Friday, July 31, 2015

Supply and demand

This is Joseph

I'm often talking about how direct supply and demand relations seem to have broken with respect to managerial salaries (why aren't we outsourcing CEOs to India?).  In these cases, I am often skeptical that the high wages paid to senior managers are really required to attract a competent candidate.  But Cathy O'Neil points out that this issue is happening in reverse with entry level workers, where raising wages is seen as a taboo:
Of course, $50K isn’t nothing. But on the other hand, truckers have to be trained, competent, and regularly spend many days on the road. Moreover, the current surveillance technology has severely degraded their quality of life, which I learned by reading about Karen Levy’s work on the industry. Also, new truckers probably make substantially less than $50K when they start.

Partly the surveillance arose from the very real risk of truckers driving too much per day – it was an attempt to make sure truckers were driving safely. But since the technology has been installed in many large-company fleets, the companies have used it to essentially harass their drivers, telling them when break is over and so on. This has worked, in the sense that larger companies with more surveillance have managed to lower costs, pushing out smaller and individual truckers. And that means that truckers who used to own their own business now reluctantly work for huge companies.
And consider:
When you make your workers lives worse, and you don’t compensate them with cash money to make up for it, you find your workers quitting. That’s what’s happening here.

In the comments we also have:
There’s no shortage of older, experienced drivers who publicly contemplate getting out of the business in response to the micromanagement of their workday. It’s not that the drivers don’t want to comply with the rules, though many of them do think many of the new rules make no sense, it’s that what they have to do to comply is often unrelated to real time conditions and circumstances and is often the wrong thing to do for both safety and efficiency. I often hear that they are blamed for not meeting schedules or other metrics even though they have no ability to do the things that would allow them to do so due to controls on both their driving and the engines of their trucks.
Taken as a whole, I think that these issues are illustrative of a complete failure of industry to pay attention to the basic rules of supply and demand.  If you offset the costs of training onto workers (get a license first), make the working conditions poor (constant surveillance), and then don't raise wages then it is unsurprising that you suddenly have worker shortages.  Raise wages and give fixed term contracts (to make sure employment covers the cost of obtaining a license) -- then you might see the worker shortage vanish instantly.

It is remarkable that companies are acting like this and not addressing shortages with wages.  It makes me suspect that there is some sort of "moral virtue" in paying workers less (or a political point about not wanting to pay people).  Part of it is likely the "something for nothing" game -- if you don't count the costs of your new system on employee retention/morale then it looks like free productivity gains.  Since people are "sticky" (it takes time to find a new job and the employees may hope that the bad plan will go away), there is a lag between the implementation and the subsequent HR issues.

The proposed solution to reduce the criterion for licenses is a short term fix that won't hold in the long run.  A sufficiently bad job (high stress, low autonomy, moderate pay, much travel) is simply going to have to pay more to be competitive.  If you don't believe me, double wages and see what happens. 

However, the big point I want to make is that is appears that these companies don't seem to believe in the market economy, except when it is helpful to them.  Otherwise they would respond to changes in worker supply by paying more for workers (essentially passing down some of the efficiency gains in the form of increased wages).  Since this approach would also improve domestic demand that the time that the economy is a bit stagnant, it would probably be good for everyone. 


  1. I do not quite understand the final sentence in Cathy's post: "we either need to improve truckers’ work experiences or pay them more." Why can't things continue the way they are?

  2. The key is that the increase in trucker tracking has occurred in the last 2-3 years. So you could revert back to the old ways (where truckers had flexibility) but if you are going to alarm their breaks (a new practice) you make the job less good. So the change has just happened, and it makes the job less good.

    But reverting back to the old rules would be a viable option (but under improving experiences from the new decreased level).

  3. If you increase worker pay, this will also increase the cost of shipping. It's not clear that there would be an increase in aggregate demand.

  4. David,

    That might be true. But if the new monitoring devices (that make the job less fun) don't increase productivity by enough to free up resources to pay more than maybe they should be dropped?

    It's not automatic that all productivity gains must bypass the workers. And if there are not productivity gains then the companies are just making the job less pleasant as an idle amusement.

    Either way, drop the new monitoring or increase pay, you are either going back to a stable equilibrium or sharing benefits of better tech.