Bryan Caplan and the Zero-Marginal-Productivity Hypothesis

by Don Boudreaux on November 17, 2011

in Complexity & Emergence, Seen and Unseen

As is typical of Bryan, he concisely and clearly makes a powerful argument – this time against the proposition that in today’s first-world economies many low-skilled workers have zero (or near-zero) marginal productivity.

I agree with Bryan.  This zero-marginal-productivity (“ZMP”) claim strikes me as way-strange, not least because (to put my own spin on the matter) it seems to sit poorly with the principle of comparative advantage.

So I take the liberty here to riff a bit, with thoughts on this matter that are still admittedly not yet fully – or perhaps even adequately – formed.

……..

Even the lowest-skilled worker is capable of producing something of value.  And the value of using that low-skilled worker to produce that something, rather than using some other means  (i.e., a higher-skilled worker or a machine) to produce that something, rises the greater is the comparative advantage of those other means at producing something else.

Suppose that yesterday producing 1 fish cost Suzie 1/2 banana and cost Billy 1 banana, and producing 1 banana cost Suzie 2 fish and cost Billy 1 fish.  Billy has a comparative advantage over Suzie at producing bananas (and Suzie over Billy at fishing).  Now suppose that today – after earning her PhD in fishing – Suzie’s fishing productivity rises significantly so that now each banana, were she to produce one, would cost her 100 fish.  (Suzie is now so good at producing fish – she can produce so many of them (say) per hour – that for her now to spend any time producing bananas would oblige her to sacrifice a much larger quantity of fish than she would have sacrificed before earning her doctorate in fishing.)

Even though Joe experiences no increase in his own productivity as a banana-grower (or, for that matter, as a fisherman), his comparative advantage over Suzie at producing bananas skyrockets.

Yesterday Joe could produce a banana at 1/2 of Suzie’s cost of producing a banana; today Joe can produce a banana at 1/100th of Suzie’s cost of producing a banana.  The dramatic decrease in Joe’s cost of producing bananas relative to Suzie’s cost of producing bananas is the exclusive result of the dramatic increase in Suzie’s productivity at fishing.

At least in principle, then, the maximum number of fish that Dr. Suzie is willing to offer to Joe today (100) for each of his bananas is larger than it was yesterday (2).

In short, Joe has become comparatively more productive at bananaering as a result of Suzie becoming more productive at fishing.

Doesn’t this fact suggest that, at least potentially, the value of Joe’s marginal product rises as a result of Suzie adding greatly to her human capital?

……

Is it really plausible that we are today producing – or that we will soon produce – machines in such quantities and with such a range of capacities that there is literally nothing that a low-skilled worker can produce of value for other human beings that cannot be supplied by such machines at a lower cost to these other human beings?

Be Sociable, Share!

Comments

comments

85 comments    Share Share    Print    Email

{ 85 comments }

Invisible Backhand November 17, 2011 at 3:51 pm

Sounds like the plot of “The Midas Plague” by Fred Pohl.

Speaking of science fiction, here’s Captain Kirk and the Trouble With Hayek:

http://i.imgur.com/VYQkc.gif

Matt November 17, 2011 at 4:47 pm

You do realize that there are people besides the Koch brothers who donate money to things? Oh you don’t, because that would conflict with your narrow worldview.

Never mind!

Jon Murphy November 17, 2011 at 4:50 pm

Other people donate, but only under the orders of the Kochs. Don’t you know the Kochs are our supreme lords and masters? Uh oh, I forgot I wasn;t supposed to say such a thing out loud! It’s supposed to be a secret! Now they will send me to the stuffing mines of Belroch!

Invisible Backhand November 17, 2011 at 4:50 pm

Of course! Here’s a handy list:

http://www.gmu.edu/centers/publicchoice/contributors2.html

I’m particularly interested in more info about the Earhart Foundation

Ghengis Khak November 17, 2011 at 5:50 pm

Troll is hungry and pitiful, but you must resist the urge to feed it! Be strong!

Invisible Backhand November 17, 2011 at 8:48 pm

Hey, I’ve got more than I can eat now. I just munched on Do Subsidies Justify Retaliatory Protectionism? by DJ Boudreaux. (Of course he thinks the answer is no. In the court of chickens the corn is always guilty). The delicious part is he thinks that since it’s just so hard to tell what a subsidy is we shouldn’t worry our pretty little heads about it.

Invisible Backhand November 18, 2011 at 5:22 pm

And what’s even more delicious were the completely justified demands the Occupy Wall Street demonstrators made for free food to some of the retail stores around Zuccotti Park. There was a delicious news flash recently about one demonstrator who demanded from a nearby McDonald’s that they feed him for free. When they declined, he tore off one of the credit-card swipes on the counter and threw it at one of the employees.

I think that was delicious. I think McDonald’s is delicious. I think Saul Alinsky is delicious.

Anything that diminishes individual liberty is delicious. Yum!

Invisible Backhand November 18, 2011 at 5:16 pm

Sounds like the plot of “The Camp of the Saints” by Jean Raspail.

Invisible Backhand November 18, 2011 at 9:01 pm

That would make quite a movie. I bet Holloywood could remake it as a zombie movie with Indians instead of undead.

It could almost be a prequel to ‘Bordered in Black’ by Larry Niven

Jon Murphy November 17, 2011 at 3:54 pm

Was Caplan ever considered in the “Modern Day Basait” conversation?

vikingvista November 17, 2011 at 5:07 pm

He should’ve been.

Methinks1776 November 17, 2011 at 6:26 pm

Here’s what I’m getting out of this NeoBastiat debate: we are lucky to have a lot of Bastiat-like people to choose from.

Yet another way in which we’re all richer!

vikingvista November 17, 2011 at 6:32 pm

Hey. Are you trying to undermine my pessimism, or what?

Methinks1776 November 17, 2011 at 9:31 pm

No, I’m working hard on undermining mine. It’s not working.

kebko November 17, 2011 at 3:55 pm

Isn’t the problem that the marginal value of some workers is less than the baseline regulatory/liability cost?

Greg Webb November 17, 2011 at 4:02 pm

Yes. And, that leads to greater, though unnecessary, unemployment among the least skilled workers who are often the youngest workers. It is the same in France.

Grant Gould November 17, 2011 at 4:35 pm

You don’t even need to invoke regulatory and liability cost. Efficiency wage will get you most of the way there — there are many workers whose value, if you don’t pay them much, will be negative.

In my company, for instance, unpaid interns cost us a substantial amount even though we don’t pay them because they must be trained and supervised and their mistakes corrected by more experienced workers. We employ them for other reasons — peer marketing, hope that they will look our way when they graduate with more skills in a few years, or to maintain good relations with their universities.

The more collaborative the workplace (and workplaces get more collaborative the further you move into the creative and technology industries) the harder the efficiency wage argument bites. The marginal product of a worker at zero wage is not merely sometimes but typically negative, and stays that way for a long time.

HaywoodU November 17, 2011 at 7:15 pm

That’s just plain ugly, how could you not pay them a wage? You reap all the benefits of their toils and they get nothing.*

*end sarcasm

kyle8 November 17, 2011 at 9:14 pm

Your example though gets at the heart of the low wage worker syndrome. Every normal human being is equipped to learn and improve in their tasks.

So in a matter of speaking every person hired at minimum wage is a potential high skill worker. Or to put it another way. When any firm hires people at an entry level wage they are like interns. They can potentially be worth a lot more.

And indeed we find that most people do end up working for substantially more as they continue in an industry than they did at first.

The marginal utility for each individual is a moving target.

WhiskeyJim November 17, 2011 at 9:34 pm

I’m sure you thought of this, but just in case:

Design work and job descriptions such that relatively unskilled workers can do them; minutes, coordination, first drafts, research, clean-up, training material upgrades, etc.

It is challenging, but parts of everyone’s day are made of these activities. With appropriate time allotted for mentorship, training and more challenging tasks, it can become a job that still nurtures potential.

g-dub November 18, 2011 at 12:19 am

They’re interning for low-skill fields/positions? Usually I see interns in places where the requisite skills are higher — that is why they are interning.

Andrew_M_Garland November 18, 2011 at 12:22 am

Maybe there could be “fee interns”, people who would pay businesses for the opportunity to work at the business and learn some areas of production. They might then take their knowledge and find jobs at other businesses who were too small to operate a fee intern program, or they could continue at the business where they trained. After mastering some areas of production, they might pay to learn other areas, or simply work at a reduced wage until they gained some experience in those other areas.

Sorry, I forgot for a moment that this would be heartless capitalism, charging a fee to inexperienced people who might pay and still not learn an area well enough to be productive. It would violate many laws designed to protect unskilled people from being robbed by profit-making organizations.

Our current system is much better. People called “students” pay fees to organizations which usually don’t produce anything from the student’s work. They learn things, which may or may not make them employable, from altruistic individuals called “teachers” who communicate the beautiful, ideal parts of things, rather than the grubby details of producing something. The students then graduate to lives of high wages and immediate productivity in their society.

Bret November 17, 2011 at 4:02 pm

Is it really plausible that we are today producing – or that we will soon produce…

Please define “soon”.

We are not yet producing such machines.

Krishnan November 17, 2011 at 4:12 pm

Bryan’s point about how in some countries, people can afford to have servants/helpers for this/that/other is interesting (and real) – A will afford to have X,Y and Z at some price – and each of those X,Y and Z will in turn have their own D, E and F (each) – that is at each level, there are people who are willing to work for SOMETHING for SOMEONE else because they have SOMETHING to offer … It is also interesting to watch how this dynamics changes when the economy does expand – those previously X,Y and Z now find other jobs/tasks and so have to be replaced by someone else – and the chain continues …. the rich may have people working for them, the poor also do – everyone has someone working FOR them – and we all work FOR someone – we each have SOMETHING to offer …

Dave November 28, 2011 at 7:50 pm

I suspect those countries don’t have mandated minimum wages…

Karl Smith November 17, 2011 at 4:24 pm

I think that’s possible and it depends on what you mean by “soon” but I don’t think its happening right now.

Greg Ransom November 17, 2011 at 5:28 pm

What about costs?

David Caddock November 17, 2011 at 5:29 pm

And now, since Suzie’s value of bananas in relation to fish has dropped so drastically, she would end up trading Billy more fish for his banana, making Billy better off as well.

muirgeo November 17, 2011 at 5:36 pm

The idea based on wages that the top 1% of earners are as productive as the bottom 50% of earners is nuts. If I had to choose which group to pull out of the econmy so as to damage it the least there’s no doubt the top 1% would be far more easy to replace.

Greg Webb November 17, 2011 at 5:42 pm

I would be a great replacement for the top 1%ers.

HaywoodU November 17, 2011 at 7:17 pm

Is this where I sign up for the minimum wage job for $1,000,000/hour?

Greg Webb November 17, 2011 at 9:33 pm

You have to first get me elected as President of the United States. Then, I will take care of everyone. Count on it.

CalgaryGuy November 17, 2011 at 8:33 pm

And yet you want to turn control of the economy over to politicians and the political class that aren’t even 1% of the population.

The Other Tim November 17, 2011 at 9:37 pm

You have a flawed notion of how to value production. Value is subjective. If you wipe out 50% of the population, you wipe out half the people who do the valuing. Assuming for the sake of the argument that the top 1% are the most productive people in society, by eliminating the bottom 50% you eliminate half of the valuers of the top 1%, whereas wiping out the top 1% wipes out only 1% of the valuers of the bottom 50%. You can’t make the comparison you want to make unless you wipe out equal numbers of persons.

Jim in Stl November 18, 2011 at 8:51 am

Yeah, Cambodia is such an economic powerhouse.

Fred November 18, 2011 at 8:54 am

You’re a modern day Bolshevik.

Dallas Weaver November 18, 2011 at 1:45 pm

Who are the bottom 50%. We have about 16% retired and 6.something % disabled — most are in the bottom 50% — then we have 30% or so not graduating from HS and another 20% with only a HS education. Is the 50% earner a high school dropout or are the HS dropouts below the retired and disabled earners ( SS and SDI)?

Perhaps pulling out the entire bottom 50% won’t do hardly any damage to the economy.

Invisible Backhand November 18, 2011 at 11:41 pm
brotio November 19, 2011 at 3:52 am

LMAO!

Greg Ransom November 17, 2011 at 5:48 pm

An economist who doesn’t think of costs isnt’t much of an economist.

Greg Ransom November 17, 2011 at 5:54 pm

Costs:

Insurance, theft loss, training, parking, bathrooms, management, healthcare, regulatory expenses, tools, equipment, lunch rooms, clothing, paperwork, etc.

If I owned a business I’d easily add more.

What is th data on the costs of an employee other than salary in different businesses?

Mark Bahner November 17, 2011 at 5:56 pm

“Is it really plausible that we are today producing – or that we will soon produce – machines in such quantities and with such a range of capacities that there is literally nothing that a low-skilled worker can produce of value for other human beings that cannot be supplied by such machines at a lower cost to these other human beings?”

No, it’s not remotely plausible. Unless you are defining “soon” as “within this century.” A couple key skill areas that I look to, to determine whether computers have “arrived”:

1) Completely autonomous automobiles. When there are production cars that are completely autonomous, that will be huge.

2) Voice recognition, even in less-than-ideal conditions. When there are fast food restaurants that have order taking and change-giving that are completely automated, that will be huge.

3) Store checkout. The brand new Walmart that opened near me less than a month ago has *no* machine checkout counters.

1) When the majority of new cars are completely autonomous,
2) when the majority of fast food restaurants have machine order-taking and change-giving, and
3) when the majority of store purchases handled by machines,

…then machines will have arrived. (Though they *still* won’t be anywhere near the point about which you are asking.)

My guesses for timing: 1) 20-40 years, 2) 10-40 years, 3) 10-30 years. I’m guessing later for the automobiles because of the penalties for error (crashes). I’m guessing earlier for checkout because there’s already some of that happening.

rhhardin November 17, 2011 at 6:59 pm

Machine checkouts are great disease preventers. You get your groceries without them being fingered by a flu-ridden high school student bagging it.

My winter cold and flu rate dropped to zero once the self checkouts went in.

I don’t know what the diseased high school students are supposed to do, though. Shovel snow, perhaps.

Mark Bahner November 17, 2011 at 7:31 pm

Machine checkouts are very interesting. I don’t use them for groceries, unless I’ve got maybe 10 or less. It seems to me that they’d be great at Walmart, but this brand new one near me doesn’t have any. And then Home Depot has them, even though in my mind they’re terrible for Home Depot. (In general, Home Depot items are very bulky, oddly shaped, or heavy. For example 2x4s, pipes, or bags of cement. So they really need to be shot with a bar-reader gun.)

Greg Ransom November 17, 2011 at 7:18 pm

Steve Jobs constantly fired people on the theory that “B” players damaged the output of an “A” player team.

Surfisto November 17, 2011 at 11:35 pm

Michael Jordan did not make the team his freshman year of high school. That is not even “B” team.

Cliff November 18, 2011 at 1:19 pm

That’s kind of a myth. No freshmen were allowed on the varsity team. He was at the time the second-best player in the entire school.

Greg Ransom November 17, 2011 at 7:19 pm

Steve Jobs believed that “B” players bad a negative marginal output — I’ll go with Jobs over Caplan …

kyle8 November 17, 2011 at 9:23 pm

That is one style of management which can get results. But it is not necessarily optimal. There is another management style which is almost the opposite, which is used to great results in Japan and a few American companies. In this second style people are considered highly valuable assets once trained. those who are not as efficient or capable as others are given positions and income at the appropriate level.

But even during a downturn hours may be cut, but everything is done to retain them thus fostering employee loyalty and lower retraining costs.

Management theory is a subject I have read a little on, but I need to look into a bit more.

Greg Ransom November 17, 2011 at 7:29 pm

The prisons are full of untold numbers who would provide a significant risk o a very large negative marginal utilty in a whole host of possible jobs ….

Greg Ransom November 17, 2011 at 7:31 pm

Marginal product ..

Greg Webb November 17, 2011 at 7:37 pm

It is perfectly plausible to produce comments for this blog that require no thought whatsoever. I do it all the time.

Greg G November 17, 2011 at 9:35 pm

Well, that’s because you are so smart that you don’t have to think before you can make an insightful comment. I, on the other hand, am an idiot who merely restates Marxist propaganda.

Methinks1776 November 17, 2011 at 9:38 pm

No, that’s not true. Not Marxist propaganda.

Greg G November 17, 2011 at 9:47 pm

Okay, you got me. I just mindlessly babble stupid stuff.

vikingvista November 17, 2011 at 10:31 pm

I think we’ve had a breakthrough here.

Becky Hargrove November 17, 2011 at 7:43 pm

ZMP is like a liquidity auction of people, something that has to take place occasionally but who wants to sell resources like this on an ongoing basis? Where is the wealth creation in that? Plus, the zero is what happens when a supposed intervention invariably lies between customer and product, an intervention which is forced to use a single denominator of production/efficiency value based on a total world marketplace. But when people are entrepreneurs of their own skills and negotiate to the individual rather than the intermediary, no one need rely on the single world barometer of value. In fact as two entrepreneurs seek to match skills portfolios, the valuation scale of production and knowledge efficiency is actually infinite.

James Oswald November 17, 2011 at 8:24 pm

The obvious modification of ZMP is (less than minimum wage + regulatory costs)MP workers. It’s not as cool sounding, but it explains more and there is a clear explanation of why low skilled workers would be unemployed recently: higher minimum wage, regulation and uncertainty. Their MP does not have to change at all from before.

Andrew_M_Garland November 18, 2011 at 12:53 am

To James Oswald, In support of your thought,
02/07/11 – Stefan Karlsson
Education Level, Degrees, and Unemployment [edited]
=== ===
Unemployment for High school drop outs 13.9%, HS diploma 9.5%, Some college 7.8%, BS degree or higher 4.3%.

The employment rate suggests that there is much “hidden unemployment” for people with little education.
High school drop outs 39.2%, HS diploma 54.6%, Some college 64.1%, BS degree or higher 73.6%.
=== ===

I don’t think that it is school education itself which makes people more productive, but education is acquired by more productive people.

I think that there is increasing business regulation, employment costs (healthcare), a higher minimum wage, and uncertainties about future profits. Businesses are reluctant to hire people of lesser productivity. Businesses continue to employ people who are comfortably productive and likely to be profitable even with higher future costs.

RussFan November 17, 2011 at 9:10 pm

ZMP is more likely when considering the typical small business worker vs the typical big business production line. A person cleaning widgets at a small widget producer has ZMP at a huge widget corporation with widget-cleaning machines. They may be able to do another job, but the corporation has already filled all the other positions. Their comparative advantage to other workers is in a task that is automated, so for that corporation, that worker’s marginal product is zero.

This makes the probably unrealistic assumptions that all the workers at the corporation do their job completely and perfectly, and that there is a fixed ratio of labor to capital at the profit-maximizing point.

Daublin November 19, 2011 at 12:29 pm

That’s exactly Arnold’s argument. It’s not that people have ZMP for every possible job. They have ZMP for every job that is currently available. Or to put a finer point on it, they have ZMP for every job that, psychologically, they are willing to take.

Invisible Backhand November 17, 2011 at 9:31 pm

Hey, don’t forget to check out Don’s interview on NPR

http://www.npr.org/2011/11/15/142307737/austrian-school-economist-hayek-finds-new-fans

I think he forgot to mention it since it also has Glenn Beck gushing over A Road to Serfdom.

Invisible Backhand November 18, 2011 at 5:25 pm

Hey, don’t forget to check out Gary Allen’s book (now in PDF), “None Dare Call It Conspiracy.” It’s delicious!

http://www.captaincanadacrusades.ca/articles/none-dare-call-it-conspiracy%5B1%5D.pdf

Michael November 17, 2011 at 9:56 pm

Productivity needs to understood in the context of a system of production. It is not important if the individual productivity is positive. If by adding that person to the system, the productivity of the system declines, you would say that that person had negative productivity effects on the system. We have all experienced co-workers who consume the time of others by needing help or by alienating others and thus decreasing their productivity. If we’re talking about and individual alone, zero productivity is difficult, but if we’re talking about an enterprise, negative productivity is very possible.

Surfisto November 17, 2011 at 11:22 pm

Can we apply this to the house keeping example and comparative advantage? Living in Chile I see many families with house keepers (nannies) here. Many are from Peru and are paid around 400-500 dollars a month as live in nannies. They cook, clean and look after the kids until they start kinder garden. A great deal if you ask me since my friend pays 130 dollars a week in the US for childcare only.
Where does comparative advantage come in with this example. The nannies trade theri time; however, they may be worse or slower at cleaning or cooking then myself. I save time because they can cook and clean all day while I only have the afternoon if I were to do it on my own. I use the extra time to do what I like; read, watch tv, time with family, etc. Does that make me more productive in a compartive advantage way?

Andrew_M_Garland November 18, 2011 at 1:07 am

To Surfisto,
You clean and cook better than the nanny, and you produce widgets much better than the nanny. So, you pay the nanny to give you more time to produce widgets. Then, you go further and pay the nanny so that you can consume some of that value in leisure activities.

This works for you even though you are better at everything compared to the nanny. And, the nanny is glad that you produce widgets, because she would be so bad at it that it would be a waste of her time. She is better off producing cleaning and cooking, then using her wage to buy the widgets she needs.

Surfisto November 18, 2011 at 7:55 pm

Thank you Andrew this helps. The comparative advantage item confuses me sometimes.

WhiskeyJim November 17, 2011 at 11:33 pm

I view the evolving and persistent comparative advantage of unskilled labor as a function of time.

As example, a hair stylist will have a job for a long time to come, just as a gardener will. Their propinquity guarantees it.

The more interesting mental exercise is, given our general advance in living standards and rising comfort, if the middle class could eventually afford to hire full time unskilled labor which pay them enough to afford today’s middle class living arrangements, would we still cry for social justice?

To forecast unskilled labor’s future utility when robots can replace them, or Star Trek transporters can beam cheaper labor from say, Zambia is impossible; those innovations will exist in an economy so different than today that forecasting them is nothing but a fun angel on a pin exercise. Any serious apoplectic forecasts should be given the scornful derision they deserve.

In the same vein, more skepticism should be given to comparing economies of 50 years ago to today given the huge cultural and economic shifts that have occurred.

Randy November 18, 2011 at 7:28 am

I do imagine a fairly near future in which people work much less but need much less income. A world where many of the major expenses of today have become minor expenses (e.g., housing, transportation, and healthcare). A world of part timers, contract workers, and temps, but living at least as well as we are now. So unskilled workers do have a future, because there will always be piles of something that needs cleaned up, and working 20 hours a week doing such things will provide sufficient income.

R. Alazar November 18, 2011 at 12:30 am

Did Billy change his name to Joe in the middle of the anecdote? Why?

Stephen W. Stanton November 18, 2011 at 2:09 am

Of course all workers have POTENTIAL value. But some jobs add zero or negative value. Examples: Doing more than minimum required for Sarbanes Oxley; marginal grocery checkout clerk where self-checkout is plausible; teamster who moves office equipment from one desk to another on the same floor during an office re-stacking because union contracts mandate it.

These are not cheap or even low-skilled workers. They are doing zero value roles. If their reports cease to be filed and their projects are canceled, nobody will notice.

Doc Merlin November 18, 2011 at 3:43 am

Its net marginal productivity. This is because the minimum cost to hire them, including the priced in risks of them losing you money from making things actively worse is higher than the wage they are willing to work for.

This is even worse in Alabama where banning illegal immigrants has left the vegetable crop rotting on the vine.

Frank33328 November 18, 2011 at 6:11 am

What if the government makes minimum wage 110 fish and hour? Then even though Dr. Suzie is willing to trade anything up to 100 fish per banana, Banana-grower Joe now basically has zero-marginal productivity.
Rephrased: Does the existence of minimum wage destroy comparative advantage?

Becky Hargrove November 18, 2011 at 7:34 am

I have a very personal reason for wanting to bring back to individual levels the idea of productivity itself. The longer anyone is excluded from the total economic process, the less likely they also are to be socially connected. When this happens, their loss of self worth often becomes so strong that they no longer interact with others in public. Countless people now walk around refusing to make eye contact with anyone, and trust among people is broken so it sometimes seems it cannot be fixed. I suppose these are the zombies that science fiction movies once warned us about. The problem is that I am old enough to remember when people did not act this way at all.

waitaminute November 18, 2011 at 8:35 am

What happened to Billy? And where did Joe come from?

vidyohs November 18, 2011 at 9:28 am

From Caplan
“My first stab: How about as personal servants for high-skilled workers? In Third World countries, the middle class routinely hires live-in housekeepers, drivers, and so on. In the worst-case scenario, we can learn from them.”

If this is the answer of first resort to Mr. Caplan, then it is a troublesome answer for the individual. A low-skilled worker may be low skilled for many reasons but lack of intelligence is not necessarily one of those reasons. An impaired ability to make good decisions and plan for the future may likely be the better answer for why they are low-skilled. My point is that I most of those low-skilled will recognize when they are offered jobs that are “make-work” jobs that produce nothing of real value, so they will need a means of satisfying that part of their intellect that says “I want to be valued by producing value”. With that in mind how many of the low-skilled millions can be plugged in as servants to the higher-skilled who may not have the means to pay servants, and may well not want to have servants. Imagine 300 million souls needing employment, can they be absorbed as servants for the high-skilled. I would guess if that is the answer, all us middle class and up had start building larger dwellings because we are going to have to house a lot of servants.

From Boudreaux
“Is it really plausible that we are today producing – or that we will soon produce – machines in such quantities and with such a range of capacities that there is literally nothing that a low-skilled worker can produce of value for other human beings that cannot be supplied by such machines at a lower cost to these other human beings?”

In my mind the question is not whether there is something that a low-skilled worker can produce of value, but rather is there something that massive numbers of low-skilled workers can produce of value? It is true that as mechanization in manufacturing began and grew there were those who predicted the demise of the low-skilled worker; yet that does not refute the truth that as mechanization spread more and more low-skilled people were pushed aside to scramble for a living. Today we have reached a point where in many industries the actual people who touch things that are made in huge numbers are almost non-existent.

It is a flaw in the thinking to believe that, unless something dramatic happens to through civilization off track and into the past, this condition will not continue to become even more prevalent as the ingenuity of man invents and develops even more certain means of producing with less human involvement
.
A low-skilled worker may produce value by sweeping the parking lot of the company that produces corrugated tin roofing and siding, but where that company once hired 150 people and sweeping the parking lot required all day labor for one individual, it now employs only 10 skilled workers to run the computers and maintain the machines. Instead of needing a large parking lot, the company now only needs a small one, and sells off the extra land or expands onto it. Now the low-skilled worker sweeps the parking lot in an hour. How many low-skilled workers can be absorbed into a personal servant category?

Troublesome questions and no real answers.

dave smith November 18, 2011 at 9:37 am

Russ’s post is spot on. Demand, and marginal revenue product for bananas will increase and the low skilled worker will enjoy a higher wage.

vidyohs November 18, 2011 at 9:59 am

Doing what, Dave?

In the face of all the evidence to the contrary, do we believe that the new developments, new inventions, won’t be produced with a minimum of human labor.

What can you imagine as the “next new big thing” that will require vast hordes of low-skilled workers to produce it?

l am not saying such is an impossibility, but I am a gambler and I see the odds favoring more production requiring less and less humans.

In the face of reality, we either cut back on the numbers of humans, or we get the trouble that is looming.

Surfisto November 18, 2011 at 8:08 pm

Vidyohs,
Imagine that the US allowed free immigration and no wage laws. Thousands of Latins and others would flood to the US to become live in servants. Would the ability of moveable human capital help solve this? People could flow where their unskilled needs are most demanded. Would this help with “what” they are going to do? The jobs would be new positions that were not available before.
Also we might not be able to imagine what other new jobs would be created?

vidyohs November 19, 2011 at 9:18 am

Surfisto,

I have too much respect for your intelligence and insight to believe for one minute that you did not understand what I said here“What can you imagine as the “next new big thing” that will require vast hordes of low-skilled workers to produce it?”

Everything in the nature of invention, creation, and production in the modern world carries with it the knowledge and experience of bringing things to a market with the use of fewer and fewer people. Whatever the next big thing is, you and I both know it won’t involve vast hordes of low-skilled workers to perform the labor.

What we do know is that as life progresses, unless something is done to control the growth of populations (ain’t gonna happen), we will have vast hordes of low-skilled workers. That is a fact.

Josh S November 18, 2011 at 9:42 am

Don, I actually think it’s simpler than that.

Suppose John and Suzy are unskilled worker in the nightmare scenario–machines do all jobs. The marginal return on hiring John or Suzy is zero. Hence, both of them are desperately poor, since they cannot find employment of any kind.

Therefore, John and Suzy have needs and desires that are not being met by machines.

Therefore, Suzy and John can, between them, find some way to divide the labor of survival in a way that has some marginal return–though perhaps small, certainly nonzero.

Thus the concept of a marginal return of zero on unskilled labor where unskilled labor still exists is a self-contradiction.

Surfisto November 19, 2011 at 12:25 am

If machines did all jobs, nobody would have a job. I understand that at the turn of the century over 90% (Need to check number) of people were employed in farming. Today less than 3%. We do not have 87% unemployment even though machines “took” those jobs.

EG November 18, 2011 at 10:34 am

ZMP applied across the entire economy doesn’t make much sense to me. But I’m not an economist. Across one firm or industry, it is certainly possible and happens all the time. But if it were to be systemic of the economy, that would mean that there is some factor making structural unemployment, permanent.

At a firm level, ZMP certainly applies. Let me give you an example. In one of the factories we have, there are 3 antique mills; hand operated, not even digital readouts. The justification behind keeping them, and their operators, is that the setups that can be done on these mills can be much more sophisticated than on an NC mill. So those operators of the manual mills don’t have zero MP. That’s not to say that we didn’t figure out a way to do the same work on an NC mill, and thereby removing the need for the manual mills.

If the operators of those machines have no other skills, and they don’t since they are close to retirement anyway, then they most likely have close to zero MP for our company.

Now, does it have to be ZMP or close to zero, to still make it uneconomical for a company to keep such an individual? I’d suspect it doesn’t have to be zero.

Walter Clark November 18, 2011 at 2:44 pm

Can someone help me with the obvious here?
I didn’t see any mention of the fact that low-skilled workers get so little money because there are so many of them. They bid down their own cost, even if they were productive enough to make automation less attractive.
Automation costs less in countries where there are industries within industries that produce and maintain automation. Thus first-world economies will tend to replace low-skilled labor positions with automation.
Walt

Stephen W. Stanton November 20, 2011 at 11:22 pm

Some roles do really have zero marginal product (or negative).
- Government workers and lobbyists implementing tariffs.
- Workers in big companies who produce endless slides about their team’s accomplishments (as part of lobbying for budget)
- Workers who act as gatekeepers or hoarders, who make themselves indispensable by NOT making the workplace more efficient
- People working on projects that are poorly planned or add no value (e.g., implementing software that is worse than the previous software).

In all cases, these workers can be fired with no loss in the economy’s production capacity…

These are not UNSKILLED workers. They are just doing nothing to actually add value.

Previous post:

Next post: