21 Sep 2018

Murphy vs. Tucker Carlson

Economics 23 Comments

For real, I think I identified at least two big mistakes in the recent Tucker Carlson clip where he went after Jeff Bezos for off-loading his labor costs onto taxpayers (through food stamps). Even if you’re an economist who agrees with me, I encourage you to read my article. It took me a bit to think through what the confusion was.

An excerpt:

Now the way critics from Bernie Sanders to Tucker Carlson interpret this scenario, if only the breadwinner in this household got a raise from her employer—say, $300 a month—the taxpayers wouldn’t need to chip in to help feed her kids. This is the commonsense reasoning by which Amazon and Walmart are allegedly unloading some of their labor costs on taxpayers and why Carlson says Jeff Bezos owes you a “thank you.”

But hold on a second. In this example, the woman’s landlord could also help this struggling mother by reducing her rent $300 per month. Does the landlord owe taxpayers gratitude as well?

23 Responses to “Murphy vs. Tucker Carlson”

  1. Transformer says:

    Amazon (and the others) may be getting more productive workers as a result of state benefits.

    Say that with no benefits the going rate would be $10 an hour, and with benefits (for the reasons you give) the rate goes up to $11 an hour. But if the workers are healthier because of medicare and not malnourished because of food stamps they may well be more than 10% more productive and hence Amazon has in fact benefited from the hand-outs.

    • Dan says:

      OK, then you’d still be left to explain why companies don’t hire the person away from Amazon. If Amazon is paying a person producing $11 worth of labor and paying them only $10 an hour, then there is an opportunity for someone else to pay $10.50 and take that $.50/hr profit from Amazon.

      • baconbacon says:

        Because if the worker loses $1 in benefits for every $1 extra earned then there is no reason for them to look for or take such an offer.

        • Dan says:

          Still doesn’t hold water. Another company could just offer an extra week of vacation, longer breaks, higher pay per hour but fewer hours, etc.

          • baconbacon says:

            Yes I note that in what is currently the lowest reply. However non monetary benefits are more difficult to use to bridge this gap, lots of them aren’t worker specific making it difficult to recruit the workers who are earning more than their cost for you without increasing the compensation of workers who aren’t. A nice break room for employees would be a benefit but it would be used by both sets of workers so unless the majority and maybe vast majority of your workers were excess producers it wouldn’t pay off.

            Other work environment incentives are difficult to advertise, it would be awkward to have a recruitment program highlighting 30% less sexual harassment claims than the leading firm, and also difficult to verify for the new employee.

            Finally as long as employees job choices aren’t random they have already probably chosen their jobs in relation to specific non monetary job benefits. They will have expressed some of those preferences already in choosing jobs with specific commutes, hours and comfort with known co workers.

            • Dan says:

              It wouldn’t be difficult to say, “They pay you $10/hr for 40 hours/week. I’ll pay you $11/hr for 36.36 hours/week.”

              • baconbacon says:

                @ Dan

                If there are no frictions on the employers side then yes, you can do this. There are, in my estimation significant (in relation to the dollars being offered these employees) notable issues with this type of structure. Scheduling is a major pain for these companies, and it is made easier by having set shifts, which don’t work if one person is to average 7 hours a shift, and one is to work 8. Further lots of scheduling is done off book, where employees will trade shifts to work around personal schedules and this is again awkward if people have different shift lengths. Finally there is a lot of skill matching going on, new employees are put on shifts where there are more experienced (and higher paid) employees, so some of that productivity is actually coming from being available for shifts that train and cover for lesser employees. All told a person valued at $13 an hour for 40 hours a week might plausibly not be worth $13 an hour for 35 hours a week.

      • Transformer says:

        I think companies that use technological innovations to boost labor productivity ahead of their competition may still benefit disproportionately in this scenario.

        Lets say the industry average is 12 units of output per hour but Amazon because of its technological advantage can produce 20 units per hour.

        Start with wages at $10 an hour. The industry average is $2 profit per worker per hour (12 units @$1 – $10 wages). For Amazon it is $10 per worker per hour (20 units @$1 – $10 wages)..

        Now have state benefits increasing productivity by 20%. Industry average output increases from 12 to 14.4 units, but competition keeps profits at $2 profit per worker per hour (wages increase to $12.40 due to competition among employers as Dan suggests).

        Amazon productivity increase to 24 unit per hours, which at the new wage rate increases profits from $10 to $11.60 per worker per hour. They benefit more than the average company from the increased productivity due to worker benefits.

        I have simplified a lot (no capital, or unit price changes as productivity increases) but I think the economics is sound (hope my math is too!).

        • Dan says:

          What stops these other companies from implementing the same technological innovations to increase productivity? Do they not like making a ton more money?

          • Transformer says:

            Well apparently something – otherwise how did Bezos get to build up his $100B+ fortune ?

            • Dan says:

              I think he made most of his money by providing a service that people wanted. I don’t think it had much to do with paying employees significantly less than they produce. If it was as simple as under paying his employees then it’d be a simple matter to do the same exact thing as them and pay their employees a bit more.

              • Transformer says:

                I am sure he pays his employees the market rate and I agree he would not have made money unless he was efficiently providing a service that people valued.

                My point is that if (as I strongly suspect) his business is able to drive greater productivity than his competitors then he is also able to make a greater profit from each hour of employed labor than them and (if my theory is correct) potentially benefit from government handouts that increase the productivity of his employees.

              • Transformer says:

                And of course his competitors will try to emulate his business model – my point about his wealth is that it indicates that over the course of two decades he has stayed ahead of them and consistently run a business with above average productivity – a possibility you appeared to claimed the market would prevent.

  2. scineram says:

    It depends. Is the landlord also exploiting his position?

  3. baconbacon says:

    “Why doesn’t some rival company offer these workers slightly higher pay to bid them away from their current employers? After all, there are ostensibly billions of dollars in pure arbitrage profit waiting to be seized since it is so “obvious” that these millions of workers are being grossly underpaid.”

    This doesn’t hold unless you discuss the marginal tax rates they face with the phase out of assistance. If the worker has a mtr of 100% or more then there is no profit opportunity for a company to hire her away. In fact once the mtr hits 100% there are few reasons for employers to create jobs that would pay in this range.

    • Matt M says:

      If the worker has a mtr of 100% or more then there is no profit opportunity for a company to hire her away. In fact once the mtr hits 100% there are few reasons for employers to create jobs that would pay in this range.

      If the worker has a MTR of 100%, wouldn’t they also not benefit at all from the raise that Bernie/Tucker wants to force Amazon to give them?

      • baconbacon says:

        Yes, they would not directly benefit, but the increased costs would reduce the market power of the corporations allowing for higher wages/benefits through competition (in theory, if you are generous to their assumptions).

        • Matt M says:

          I think you’d have to be very generous.

          “Raise taxes on corporations to increase their costs (even if it doesn’t result in higher worker pay and regardless of what the government might do or not do with the money) solely to decrease their market power” is a new argument I don’t think I’ve ever heard before, even from the most radical Keynesians or progressives.

          • baconbacon says:

            The argument isn’t raise taxes to increase their costs, it is a variant of “remove subsidies to ensure better competition”. The latter is a standard economic argument, subsidies tend to be distorting in favor of specific business practices and stifle innovation from newcomers.

            I don’t think that Tucker Carlson and Bernie Sanders have gone down a deep economic rabbit hole and found an economic truth, more likely they just hold so many positions than some of them are bound to be closely related to solid economic positions by accident and complexity.

            Think of it this way: It is standard to assume that tax increases on corporations are passed through to the consumer, why would it be so bizarre to see subsidies to workers passed on to the corporations?

    • baconbacon says:

      @ Bob

      The logical test for this theory is that if workers are being paid below their marginal productivity but with high marginal tax rates then you would expect to see corporations competing for workers through non monetary benefits, better working conditions etc, which would not come at the expense of the public assistance.

      • Matt M says:

        Is there not a general sense that this already happens though?

        Most of my family works service industry jobs for low pay. They definitely seem to have an understanding of which places generally offer the best working conditions, and they seem to believe those places are the “hardest” to get hired at.

        To overly simplify, the basic idea is that if you’re going to be a checkout clerk, you start at dollar general, build up some experience, then you can move on to Wal-Mart, then maybe to something a little fancier, before you end up in a boutique clothing store or something.

        But the low-volume boutique clothing store with the discriminating and classy clientele isn’t hiring 17 year olds with no experience. They might not pay much more than dollar general, but because the job is considered less stressful, it’s more in demand, and when they advertise a position, they get people with relevant experience who apply.

  4. Bitter Clinger says:

    I listen to Liberal Talk on the radio in the afternoon (I dislike Sean Hannity even though he is supposed to be on my side) Every time they talk about this my head spins. We as a society and through our elected representatives believe in subsidizing those in our society whose productivity is below subsistence level. We provide them food, shelter, education, and healthcare along with other benefits. We do this not because we have to but because we choose to. Amazon sees these unproductive people and says that even though they are “Low Grade Ore”, we can still get some value from them. The fact that these people cannot make a living on their own but Amazon allows them to make some portion of their subsistence should be celebrated not criticized. Irrespective and regardless of what these unproductive workers are paid or what they do, (as long as it is in some manner productive), we as a society have to be better off than having them doing nothing.

  5. Tel says:

    If subsidizing poor people makes their wages go down, then logically raising higher taxes on rich people should make their wages go up (by the same mechanism in reverse).

    Think about it this way: suppose I’m in a well paid job but then a tax hike comes along and I’m doing the same job but now I have less in my pocket. For me the incentive would be do less work, but my boss wants me to keep doing the same work… I guess I would need a pay rise to compensate. If the boss could substitute, that might be one way out, but that tax hike is going to have the same effect on ALL employees in a similar position.

    Even if you don’t see this effect in each individual case, at least some of the employees (the ones on the margin) will decide that after the latest tax hike, it just isn’t worth it anymore and will go into retirement. That leaves gaps in key positions, because it’s usually older experienced employees who can make this choice. Those gaps make employers willing to be a bit more generous attracting talent. It gradually washes across the industry.

    This should be a good subject for some kind of agent simulation. The kind of thing I’ve been wanting to set up.

Leave a Reply