Kevin Drum vs. Priceless Economics

Arnold Kling

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He writes,

So here's the story. Union Pacific is offering $48,000 per year for skilled, highly specialized, journeyman work that's physically grueling and requires workers to be away from home about half of each month. The competition is offering 50% more, but not only is UP not willing to increase their starting wage, they're so certain they can fill all their positions that they make qualified candidates pay for their own aptitude test. And despite all this, they filled all 24 of their positions in ten hiring sessions.

Pointer from Mark Thoma.

Whenever you read a story about a shortage or surplus of workers of a particular type, you should ask what is preventing an adjustment of wages to restore balance to supply and demand. That is why so many economists look at unemployment and think that wages must be artificially high. When you've spent your professional life trying to correct the error of priceless economics (the fallacy of assuming that shortages and surpluses are permanent, with no price to clear markets), you apply your thinking to the labor market.

It is those of us who argue differently about unemployment that have to wave our hands and talk about discontinuous declines in marginal productivity. I am willing to do it, but I keep in mind the challenge.

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CATEGORIES: Labor Market , Microeconomics

COMMENTS (4 to date)

Latest Comment

Becky Hargrove writes:

Priceless economics is a good phrase. Don't worry if anyone gets bent out of shape about what it means.

Posted November 28, 2011 9:08 AM

Chris Stucchio writes:

Based on the article, we can't actually determine whether the competition is paying 50% more.

According to the article, the UP job pays $21.64/hour, which Kevun Drum turned into $48k/year= $21.46 x 45 hours/week x 50 weeks/year.

In contrast, the competition advertises $70-80k/year. But that doesn't have to be 50% more - it could easily be 11% more: $72k/year = $24/hour x 60 hours/week x 50 weeks/year. The $70-80k might also not be typical, it might just be the pay that their top overtime workers received.

White collar workers (e.g. Kevin Drum) tend not to be all that aware of this, but not all jobs are created equal. Hours/work rules/organization tends to vary quite widely and pay tends to vary commensurately.

Posted November 28, 2011 11:49 AM

Glen Smith writes:

A big part of why wages, especially in high income project work, don't adjust is that the project managers are just waiting for the horse to sing, the king to die or delay long enough to escape. Many of the projects the claim they can't staff if costed right, would not exist. That is, demand is both the desire for the labor and the ability to pay for it while often here we are talking about just the desire for the labor and not the ability to pay for it.

Posted November 28, 2011 3:18 PM

lemmy caution writes:

I think that there is also a natural wage fallacy. Certain wages should be high and other wages should be low for status reasons. For example, there was a nursing shortage for many years in the US that was solved by importing nurses from the Philippines rather than paying nurses more.

Posted November 29, 2011 5:37 PM

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