Image credit: Ira Coffin
There’s an interesting debate going on over at Tyler Cowan’s Marginal Revolution blog about Zero marginal product workers. Here’s my theory, which I posted in the comments there:
Let’s say Jack and John are both employed doing the same work while employment is high (and fear of unemployment is therefore low–if either loses his job he can likely find another one). Then the economy craters and Jack loses his job. John’s fear of unemployment is now higher than it was, since he has sees not only his colleague Jack get laid off but also dire unemployment figures in the news. Now fearful, John works harder to keep his job than he did when the economy was good, and by so doing makes up for the productivity lost by Jack’s layoff.
To management, who measures only total productivity and not per-worker productivity, it looks like Jack was a zero marginal productivity worker. As the economy rebounds they’re under no pressure to rehire Jack, so unemployment stays high.
I’d be interested in any reactions to this theory, and in finding out how one would formally describe it in economic terms.
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(Cross-posted @ The 40-Year-Old Freshman)
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Here is my theory. Jack and John are both doing work as request by management. But it turns out that about 10% of the work accounts for 100% of profits, 80% results in another 10% of profits and maybe 10% results in a loss equal to 10% of profits. In other words about 90% of the work is not actually make the company money.
So the company fire John and keeps Jack. They keep doing the 10% of work that accounts for the most profit. And they also make Jack do work that actually loses the company money. But less than before. Thus the company is more profitable and the workers are more productive. If the recession were even deeper the productivity would be even greater and the company even more profitable.
You make thing this implausible but its really the way most companies and government operates.