Sunday, June 22, 2014

Wisdom from the Rubber Duck

On my recent travel of the holiday road I saw many, MANY a semi truck. On the back of one was a message that struck me as interesting. It read, "I get paid for all my miles. Do you?" Obviously this is an attempt at employee recruitment--not a message of disparagement. The implication is other truckers aren't getting all they can out of their particular employment arrangement. 

But an economist looks at this differently. Looked at through the eyes of the economic way of thinking, the message seems nonsensical. Let me explain. 

Suppose you are a trucker who only gets paid for the miles driven when actually delivering goods. If you cannot find a return load, you drive back to your point of origin "unpaid". Presumably this or something similar is what the message is getting at--the trucker with the "better" arrangement gets paid for the load-free return journey. But how can this be? To wit, it would be a remarkable thing if these two trucking situations were in existence at the same time with no meaningful differences between them otherwise. What we would have is a disequilibrium. Markets abhor those. They work to rectify them, and they do so quickly. 

Maybe we are witnessing the first step in movement toward the equilibrium, but that seems very unlikely. The message on the truck was probably there for some time. Yet it shouldn't take long for the message to do its work. And the solution it causes is not likely to be every trucker goes to work for the two-way paying firm. Much more likely truckers start to demand higher wages for the one-way journey or to have some other form of compensation, OR, and this is key, the competition for two-way payments bid down that type of pay. Of course, a combination of all these is the expected outcome. 

Finding an example of two truckers that seemingly are paid differently probably just means one is taking on a different wage risk/reward tradeoff. One way or another we would expect that every trucker gets paid equivalently once the proper adjustments are made. So the answer to the truck's message is "Yes, how could it not be the case?"