Thursday, August 18, 2011

Model of production that creates unemployment even with flexible wages

From the comments, on nominal wage stickiness — Marginal Revolution

In many businesses workers below a given quality are worse than no workers at all. For example, our software developers all have between 13 and 20 years experience meaning that they all move fast with few errors. Adding anyone less good to the team would slow them down (according to them) because teaching the methodologies, tools, etc. and communicating would consume more time than offloading the work would save, especially considering the additional errors that are expected from the new guy. All of the workers productivity is multiplicatively not additively associated. It's like a Nash production function or similar to a O-Ring theory of production.

Another example is in sale. If a lead costs $100 to generate and sale is worth $100,000 in contribution margin, then a marginally better sales person is worth a lot of money and a poor sales person is worthless. Maybe better to save the money generating marginal leads.

Complementary high stakes activities lead to high wages for a few and no spot for many.

One solution to this problem is to facilitate hiring of the less employable in low complementarity low risk jobs. But even in a Hotel with a global brand the maid can damage the reputation of the hotel, so those with a criminal record are unsuitable. Maybe brands for being shoddy but cheep fulfillment of mundane tasks will arise. Think "Pretty Good Gardeners" with the slogan "When picking up most of the leaves is good enough".

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