Friday, March 30, 2012

Unlearningecon on marginalism and the labor market

I am predisposed to foam at the mouth in disagreement with this post. Three things have prevented me so far - (1.) reading and responding to Henderson and Gochenour, (2.) lots of homework, test taking, midterm grading, and proposal writing, and (3.) not having a clue why Unlearningecon would write something like this "the Division of Labour (DoL) means that it is often impossible to separate the produce of one worker from that of his colleagues."

I feel uncomfortable responding to a point that seems so wrong I wonder if I'm mistunderstanding.

(1.) and (2.) are out of the way for now. I'm not sure how to deal with (3.).


  1. It's strange that the point seems so obviously right to me that I can't even begin to see where you'd disagree!

    1. Clearly the way we mix different types of capital and different types of labor is complicated, and clearly there is guessing and trial and error that gets us to a give organization of production (in this sense, a maximization for a given production technology is probably best thought of as a local maximum).

      But given that complex organization, the math is clearly easy for an economist. And if we're talking about incremental changes I don't see why it would be hard for an employer either. We're talking about guesstimates in the marginal improvement from hiring a worker. Why does a complex production technology make such a guesstimate impossible?

      If you were asking why we organize production the way we organize production I think that would be tougher - but you only seem to be thinking of wage setting behavior, and that doesn't seem as hard to swallow to me.

      Obviously a lot of things having to do with market power and information will determine whether the worker is paid exactly that marginal product or not. But even in those cases, marginal analysis still guides you to the wage rate.

    2. My point is that, although there are some places where you just add one more worker (and even they only have productive power when combined with capital), many jobs require a group of workers.

      Take the example of McDonalds. You need somebody to take the til, people to cook the burgers, supervisors and probably some other positions. Now, say you have a full team where each til is at optimum capacity, as are all the other workers. You add a new til. What does it achieve? Nothing. You can only produce the same amount before, at the same speed as before. Something similar happens if you add new cooks but no tils, as you can't take orders any faster, or if you add a new supervisor with nobody to supervise.

      But add an entire team - a couple of new cooks, cooking equipment and a new til person. Now you've added productive capacity. But what's the MVP of each worker?

    3. I'm detecting some confusion regarding short and long run mechanics.

      If we're just talking about the short run where the capital investment is fixed, then calculating the MVP of each worker is simple: measure the marginal product when you add or take away one employee.

      If we're talking about the long run where all bets are off on variable costs, the process is still the same, but you have to accommodate for the MVP of the capital equipment in your calculations. In other words, add the tils and machines and THEN bring in employees and you can calculate their MPL.

    4. Obviously you haven't been to the McDonalds on 19th and M at about 8:30 in the morning. They could definitely uses an extra person on the till.

      Anyway - what you're describing is a Leontieff production function and we know there's no margin to be calculated there. How often does that really happen, though?

    5. But you can't add an employee without combining him with capital. Assuming away the DoL objections articulated above, the MVP applies to both labour and capital together, so the wage is simply labour's component of something bigger, rather than precisely or close to what he produces.

    6. Above was in reply to Mattheus.

      Daniel, well I described the idea that construction workers are also reasonably useless without one another, too. Off the top of my head, Adam Smith's pin factory is an example where each labourer is just part of a large team, along with other physical tasks like manufacturing assembly lines. Also teachers (once you get to the level where they teach different things),

  2. "the Division of Labour (DoL) means that it is often impossible to separate the produce of one worker from that of his colleagues."

    This is to assert that employers hire workers en masse and have no ability to differentiate the levels of output each worker brings to the table. There is an obvious workaround and I am a little sad to have to agree with Daniel so completely on this.

  3. The Opinion of a Lurker:

    I think the point that unlearningecon is trying to make in the quote above is actually 100% correct. In fact, Armen Alchian and Harold Demsetz made a similar argument WAY back in 1972:

    Basically, unlearningecon is describing what Alchian and Demsetz called "team production". This is production where a team works together to produce a single output, but where you can only observe that single output and not the individual contribution of each team member.

    More technically, they are describing a production function where the final output of the team is not separable into the individual outputs of each team member. The example A&D provide is one where two men are lifting cargo onto a truck. In that situation it is really very hard to tell who is doing most of the lifting and who is shirking.

    Of course, I don't think this is an information problem that makes "marginalist labor econ" incoherent. Just because you can't observe a worker's contribution directly, doesn't mean you can't observe other things that can tell you how productive a worker is. For example, you can observe how many smoke breaks he takes, how often he comes in late, etc. Alchian and Demsetz expand on this in their article.

    1. I think the idea of marginal product is relevant but must be applied to the right thing. In some rare cases you might add a labourer and nothing else. In most you will add labour and capital, and you can only measure the joint product. In others you will have multiple labourers, some capital, etc, and you can only measure all of it together.

      This is not to deny that there are differences in productivity between workers, of course. But the existence of that productivity is often dependent on other labourers and factors of production being present, too.


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