Licensed Occupations And Income Inequality

One of the features of the Journal of Economic Perspectives is the Recommended Reading section.

Aaron Edlin and Rebecca Haw have an article in the Penn Law Review entitled “Cartels by another name: Should licensed occupations face anti-trust scrutiny?

When only about five percent of American workers were subject to licensing
requirements during the 1950s, the anticompetitive effect of these state sanctioned
cartels was relatively small. Now, however, nearly a third of
American workers need a state license to perform their job legally, and this
trend toward licensing is continuing. The service sector—the most likely to
be covered by licensing—has grown enormously, with its share of nonfarm
employment growing from roughly 40% in 1950 to over 60% in 2007. Some
recent additions to the list of professions requiring licenses include locksmiths,
beekeepers,  auctioneers,  interior designers,  fortune tellers,
tour guides, and shampooers.

If you’re pressed for time, just reading the introduction will prove valuable. Licensing costs consumers a lot, and it’s not really clear if they benefit from better quality services or lower error rates.

When income inequality talk is all the rage, could licensing be functioning as a proxy for things like union membership or collective agreements? What I’m getting at is the idea that where a decline in union membership can be offset to some extent by expansion of licensing programs.

It should be noted that those in the bottom quintile are least likely to benefit from licensed occupations privileges – licensing boards seem unlikely to offer payment plans so could have a non-trivial impact on social mobility.

VFX Industry Worker Rights (The Real World Comes To Creative Workers)

This morning on my way into university I listened to a very interesting piece about VFX industry worker rights. There wasn’t much discussion of why Hollywood needs to squeeze margins of contractors whenever it can, and why it constantly looks for government handouts around the world. If there is one industry that displays the very worst behaviour in terms of rent seeking in the form of subsidy / tax credit shopping it is the film industry.

But why do big Hollywood studios have to make a dollar any which way they can? Well, it’s because contrary to popular opinion they lose money hand over fist. Hollywood studios are enormous money losers. They are playing a numbers game where they incur substantial upfront costs on a chance that a movie becomes a hit and not only pays for itself, but pays for the studio’s other losers that season.

The success of Disney has been in realising that movies are loss leaders for massive merchandising and alternative revenue streams. Think about the Pirates of the Caribbean and how they will milk that franchise just from the merchandising alone. In the real world, when your business model depends on your winning hit movies paying for all the losers and the administration costs of running a studio and all of the interest on the short-term financing you use to rollover your monthly cash flow requirements while waiting for a hit, squeezing the lowest person on the totem pole is not surprising behaviour.

Apparently every other part of Hollywood has a guild operating on its behalf – directors, writers, cameramen, makeup artists – they all have an organisation lobbying on their behalf and hooking them up with pension and health care support in exchange for their dues. This also means that it is hard to squeeze labour costs here, so of course studios will squeeze labour costs elsewhere which means outsourced VFX workers.

This isn’t good or bad – it’s simply the real world, moving up the socioeconomic ladder from the working class to the creative class. And Radio New Zealand workers would have been absolutely furious listening to how big bad studios don’t offer any job security to VFX industry workers. They might even be awarded contract extensions as late as 1 week before a contract expiring. Quelle horreur!

All I have to say to VFX workers trying to soften up people for supporting your industry is welcome to the real world. Because of globalisation and the ease of outsourcing, your labour is interchangeable with lower labour cost countries. There is no such thing as rights when there’s a temporary contract involved.

This has been the situation in the construction sector for the past few decades. Risk is shifted down the totem pole to those least able to bear it. High volatility in wages and difficulty obtaining prompt payment lead to enormous strife and second-order effects. Sadly, you won’t find Kathryn Ryan getting so worked up about the inability of a builder in Petone to put food on the table after getting screwed over by a contractor even after protecting himself as best as he could under the Construction Contracts Act and prudent practice in the construction sector.

It is things like this that make me laugh. The creative class are being brought down to the level of insecurity that the working class have had foisted upon them over the past few decades, and they don’t like it one bit. But sadly, because they are essentially a branch of the government, they are more likely to hear their pleas heard and get something done whether it be subsidies, tax credits or other forms of government support.

The guys on the interview talk about how studios send the easy shots to India and the hard shots to places like New Zealand, and then whittle down the VFX margins because they can’t put much markup on a time intensive VFX process. It sucks if you are a VFX worker, but please, complaining about a few months delayed payment from a corporate is a whole different kettle of fish compared to a few months delayed payment from a developer or local construction firm – the studio is several orders of magnitude more reliable, they’re just managing their cash flow extremely well because their business model loses money most of the time.

Now, I’m not unionist, but as an economist it would be remiss of me to ignore the role that unions play in exercising collective bargaining rights and other sorts of behaviour some on the right would call blackmail. In a way, the myth of the independent bargaining agent is that some people actually think that, by themselves, they will be able to achieve a bargain better than they would under a union arrangement.

In theory, contracting is a fantastic way of doing things. But in the real world, it sucks. It is a winner take all competition, not an auction for skills. Many contractors have essentially bought themselves a job – think of the Chorus linesmen made to buy their vans and gear who are now making a pittance on what they used to.

The trend in the labour market over the past few decades has been away from stable employment relationships towards unstable employment relationships. Yes, it makes sense for an industry that works on a project-by-project basis to use contractors. It saves the cost of paying someone to do nothing while there is no work to be had. But it also incurs other costs, as VFX industry workers are finding out.

The creative class used to think that they were above the costs of competitive markets. They thought that they were special, that they deserved privileges and that their role as the anointed ones set them in such a position in society that they are somehow worthy of government assistance if their privileges are attacked or whittled away through maximising behaviour of those they enter into contracts with freely.

The working class have been pushed towards contracting arrangements for a long time now. They got no support. They’re internalising the costs of their situation, and for VFX industry workers, who earn more when they actually are working than many working class contractors, to have the chutzpah to have a moan and ask for mummy & daddy taxpayer to make things better for them is hypocritical in the extreme.

Making Stuff Is Expensive

Making physical stuff is expensive.

Ford in Australia, after decades of protectionism and subsidies, has finally decided that the stuff it makes is too expensive. From 2016 about 1200 people will no longer have jobs in the auto industry.

When you add in the fact that Ford vehicles are expensive to make relative to vehicles made in Korea and Japan, you have to wonder why people haven’t gotten over worship at the altar of making stuff and exporting stuff.

That golden goose was killed a long time ago when big corporations and big labour realised that they both wanted the same thing from governments all the way from Michigan to Melbourne – as much free stuff they could get.

A special interest group can collaborate and lobby the government because it has fewer relationships to manage. The few win out at the expense of the many. Consumers pay more for cars so union workers earn wages that aren’t justifiable or sustainable.

The poor old taxpayer and average working stiff cannot collaborate and get free stuff because they are buggered from their 40-50 hours a week working hard to pay the taxes that pay for the free stuff.

Making stuff is expensive, and only companies that can turn a profit making expensive stuff should be operating.

If they need “special rules” or “special subsidies” or “special trade criteria for competing goods” then they shouldn’t be in business.

New Zealand is fortunate that our cut throat manufacturing sector has killed off the bad businesses and let the ones who actually deliver high value to consumers survive and thrive even in the face of a high NZD.

Australia is less fortunate, because the ALP scandal in New South Wales at present is showing anyone who can look on the ICAC website that big business, big developers and big labour are really good mates, mate.

Let’s be honest – the only people who will miss Australian car manufacturers are the sort of people who care about whether they are “Ford” or “Holden”.

They obviously didn’t want to support Ford or Holden enough when the relative price of a Toyota or Hyundai made it financially stupid to “buy local”.

Price theory can explain all of this, but don’t expect someone who thinks this is a terrible day for Australia to take the time to learn basic economics.

Federated Farmers Is The Farmer’s Union

Over at Whaleoil Cam Slater links to a piece about the Japanese farmers who can’t compete in the global agriculture marketplace.

In New Zealand, Federated Farmers is the farmer’s union. They can compete in the global agriculture marketplace:

A) As long as they get propped up when there is a drought

B) As long as they get their water for free or cheap

C) As long as there is relatively low levels of anti-pollution enforcement

D) As long as one big co-operative has special privileges for the Most Special Farmers (dairy farmers)

Because we live in Bailout Nation, special interest groups can position themselves for bailouts whenever the market or the weather doesn’t work out in their favour.

That doesn’t do much for under-employed graduates, laid off factory workers or people who work part-time who desperately want to work full-time but that’s their own fault! If they had full-time lobbyists in Wellington / could deliver rural electorates for the blue team they’d get bailouts too!