Category Archives: Labor

MPL and MPK

Consider an espresso machine that can make only one drink at a time. Adding baristas without adding machines cannot increase the rate of espresso production.

This is not strictly true. Having multiple bar-trained counter staff allows baristas to rotate as needed, potentially minimizing espresso output rate loss due to declining barista productivity (and increasing error rate) over the course of the day, as well as interruptions in using the machine. Capital investment in “systems” would determine the extent to which this strategy can be employed.

I just made this idea up right now but I kind of like it: “Systems” capital is the subset of capital that determines how labor interacts with “physical” capital. Since systems are affected by both capitalists and labor, a small endogeneity problem arises between L and K. The effect of a change in K on MPL depends, in part, on a component of K that depends on QL (quality of labor), which would equal MPL with homogeneous workers. The systems capital contribution by a particular worker depends on that worker’s personal stock of human capital, and some systems are more dependent on workers’ own capital than others: car showrooms are useless without shrewd salesmen, while McDonald’s workers follow specific instructions that only the worst workers can screw up.

I don’t think this effect is big enough to be economically interesting on a macro level, but it might help clarify the language of “investing in human capital.” Horizontal differentiation in human capital might explain horizontal segregation among workers; horizontal differentiation in contribution of human capital to horizontally differentiated systems capital might explain a (little) bit more. Also, low-capital workers segregate into jobs in which systems capital does not depend much on workers’ human capital stocks.

What’s more interesting is the higher-order feedback between K, L, MPK, and MPL, the opportunity for cumulative advantage that results, and how that advantage can turn into disadvantage if any one of those components receives a large negative shock. Back to my example, if all the good baristas quit and are replaced by scrubs like me, systems fall apart and firm output eventually suffers.

But consider a labor market with incomplete information. Wouldn’t employers be very interested to know how job applicants will fit into existing systems? Is this what Thurow was driving at with his job competition model? What applicant signaling behavior would be consistent with this framework, and do we observe that behavior? If the model is “true,” would its effect be large enough to notice?

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Filed under Labor, Producers

Labor Market as a Dating Network

Richard Freedman writes (via a former professor’s excellent blog) that

Connections between workers and firms in the United States have more the flavor of a dating game, with workers and firms changing partners frequently, whereas connections between workers and firms in most advanced countries have more the flavor of a stable marriage.

I’d love to see an actual map of (a sample of) the labor market “dating network.” The nodes could be color-coded by length of stay and/or size-coded by salary, and the edges could be color-coded by time spent unemployed between jobs. I’m sure this is doable by scraping LinkedIn and maybe matching salaries from Glassdoor. Better yet, divide the labor force into cohorts by age and see how the networks differ across generations. There are at least two generations of users with significant representation on LinkedIn.

Then again, I’d rather know if the map differs for non-LinkedIn users, and how. And whether demographic differences would be confounding or causal. UPDATE: This and this might help (via Victoria Stodden), with this and other projects.

The paper is also a great, easy read. It lays out a lot of facts about employment and unemployment in the US, and then runs through a few plausible explanations of why this recovery was more jobless than the Great Depression (in terms of aggregate “employment-output elasticity”).

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Filed under Labor, Network Analysis, Unemployment