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Friday, March 14, 2003

Joe Shoprat as a Commodity-I've been covering labor markets in my Micro class this week, and I picked up some insights that I don't remember covering in my Micro classes. Textbooks present labor markets as a single market, when in reality there are multiple labor markets; the market for orange-pickers doesn't have much of an effect on the market for college economics professors. One of the key difference between the markets for unskilled labor and skilled labor is that unskilled labor is essentially a commodity. When you're a small supplier of a commodity, you're generally stuck taking whatever the market price is for your product. Only by forming a cartel (translate to union in the labor market) can you negotiate price with the buyers. If you can differentiate your product, making it different (and hopefully better) that other products of your type, you can ask for a better price without having everyone laugh in your face. Skilled labor, especially college-educated labor, is more of a differentiated product; our curricula, experience, GPA, et cetera, can be used to make one person a bit different from another and be able to ask for a better salary if warranted. In addition, the computer and telecommunication revolutions have made white-collar labor much more efficient than it was years ago, increasing the demand for (and wages of) "information workers." There are some cases when you head into Dilbertland where the product isn't too differentiated, but the cubicle rat has more bargaining power than the shop rat. A lot of the wage differences in the US are due to the fact that skilled labor has become both more productive and better able to ask for a raise than unskilled labor. Better transportation has increased the competition for unskilled labor, further expanding the gap. The answer isn't to try and hold down the wages of the information workers, the answer is to give the unskilled workers skills that will make them more productive and be able to demand a higher wage.

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