular? It clearly meets a need for customers. Food franchises typically spend 30% on labor. With self-service, that cost would be much lower.

It makes perfect sense for a business to seek to lower labor costs, and especially if other costs are hard to adjust.

Maria Lopez Suarez writes:

The costs of opening a business such as a self-service frozen yogurt shop is minimal and employing part of the workforce would thus decrease the profitability, due to the fact that such a business could do without personnel. The above concept generally applies to an array of businesses especially when analyzing the costs and profits of ones business, cutting ones employees hours/days altogether seems like the most feasible.

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