Bastiat’s Bastions

This past week, John DeSantis came out with a very well-done three-part series in the Thibodaux Daily Comet  on the exploitation of labor, most assuredly African-American labor, in the not too distant past of our local sugar cane industry.  The story illustrates several important points that beginning students should note.  One article looks at the personal stories of people, now elderly, who worked the sugar cane fields many years ago.

 

Another story chronicles the ways in which workers were kept on the plantations, through payments in plantation scrip  which could only be used on the plantation, at the plantation’s company store, denying workers the cash that could have been used to finance the worker’s escape from the plantation and extending plantation credit to the workers that kept the workers owing the plantation.  Here, the monopsony power of the employer is strengthened, making it easier to take advantage of the workers, by reducing the workers’ options.  In addition, workers are charged monopoly prices at the company store.  You should note that the use of scrip and company stores was not just a agricultural phenomena, but was used to exploit workers in other industries, such as coal, which provided the inspiration for the Tennessee Ford song, 16 tons.

 

A third story discusses the fight for “fair” wages for sugar cane workers.  Several things one should note in this article: 1) employers got together and fixed wages, the way a cartel gets together and fixes prices, which is usually very illegal, but there may have been some provision in the 1937 Sugar Act which made this a legal practice, but I just do not know about that; 2) wages are now similar to those in other area industries for those with similar education, in the $7-15 range; 3) mechanization has increased worker productivity tremendously, which increased the demand for labor; and 4) not mentioned in the article, but something we all know, is that there has been a reduction (I did not say elimination) in hiring discrimination in other local industries which has led to an increase in the opportunity costs of sugar cane workers, cutting the supply of sugar cane workers.  The increase in demand and reduction in supply has definitely led to an increase in pay.

 

Of course, the elimination of payment in scrip made moving from the plantation possible, opening up other opportunities far away from the plantation and increasing the cane workers’ opportunity costs.  The reduction in hiring discrimination in other area industries eliminated the monopsony position of the plantations, forcing the plantations to pay a wage sufficient to attract workers from other area industries as well as from industries further away (or at least high enough to keep workers from having to move away to get good pay).

 

Do take a look at these stories and keep in mind that employers always and everywhere will try to get workers for as little as they have to pay.  What is different in the case of earlier day sugar workers is that they were denied opportunities away from the plantation through hiring discrimination, were tied to the land as much as a serf and it seems that employers were able, and perhaps encouraged, by legislation to act as a cartel to keep wages low.

To see the audio and video files of oral histories, please check this link out.  but I cannot find it now.  Mr. DeSantis emailed me for its location.  By all means, though, read these three articles. 

-MC

One of my students, B.L., recently commented about Sen. Clinton, “I do give her kudos for stepping up to the plate and being the first woman to run for president.”

Please understand that I am not saying to B.L. “oh, you are so wrong,” so please don’t take it as that, but many people now make this same mistake about Ms. Clinton being the first woman to run for president.

Actually, the first woman to run for the nomination of a major political party for president of the US was an African-American woman born of immigrant parents, Shirley Chisolm (this statement is incorrect–see my comment).  I think she may have even been the first African-American to run for president for a major political party, running well before Jesse Jackson, Al Sharpton, Alan Keyes and Burak Obama.

Ms. Chisolm began her campaign for president in 1972 running as a Democrat, not as a fringe party candidate. She was also the first African-American Congresswoman (back then, women made up only 3% of Congress, compared to 16% today). In addition, she was one of the founders of the influential Congressional Black Caucus. Two other women ran for president in 1972, but I don’t remember what party they ran for–they also started their campaigns after Congresswoman Chisolm. That was the year that Nixon easily won re-election. Congresswoman Chisolm won 152 delegates in the first balloting of the Democratic Convention, which made her the 4th place candidate at the convention, but she still had less than 10% of the delegates of front-runner, George McGovern, and less than half the delegates of 3rd place segregationist, Alabama Gov. George Wallace. For more information on her, look at: http://en.wikipedia.org/wiki/Shirley_Chisholm

But, the first woman to run for president of the US was Victoria Woodhull who ran 100 years before Congresswoman Chisolm, securing the nomination of the Equal Rights Party. This was almost 50 years before women were guaranteed the vote with the 19th amendment which was not ratified until 1920. And women could not vote at all in 1872.

What makes any of this have anything to do with economics? This is an economics blog, after all. Well, examining gender and racial differences in activities, like labor force participation, educational attainment, occupational choice are all a major part of labor economics. This week, Dr. Turner and I were at the Southern Economic Association meeting, where we presented our research with Gokhan Karahan (recently of Nicholls, but now at Delta State) and Tom Dalton, at University of Arizona, and also a former member of the Nicholls faculty. That work looks at barriers to entry in politics and opportunity cost differences for women and certain occupations.

-MC

Why would a bunch of illegal immigrants want to gather in one place looking for work?

An article from nola.com concerning the market for “day-laborers” in New Orleans may have the answer.

Not surprisingly, these folks wish to hang out in the parking lot of places like Lowe’s or Home Depot. It would seem that people who are at these stores purchasing supplies might also be interested in hiring some labor. That is, building supplies and day labor are complements.

The article outlines some of the problems that illegal workers face. These workers have difficulty ensuring they are paid for their work and have little recourse if they are not paid. While this problem is unfortunate for the illegal workers, it gives us an opportunity to reflect on how important property rights and the rule of law are in making economic systems function.

Normally, if a person hires a day laborer, there is either an explicit contract or (more likely) an implicit contract. If this contract is violated, the court system is there to resolve disputes. Our civil court system does quite a good job at enforcing contracts.

However, this is not an option for illegal workers – to take their dispute to the court system would be an admission of a engaging in an illegal activity. It is the same reason you can’t take your coke dealer to court if he burns you on a drug deal. But drugs have been sold, and illegal immigrants have been hired for some time. The “bad deals” are a cost of dealing in the “underground economy”.

So how are these contracts enforced?

There are other, albeit more costly, ways to enforce contracts other than the court system. “Say hello to my little friend!” As mentioned in the article and obvious from any movie about drug dealers, violence is a candidate. But there is a second way that is hinted at in the article.

One could think of the transaction between a day laborer and a builder as one involving a classic asymmetric information problem. The day laborer doesn’t know about the quality of the employer – whether they will pay at the end of the day. Of the ways we can solve asymmetric information problems, many are not applicable here (guarantees and warrantees will not work). Could reputation solve the problem, outright?

Maybe, maybe not. But these designated “markets” for day laborer would seem to make it easier for reputation to help solve the problem.

If someone who hires a bunch of day labor does so from the same location, and continually pays their workers, won’t that person earn a reputation as someone who is fair? If another person does not pay wages, and the workers inform other laborers, might it be more difficult for the person to hire laborers?

Hiring workers from only a few locations lowers the costs to the contractors of developing reputations because it is easier for both “the good word” and “the bad word” to get out about builders.

While the people who are shooing away these fledgling markets in other locations may not intend to, couldn’t it be the case that they are increasing the likelihood that day laborers will be exploited by unscrupulous employers?

–CT

A hat tip to MC who helped out with this post (only the good parts).

A progressive measure that came to modern democracies in the last part of the 1800s was the secret ballot. If employers, landlords and others who held power could see how you voted, then they could retaliate if you did not support “their guy.” Imagine what it would be like if the local elected sheriff or district attorney could easily tell if you voted for them or not. Well, it looks like the Dems want to end the secret ballot in union elections and let intimidation rule once more.  Remember, that the secret ballot protects the workers from intimidation by the unions, but also by employers.  See this story from Fox News (yeah, yeah, I know, but this is the kind of story that is hard to lie about). 

Added comment 3/3/2007:  I heard this comment on NPR’s “Marketplace” (read it or click on “listen to the program”) program, a comment by Bob Moon, while driving to beautiful Hattiesburg, MS for the Louisiana and Mississippi Political Science Association, to, as coincidence would have it, present a paper on the secret ballot and bribed votes in England.

Here is a story about voter intimidation and bribery from one of the earliest democracies, that of the Roman

Republic about 100 years or so before the rise to power by Julius Caesar. This is an excerpt from a paper I did several years ago with Gary Pecquet (U. Central Michigan) and Tom Dalton (U. Arizona), titled, “The Secret Ballot in Rome as a Threat to the Political Oligarchy: A Seeming Exception to the Heckelman-Yates Rule.” No need to go into the Heckelman-Yates story (as you probably don’t care), but the point is that the Roman “good ole boys” had plenty of room to intimidate voters, and they often had plenty at stake. The politicians could declare war, especially war against a rich and poorly defended adversary. Without the secret ballot, voters were not free to vote how they wished, because they could get beaten or worse, because the stakes were often very high. Well, here is the excerpt:

4.6 The Secret Ballot in

Rome

A key turning point in the political evolution of Roman politics was the adoption of the secret ballot for candidate elections in 139 B.C. and legislation 131 B.C. (Linderski 1985, 91). Before the adoption of the secret ballot, “new men” must have had a very hard time outbidding patrons for votes because the voters would remain at the mercy of their landlords after the election. The secret ballot weakened the barriers to entry and allowed “new men” to compete more freely in Roman politics. The secret ballot did not need the support of established politicians, as those voting on the secret ballot were the voters themselves, it only needed one Tribune to propose the secret ballot.  Incumbents and established candidates may favor laws against bribery because they expect that the costs of gaining office may be reduced, increasing the rents of elective office. However, if the laws are interpreted unequally, incumbents or established candidates may not favor a law that reduces that unequal treatment, as the secret ballot makes it equally difficult for challengers and established politicians to pay for votes expecting to receive them.   The Tribute Assembly adopted secret ballot laws for candidate elections in 139 B.C., judicial assemblies in 137 B.C. and legislative Assemblies in 131 B.C. (Linderski 1985, 91). After this, voters would inscribe the initials of their choice on small clay tablets, and drop these into large voting urns. At first, a broad approach to the voting urn compromised the secret ballot because it allowed observers to stand by voters and intimidate them as they passed in the line to deposit their ballots. In 119 B.C., Marius, acting as Tribune, enacted a law that narrowed the passage to the urns securing the integrity of the secret ballot. (Botsford 1968, 389 and Yakobson, 1999, 130) The secret ballot, not only released the voter from the contractual agreements of the patronage system, but in a military society the ballot protected voters from any reprisals by the potential commanding officers (Yakobson 1995, 427). Moreover, the Roman voter enjoyed more anonymity than modern voters. Roman votes were never recorded below the tribal level. There were no reported results by smaller voting units such as precincts for politicians to reward or punish. Even so, powerful Roman nobles and cliques fell short of the power that modern ruling parties now possess. (Yakobosen 1995, 434) Yakobson (1995, 438-439) contends

The secret ballot allowed the voter to take bribes from the different candidates and be free to vote the way he liked. The voters would no doubt often reward “the highest bidder,” though it should not be assumed that this was the sole consideration that determined his choice. The voter could not be held to his promise or penalized for failure to keep it; nor could he be asked—or pressured—to vote for a candidate upon a promise (which might not eventually be kept) to pay him later, but he had to be paid, in advance, a sum large enough to compete with the bribes likely to be offered by other candidates.

Following the adoption of the ballot laws, bribery, actually increased. While it is unknown to us which form of bribery increased, the direct or indirect payments, that is, the private good or the group public good, our model suggests the latter. Divisores collected bribes from all candidates and distributed them throughout their tribes. Bribery became a form of advertising that voters expected from all serious candidates. Lintott (1990, 14) summarized the democratic nature of Roman political bribery, “When ambitus (bribery) begins to appear in the second century, it is as a disruptive intrusion for those who have the established power, but for the electorate itself it was not only profitable but liberating, as it created the assumption that their votes were on the open market.”  Before the secret ballot, unequal enforcement of the campaign spending laws, then, produced a large differential between the costs of voting for the established candidate and a “new man,” putting the challengers to a decided disadvantage. In effect, the unequal enforcement of the campaign spending laws had the effect of establishing a tariff on votes for challengers, erecting a large barrier to entry for challengers.

In elections, we will either use the secret ballot in some form  or voters will suffer some form of intimidation.  Which do we prefer?

MC 

Recently, I posted an article about the Opportunity Cost (OC) problem in Lafourche Parish (the LP). Here we go again. The article in the Daily Comet on Friday, Feb. 23, 2007, was good for another laugh. The parish government wants to hire an engineer to oversee public drainage issues. That is laudable. Without proper drainage, things flood around here. Even with proper drainage, we could still have some flooding problems. Flooded housing and businesses is costly, and, as they say, “an ounce of prevention….”

What is just laughable, is that the parish is offering a salary of a whopping $50,000 a year for this job. Now, I don’t know what kind of engineer or what kind of qualifications they expect with a $50,000 salary, but they better expect one with no engineering degree, with no relevant experience and one who does not expect water to seek its own level or that water runs down grades (I would have said downhill, but in case you haven’t noticed, we really don’t have anything that could be called a hill in Lafourche Parish).

It looks as if they need someone who knows how to set pay levels that match what good employees can get elsewhere, the parish needs someone who can recognize opportunity costs.

Parish adminstrators do not really expect to hire anyone for the job.

MC

One of the problems that our LP (Lafourche Parish) administrators is running into is the O.C. That’s not Orange County, but Opportunity Costs. In this Daily Comet article by Emilie Bahr, it seems as if parish public works department is having trouble keeping good workers, who can make a better living elsewhere.

One rather cynical councilman seems to think that the problem is worker dissatisfaction with their bosses. With pay well below what these construction trade workers can get elsewhere, they are sure to be dissatisfied–with their paychecks. How can we expect workers to settle for $12 per hour with the parish government rather than $15-$18 and more elsewhere?

The problem is that these workers are vital to keeping drainage in the parish flowing where it is supposed to go–away from our houses. My bet is that paying them a little bit more would be worth avoiding flooding of hundreds of homes in 1/2 inch rains.

It almost looks as if our Parish Council would rather play politics with our public works and our drainage just to make the parish administration look bad.

MC

Here is a story from the Arizona Republic about what has happened in Arizona as a result of their Jan. 1st minimum wage increase.   Teenagers are losing jobs, making that first job harder to come by, reducing experience and on-the-job training that help workers to get jobs beyond minimum wage.   While some  get the higher pay and keep their hours, others find their hours  cut or even their job cut.  New workers face a harder time getting that first job, as the competition for jobs increases at the higher wages.  This is what we have to look forward to.  And it gets worse, as we will see in class.

MC

There was an interesting article in the Sunday edition of the Times-Picayune about employment in the refinery industry. It’s a pretty good article – journalists are often lousy economists (and vice versa), but the author, Matt Scallan, does a pretty good job.

The basic story is that there is a demographic problem at refineries. The baby boomers are nearly at retirement age. Refinery operators are worried about a shortage of workers. Of course, we know, they can solve this problem by simply offering more cash. The story hits on compensating wage differentials for safety and shift work (see my previous post on schools for an explanation).

What is new for avid blog readers is the portion of the article on specialized training. Most jobs involve some type of training. What is different across occupations is who “pays” for the training.

Some workers are hired at low wages while they are being trained. When I say low here, I mean wages that are in line with their current, untrained, productivity levels. Think of workers using company time to read a book – they can’t be producing stuff while they are reading the book. The expectation is that after they have acquired the skills, their productivity will increase and they will receive a wage increase. While the worker has not directly “paid” for the training, they have paid for it by accepting a lower wage while being trained (perhaps a lower wage than they could have earned elsewhere).

On the other hand, some workers receive high wages while they are being trained. When I say high here, I mean wages that are above their current productivity levels (think more in line with their future, post-training productivity, even though they are reading books and not producing stuff.) Here the firm is “paying” for training, by paying workers a wage above their productivity level during the training period.

What determines the difference? The difference comes largely from the specificity of the training.

Take a job at a place like McDonalds. Skills are being acquired – workers are learning how to interact with customers, how to run a cash register, etc. These skills are what we called general skills – they are valuable to a number of potential employers.

If McDonalds were to “pay” for training, some employees would accept these wages, enjoy the training, then go to a new firm (this option is available because the acquired skills are valuable at a number of employers). If McDonalds trains the worker, and the worker takes off, McDonalds would have “paid” for the training, but never have enjoyed the enhanced productivity of the worker. McDonalds would not have recouped their investment in training that worker. As a result of this possibility, McDonalds won’t want to pay for the training via high wages. Therefore, when you first start at McDonalds, your wage is low.

As noted in the article, many of the skills required by the refineries are what we call specific skills – skills that are valuable at only a small number of establishments. If the refinery trains a worker, they don’t have to worry about the employee jumping ship to a new industry, say the fast-food industry. The skills they have acquired are specific to the oil industry and are not valuable to non-oil industry employees. As a result, these firms are less worried about recouping their investment in training, as a result will pay workers high wages while they are being trained. The firm “pays” for the training by giving workers high wages (higher than their productivity levels) while they are still learning.

On this end, it seems extra tricky for the oil industry. There are serious specific skills that take time to acquire. Unlike McDonalds, the oil industry could have a hard time hiring trained workers in the immediate term, even if they “back up the truck” full of money. They are clearly anticipating this issue and taking steps to address it.

But alas, the market will signify the problem. A “shortage” of trained workers will cause upward pressure on wages in the industry. This upward pressure on wages will attract workers and make undergraduate programs in petroleum engineering more desirable, and hence enrollment will increase. The market signals the problem, and people respond.

It’s probably a very nice time to be a petroleum engineer. It’s probably a very nice time to be a petroleum engineering professor, too. Maybe I should dust off my Chemistry books…

–CT

You might know that some employers pay for their workers to attend MBA school.

Would you think MBA training would be general or specific?

How can firms ensure they can recoup the investment (of sending their employees to MBA school)?

If they don’t, what will happen?

Take a look at this CNN article on trouble that New Orleans public schools are having in attracting teachers.

The idea of a compensating wage differential as at least as old as The Wealth of Nations, which Adam Smith (the father of modern economics) wrote in 1776.

Workers who work in jobs with more desirable conditions will accept lower wages than people who work in jobs with less desirable conditions. The gap between the wages of workers at different locations is though of a as a “compensating wage differential”. The additional wages are required to compensate the worker for working in less desirable conditions.

Why? The dynamics are simple. Suppose there are a number of identical workers, and two otherwise identical jobs. One job (think school) has a desirable characteristic, while another does not. If the wage started out the same in both schools, obviously people would be flocking to work at the school with the desirable characteristic rather than the school with the less desirable conditions. Principals would have many candidates to choose from at good condition schools, while principals at bad condition schools would have a difficult time attracting workers. In fact, there would be a shortage at bad condition schools and a surplus at good condition schools.

Now, some folks hoping to get a job at the good condition schools might offer to work at a slightly lower wage, or accept a lower wage, to avoid the bad condition school. So would others. We’d expect wages to fall at good schools. By the same token, some people would accept a job at the bad condition school if they were offered a higher wage. So would others. We’d expect wages to rise at bad schools.

Eventually, the size of the wage gap would change until there was no incentive to try to move from one type of school to the other. The “last” teacher would be indifferent between working at the good school or the bad school. The extra wages at the bad condition school would be just enough to compensate for the disutility associated with working under these bad conditions.

Now, back to the article…it points to a number of conditions in the public schools – all of which could be a source of a compensating wage differential: expensive housing prices, large class sizes, and violence in the area (and perhaps the school). The article points out public school district faces a shortage of workers, and further points out that “charter schools” don’t seem to be having a problem.

Some school officials even attempt appeal to potential teachers’ feelings of good will – hoping to get them to work in the public schools. Do you think their appeal to people’s good nature (”to their sense of adventure and desire to make a difference”) will be effective? I don’t think that will work. If you do, may I appeal to your sense of adventure to mow my grass? There must be a better way…

What does this information in the article tell you about the wage structure in the teaching market in New Orleans? How can the public schools solve the teaching “shortage? In fact, what is the only way they can solve the problem?

–CT