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Is this "Baumol's Cost Disease"? Productivity goes up at Amazon, wages go up at Amazon, wages go up elsewhere so they can attract workers, and prices for consum

Is this "Baumol's Cost Disease"? Productivity goes up at Amazon, wages go up at Amazon, wages go up elsewhere so they can attract workers, and prices for consumers go up. Good marketing, but a bad outcome once you've read Bastiat -- jobs and wages are a cost.

lotsofpulp 5y ago
> Productivity goes up at Amazon, wages go up at Amazon, Productivity going up does not cause wages to go up. Lower supply of labor relative to demand or higher demand relative to supply causes wages to go up.
- repsilat 5y ago
  I don't think Amazon's decision to raise wages was pure microeconomic pressure. Single market participants don't need to get their policies out of a textbook, and textbook responses don't get as much news coverage. High productivity leads to better margins. Better margins allow Amazon to raise wages. Raising wages helped them hire in a competitive marketplace, sure, but it was also a political act. Amazon has been accused of mistreating workers, and paying them above the going rate defuses that accusation.
  - lotsofpulp 5y ago
    There may be a political aspect to it, but supply for warehouse type labor has been shrinking and demand was increasing for a decade, so they probably saw the writing on the wall and decided to kill 2 birds with one stone. But I do not think Amazon can afford to stay competitive with Target and Walmart and Home Depot and spend a material amount more on labor costs too. At least not without subsidizing the retail operations with margins from other areas of the business.
    - bombcar 5y ago
      I think it goes the other way - Target and Home Depot are beginning to leverage the fact that hey have warehouses across the country (their stores) - AND they provide quality control that Amazon seems unwilling to do. Which will be what sinks Amazon- becoming an fancy US storefront for Alibaba.
      - lotsofpulp 5y ago
        I agree Target and Home Depot are preferable since they do quality control and have in person warehouses everywhere. But they’re all competing for the same labor, hence the rising wages. But I do not think one can pay much extra than the others and stay competitive on the pricing for the same goods.
        bombcar 5y ago
        The existing retailers have a chance of reducing costs by utilizing more out of city warehousing; whereas Amazon’s costs really have nowhere to go but up.
pydry 5y ago
It's interesting that Baumol uses "disease" to describe a rising tide lifting all boats. Is that correct or did I misinterpret the phenomena he was trying to describe?
- repsilat 5y ago
  I think that "rising tide" usually refers to everyone getting more food and bigger televisions, and it even being good for farmers and factory workers. In this case, though, haircuts get comparatively more expensive. Good for the hairdresser, and fine if your wages go up to match. Characterising it as a "rising tide" might be fair (both in terms of cost and in terms of standard of living), but it's not the "usual" tide of pro-market rhetoric.
  - pydry 5y ago
    >In this case, though, haircuts get comparatively more expensive. Good for the hairdresser, and fine if your wages go up to match. Which they will, right? That's the whole idea.
- tomjen3 5y ago
  Disease is not a very good description, but basically what happens is that somebody does some work, say child care, which does not scale. They are paid x dollars for this service. Then the job market changes and they can go and get a better job somewhere else, so you now have to pay them x+y dollars for child care. Child care has not become more productive, the cost of living has not changed, but your child care is now more expensive. You could call that a rising boat that lifts all boats, but if you need child care it doesn't.
- missedthecue 5y ago
  Because certain things are getting more expensive, but not more valuable. A haircut in the bay area is much more expensive than one in Austin or Orlando or Philadelphia, but it's the same haircut. Other things have gotten more expensive but more valuable. For example a car today is more expensive than a car in 1960, but it's got ton more comfort and safety features.
everybodyknows 5y ago
This assumes an elastic supply of labor. Higher wages in warehouse work will draw more marginally-employable laborers into the general market, and off of public assistance.
imtringued 5y ago
>Good marketing, but a bad outcome once you've read Bastiat -- jobs and wages are a cost. Wrong. You can't expect to increase the minimum standard of living without also increasing the minimum wage you have to pay to attract talent. The fact that companies have gotten away with lowering wages thanks to their monopsony power was a mistake to begin with. If you really want to lower the cost of production you also have to lower the cost of living.

lotsofpulp 5y ago

> Productivity goes up at Amazon, wages go up at Amazon, Productivity going up does not cause wages to go up. Lower supply of labor relative to demand or higher demand relative to supply causes wages to go up.

repsilat 5y ago
I don't think Amazon's decision to raise wages was pure microeconomic pressure. Single market participants don't need to get their policies out of a textbook, and textbook responses don't get as much news coverage. High productivity leads to better margins. Better margins allow Amazon to raise wages. Raising wages helped them hire in a competitive marketplace, sure, but it was also a political act. Amazon has been accused of mistreating workers, and paying them above the going rate defuses that accusation.
- lotsofpulp 5y ago
  There may be a political aspect to it, but supply for warehouse type labor has been shrinking and demand was increasing for a decade, so they probably saw the writing on the wall and decided to kill 2 birds with one stone. But I do not think Amazon can afford to stay competitive with Target and Walmart and Home Depot and spend a material amount more on labor costs too. At least not without subsidizing the retail operations with margins from other areas of the business.
  - bombcar 5y ago
    I think it goes the other way - Target and Home Depot are beginning to leverage the fact that hey have warehouses across the country (their stores) - AND they provide quality control that Amazon seems unwilling to do. Which will be what sinks Amazon- becoming an fancy US storefront for Alibaba.
    - lotsofpulp 5y ago
      I agree Target and Home Depot are preferable since they do quality control and have in person warehouses everywhere. But they’re all competing for the same labor, hence the rising wages. But I do not think one can pay much extra than the others and stay competitive on the pricing for the same goods.
      - bombcar 5y ago
        The existing retailers have a chance of reducing costs by utilizing more out of city warehousing; whereas Amazon’s costs really have nowhere to go but up.

pydry 5y ago

It's interesting that Baumol uses "disease" to describe a rising tide lifting all boats. Is that correct or did I misinterpret the phenomena he was trying to describe?

repsilat 5y ago
I think that "rising tide" usually refers to everyone getting more food and bigger televisions, and it even being good for farmers and factory workers. In this case, though, haircuts get comparatively more expensive. Good for the hairdresser, and fine if your wages go up to match. Characterising it as a "rising tide" might be fair (both in terms of cost and in terms of standard of living), but it's not the "usual" tide of pro-market rhetoric.
- pydry 5y ago
  >In this case, though, haircuts get comparatively more expensive. Good for the hairdresser, and fine if your wages go up to match. Which they will, right? That's the whole idea.
tomjen3 5y ago
Disease is not a very good description, but basically what happens is that somebody does some work, say child care, which does not scale. They are paid x dollars for this service. Then the job market changes and they can go and get a better job somewhere else, so you now have to pay them x+y dollars for child care. Child care has not become more productive, the cost of living has not changed, but your child care is now more expensive. You could call that a rising boat that lifts all boats, but if you need child care it doesn't.
missedthecue 5y ago
Because certain things are getting more expensive, but not more valuable. A haircut in the bay area is much more expensive than one in Austin or Orlando or Philadelphia, but it's the same haircut. Other things have gotten more expensive but more valuable. For example a car today is more expensive than a car in 1960, but it's got ton more comfort and safety features.

everybodyknows 5y ago

This assumes an elastic supply of labor. Higher wages in warehouse work will draw more marginally-employable laborers into the general market, and off of public assistance.

imtringued 5y ago

>Good marketing, but a bad outcome once you've read Bastiat -- jobs and wages are a cost. Wrong. You can't expect to increase the minimum standard of living without also increasing the minimum wage you have to pay to attract talent. The fact that companies have gotten away with lowering wages thanks to their monopsony power was a mistake to begin with. If you really want to lower the cost of production you also have to lower the cost of living.