Tyler Cowen coined the phrase zero marginal product workers, or ZMP, to describe the uneven impact of the 2008 financial crisis on highly-educated and less-educated workers. I think we need to consider ZMP much more broadly.
1. As I wrote at the time, the Garrett Jones worker (Jones memorably tweeted that most of us do not produce widgets but instead build organizational capital) has no measurable marginal product. You cannot compute the MRP for accountants, marketing strategists, and project managers, but corporations need them.
One of my oldest catch-phrases is “Price discrimination explains everything.” That is because most businesses have very high overhead costs relative to variable costs. This is most obviously true with Internet-based businesses. But it is also true of movie theaters (when that was a business), hospitals, air transport, and more.
2. A growing share of the work force is engaged in what we might call the ZMP sector: non-profits, government bureaucracy, health care administration, and corporate departments of political posturing–including much of HR these days.
3. The gap between the college-educated and the less-educated is arguably due to differential treatment by government programs and billionaire philanthropists. We create a well-paying job for a college-educated ZMP in the “sustainability office” of a government agency or industry trade group. Then that sustainability office destroys a less-educated worker’s high-paying job related to fossil fuels and tells the resulting ZMP to find employment installing solar panels.
We need to think about the real world of ZMP, not the imaginary world of neoclassical equilibrium.
Lapidary! This blogpost should be included as an appendix in every copy of Bryan Caplan, The Case Against Education.
> “We create a well-paying job for a college-educated ZMP in the ‘sustainability office’ of a government agency or industry trade group. Then that sustainability office destroys a less-educated worker’s high-paying job related to fossil fuels and tells the resulting ZMP to find employment installing solar panels.”
> “We need to think about the real world of ZMP, not the imaginary world of neoclassical equilibrium.”
Strongly agree. Your obit for a fossil fuels job reminds me of David Autor’s description of the persistent unemployment that has followed the loss of manufacturing jobs in many parts of the US. The jobs go away for different reasons, but I think both stories end with the same pollyannaish directive to transition to productive (or fashionable) employment.
One of my newest catch-phrases is “Price discrimination hides everything.”
The ability to seek a game theory computed maximized price for each customer destroys pricing as a signal.
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I’d also be interested in understanding just how a modern economy is supposed to transition between one set of energy technologies and another. It is obviously a big deal and requires long term planning. Why is that process a ZMP?
Was it a ZMP exercise when IT departments planned a transition from magnetic hard drives to solid state hard drives? Because they began doing so even when the price differential was enormous. Even now, the price gap is substantial. Do we think it was all political to do this? Did it destroy jobs? Yeah, I’m sure it did. Did that upset you?
I’ll bite. A team of engineers within a corporation are tasked with improving products and creating new products. I doubt the transition from magnetic to solid state hard drives “destroyed” many jobs, since the transition has been spread over some 25 years and is still ongoing. The point, though, is that these engineers are producing something. The government or corporate bureaucrat who commands technological change based on politically fashionable ideologies can cause much disruption, but produces nothing. The production is left, again, to the engineers and front-line workers. The bureaucrat also faces little or no accountability. If the mandated changes are not produced, this will be the fault of the greedy corporations. And before the dust has settled from the first mandate, the bureaucrat has already moved on to new mandates, again for which he/she bears no responsibility to effect the mandated changes.
If you have worked in IT, you would know that purchasing in most large corporations is quite top down and bureaucratic, and every bit as susceptible to group-think and fashionable trends.
The transition window from magnetic drives to SSD drives is most certainly much more narrow than the energy transition away from burning stuff. Any concern that gets burned by stranded fossil fuel assets deserves their fate. You could see this coming for decades.
GM just announced they will stop building gas cars in 14 years. I’m sure you will make the case that they are doing so for political reasons. But such movements from A to B must occur this way.
Old tech is almost always very cheap as it fades out, and new tech is always reached for based on emergent consensus that can feel very much like politically fashionable ideologies. That’s what it looks like when a society changes its collective minds about something important.
And I guess it is just as inevitable that these transitions will produce counter arguments.
Corporations transition from magnetic drives to SSDs because they think it will be cheaper (in the long run properly discounted). And that’s because in a very important sense, SSDs will be using fewer real resources. It’s a guess, and the corporation will make less money if the guess is wrong.
Corporations will transition out of gas cars because they think staying with them will lead to lower profits than the alternative. But this may have less to do with “using less real resources” and more with decisions by bureaucrats and politicians. The corporate managers may even fear that internal combustion engines will be made illegal in some places. Taleb’s The Most Intolerant Wins pops into my head.
I can’t resist complaining: “Society” is not an entity, not an organism or machine. It is an idea, like Frenchness. One of the best pieces of advice I ever got was, “Never use society as the subject of a sentence with an active verb.”
Related:
The anti-science presidency? (“don’t show your work!”)
by Tyler Cowen February 4, 2021 at 12:23 am
President Joe Biden has moved swiftly to rev up the regulatory state by weakening oversight and effectively ending a reality-based assessment of the costs and benefits of federal regulation.
It may have gone largely unnoticed amid a flurry of executive orders Biden has signed since taking office less than two weeks ago, but a January 20 memo from the White House to the “heads of executive departments and agencies” outlines a regulatory framework that will empower federal bureaucrats to count unquantifiable “benefits” when weighing the potential impact of new regulations.
Specifically, Biden instructed those officials to revamp their regulatory review processes to “promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.” The memo also states that the new regime “serves as a tool to affirmatively promote regulations.”
“ We need to think about the real world of ZMP”
Shout it from the rooftops.
Distortion from tax policy surely must account for some significant portion of this potlatch: “non-profits, government bureaucracy, health care administration, and corporate departments of political posturing–including much of HR these days.” are all tax subsidized in one way or another. This transformation to a ZMP economy might also be considered intersectionally with the death of shareholder capitalism and its replacement by managerialism.
Agreed. Is “Stakeholder” the most dangerous word in circulation right now? Could it be the linguistic bridge from the ZMP to every biz. on the NASDAQ? Is it the nose of the camel peaking into the tent? If a concept made up of such blatant mush can be wedge into corporate law, then we’ve got trouble — perhaps a crisis of capital itself.
If I were I high profile blogger like you I’d like to coin the term “Trickle Down Socialism” to describe how every effort to help the poor always seems to help the people helping the poor more than the poor. Throwing money at a problem is an underrated solution to poverty and infinitely better than throwing bureaucrats, social workers and health professionals at the problem
Advocates of the Green New Deal will claim that they will create more good jobs than ever.
However, one is justified in being a little skeptical of this claim. Note the following exchanges involving Pete Buttigeig…………
https://pjmedia.com/news-and-politics/stacey-lennox/2021/01/22/pete-buttigiegs-learn-to-code-moment-and-the-canard-of-high-paying-green-union-jobs-n1404739
You said “MRP”. Is this a typo? Perhaps you mean MR, marginal revenue. Perhaps you mean MP, marginal product.
I am a little troubled by the expression “build organizational capital” which I would associate with the institutionalization of process improvements and specialization and culture building. If an accountant applies existing processes routinely quarterly report after quarterly report, that would probably not be described as building.
MRP = Marginal Revenue Product, the amount that an additional unit contributes to revenue
Just curious: What is the marginal product of Congress?
Since quantification is hard, here’s an easier question:
Is Congress’s marginal product zero, negative or positive?
I’ve been thinking of this in terms of Keynes’ predicitof a leisure society as technology improves. Why did it happen? I have a nasty suspicion that we spent the surplus on useless busywork. Or more accurately predation. It’s profitable to hire a a lawyer or activist if they can extract wealth from others. This includes the beurocrats whose bookkeeping makes debt-printing stable.
Now that those people exist, it’s also worthwhile to hire lawyers, PR consultants etc to protect yourself from their depredations. These people are only ZMP when taken as a whole but the sum of the parts is much greater than the whole.
One nitpick: The term ‘zero marginal productivity’ in reference to labour originated with Arthur Lewis.
In particular, in regard to “excess” children on farms. They could leave for the city and the farm’s output wouldn’t go down.
“Unmeasurable” or even “undefined” is not the same as “zero”.
The gap between the college-educated and the less-educated is arguably due to differential treatment by government programs and billionaire philanthropists.
A very strong argument which should be justifying changes in the gov’t programs.
Yet there are other important individual characteristics for which “college grad” is a proxy.
As often mentioned: IQ / G / intelligence – the ability to do work without making mistakes. Grads do more thought/ decision work with fewer mistakes, including when stocking shelves with stuff. Putting stuff where it goes, getting stuff efficiently from where it is stored – “knowing” stuff that is useful for doing the job.
When a “dumb mistake” is made, it has to be corrected, usually at a greater cost than doing it right the first time. It doesn’t take many mistakes before some mistake-making worker is costing the company more than he’s contributing. A net “negative”, even at a very low wage.
Less mentioned is: work habits. Grads show up more often on time, willing and able to do the work; not drunk, nor high, nor sick. Following orders. Getting the job done, by completing tasks.
The non-grads who are smart and/or responsibly hard-working are not the ZMP problem children. Those too dumb, or with lousy work habits, those people need job help, and most private employers do NOT want to hire them.
My own gov’t partial solution is a volunteer National Service job guarantee. Arnold’s seems to have been UBI (Universal Basic Income). There are other ideas.
Insofar as grads get managerial/ bureaucratic jobs a paper shufflers, including doing reports about the reports of other report writers, that’s a different set of ZMP problems, to be reduced org by org. (And perhaps what Arnold wanted to talk about more, but it’s less socially important.)