Economic Illiteracy or Irrationality: Take Your Pick

Speaking of being baffled consider this sentence (from a story bemoaning the low unemployment rate in Montana):

The owner of a fast food joint in Montana’s booming oil patch found himself outsourcing the drive-thru window to a Texas telemarketing firm, not because it’s cheaper but because he can’t find workers.

Let me attempt to decode this. An employer is offering a wage that’s below the market clearing price for the workers he’s looking for. Unsurprisingly, he can’t find any. He elects to contract to a service to satisfy his need. Either the fee he has to pay to the telemarketing firm is less than the cost of the workers he needs or it isn’t. If it is, the statement above is false; if it isn’t, he’s being irrational.

I wouldn’t be surprised if it were both. I don’t recall there being any J-school students in the economics courses (or the math courses) I took in college. They tended to opt for English or poli sci. Have things changed? And a remarkable number of people continue to hold to the “true value” theory of pricing. One form it takes is something like “Why I can’t pay him that much. He’d be making nearly as much as I do!”

Fast food is an interesting case, anyway. I’ve believed for decades that the fast food industry was an artifact of U. S. population dynamics. It achieved its explosive growth at precisely the same time as a large number of young, unskilled workers (the leading edge Baby Boomers) were coming into the job market. It maintained its profitability by importing large numbers of workers from other countries, mostly Mexico or India (at least hereabouts).

I wouldn’t have any particular objection to that if the employers were bearing the full cost of these additional workers. They aren’t. The low wages being paid don’t cover educating their children, paying for their healthcare, building additional roads and sewers, and so on. Taxpayers—the rest of us—are subsidizing the fast food business model.

Mexican demographics, rising wages in Mexico, and increased immigration enforcement are increasing the pressure on that model. McDonald’s stock has been pretty phlegmatic lately. It might not be a coincidence.

3 comments… add one
  • I love stories like this. “I’ve offered a wage that’s lower than what my workers can get elsewhere, why won’t they work for me?” And the reporter is equally baffled. It’s a mystery, Dave, it’s kind of like figuring out the amount of dark matter in the universe. We should assemble our finest minds.

    You know, for the right pay, I’d move to Montana and man the drive-through window.

  • It’s also what bugs me about the phrase “doing jobs that Americans won’t do”. I know of no job that Americans won’t do at the right wage.

  • One form it takes is something like “Why I can’t pay him that much. He’d be making nearly as much as I do!”

    I’ve seen this a lot in industrial sales. A salesman is doing such a good job on behalf of his employer that the sales manager doesn’t want to write that big of a commission check. Territories get cut, profitable lines become house accounts, and as soon as they succeed in cutting the salesman’s commission down to where they want it, he leaves for their biggest competitor and takes his best customers with him.

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