Originally posted by no1marauderWhat actually constitutes the product market here? Who are the other 60% (or 20%?) of producers? For example, is the market for mass-produced beef the same as for organically-produced beef? If not—and if organic producers are included in the statistics—the concentration ratio for mass-produced beef may be higher yet.
Oligopoly is a market structure characterized by a small number of relatively large firms that dominate an industry. The market can be dominated by as few as two firms or as many as twenty, and still be considered oligopoly.
http://www.amosweb.com/cgi-bin/awb_nav.pl?s=awb
Our resident Economics Expert, Telerion, was claiming in ano ...[text shortened]... price deflation (the Consumer Price Index has been rising virtually every year since 1941)?
One of the implications of my long post to telerion is that it might not be reasonable to aggregate such statistics across industries, rather than looking at each industry separately [well, my point had to do with production functions, but...]. Let’s suppose the following—
(1) The income redistribution effects quoted by Tel (from lower-skilled/lower-income workers to higher-skilled/higher income workers).
(2) That a greater portion of lower-income households’ budgets are necessarily allocated to food (in this case, meat, the principal source of protein in our culture anyway).*
—That the price-elasticity of demand for such food items is less for lower-income households than for higher income households?
(3) That, absent the already existing immigrant workers, a 10% influx of immigrant labor might have a larger negative impact on “native” low-skilled workers. [This is not a necessary assumption; really just a side note.]
(4) That the (downward) price effect of lower wages is not sufficient to prevent depression of real wages for such low-skilled workers (which would seem to be the case, given the aforementioned income-redistribution effect).
Now, does it make any difference if we are talking about a product market for food or a product market for, say, toys? Does it matter if higher-skilled worker can buy cheaper toys for their children (as well as food), while lower-skilled workers find it more difficult to buy food? Does it matter if that results in a net positive gain for consumers in aggregate?** I think so—that is, I think that the market for food is not simply just another market. [Just as I think there are limits to treating “labor”—which is people—as a simple input (factor of production) in the production process, like forklifts and shovels.]
The question becomes—from a socio-political (and ethical) point of view [see my note on normative judgments re economic issues]—what kind of income distribution, wages, working conditions, etc. do we want to see in our society? So-called “positive” economics cannot answer these question—it may analyze the economic effects of various income distributions (though these are usually, or were usually, taken as given). They are normative judgments—as is the judgment of whether an increase in my real income (or even the real income of the majority of consumers) justifies certain economic conditions. As soon as any economist says “We should (or should not) do such and such because of the consequences for economic efficiency”, s/he has made a normative judgment. To simply say that there are more or less efficient ways to go about something is in the realm of “positive” economics.
I recall a case for a midwest town where a firm hired immigrant workers en masse (sending out employment “scouts” and providing initial bus transportation—apparently such transaction costs were offset by the lower wages they could pay). The influx devastated the social infrastructure of the town: schools, hospitals, ambulance, fire protection, sewer, water, etc. I’m sure, however, that there were those who didn’t depend as much on such infrastructure who benefited from the higher employment; people who lived elsewhere, and who enjoyed lower product prices also benefited. But there were definite redistribution effects locally.
My comments to telerion go to foundational issues in microeconomics—and the micro foundations for macroeconomics. Questions such as the ability to measure the relation between factor prices (e.g., wages) and the value of factor output, and the ability to aggregate across industries in empirical analysis, are not noncontroversial—although, as the article I cited points out (I found that while attempting to update my memory on the Cambridge Capital Controversy), some, especially among U.S. economists, simply ignore it.
Now, your example of concentration ratios is relevant to the question of aggregating across markets—I find it hard to believe that such a concentration ratio would not give meat producers (at least the mass producers) some price power (just as brand-name and conspicuous consumption give Nike price power: i.e., reducing the elasticity of demand for their products). [I know a local steakhouse where they brag that all their beef is produced by a particular large meat producer—I commented that that wasn’t something that I’d brag about. That was the last time I was there, haven’t been back. I know something about how that company acquires and processes their meat, and how they treat their workers—I really don’t want to buy my meat from a company whose workers have to void their bladders on the processing-line because of minimal facilities and refusal of permission to go to the bathroom.]
Other industries that use large numbers of immigrant workers may not have such price power. Does it make sense to aggregate them and say, “Well, the product markets in question are on average competitive”? I’m not at all convinced that it is.
So, for me, there are really two sets of questions here: one set goes to foundational (“positive” ) economics; the other goes to (normative) social questions. I really think that telerion would agree on the social questions; on the other hand, I think that he may have the (quite common) professional tendency to press economic efficiency in such a way that it can seem as if he intends it to “trump” other normative considerations—I doubt that is his intention, however.
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* However, another immigrant-rich industry, fruit and vegetable picking/processing, would also apply.
** Can the worker separate his/her interests as worker from his/her interests as consumer? When one talks in terms (explicitly or implicitly) of “worker versus consumer”, one is really talking about this worker/consumer versus thatworker/consumer (or owner/consumer).
The question of food versus toys also goes to the question of the so-called “representative consumer”. If one graphs the indifference curves/income constraints of various consumers, one should not be surprised if lower-income consumers show a relative preference for food (though there may be Veblenian “conspicuous consumption” effects at lower incomes as well; and lower-income people, too, want toys for their kids and goods/services to enjoy leisure time).
Originally posted by no1marauderUSDA: If there are scale economies, then increasing meatpacker concentration may lead to lower meat prices for consumers."
USDA: If there are scale economies, then increasing meatpacker concentration may lead to lower meat prices for consumers."
They could, but that is unlikely with four firms dominating the market (ask Tel why). In fact since that article was written in 2000, the price of ground chuck has soared from a $1.90 a lb to $2.82 a lb, a 48% increase. http://data.bls.gov/cgi-bin/surveymost
This is correct—ceteris paribus! Which means, what other (e.g., exogenous) factors might nevertheless lead to actual price increases?
Again, it is my view—which telerion and Palynka may correct—that is absolutely relevant to look at specific industries (such as meatpacking), rather than aggregating across diverse industries. Surely someone has done some industrial organization studies on meatpacking recently? [I’ve been up all night; I’ll look later when I get a chance.]
Meatpacking seems to me to be (forgive the pun) a prime industry, given that meat is a prime source of protein in our culture (one might also look at the bean and soybean industry, and dairy and egg products as well). As I recall, Keynes talked about “wages-goods”—that is goods for which the producers (workers) were also prime consumers. That’s all I recall, and I no longer own a copy of his General Theory. An archetypal example (also controversial) might be the Irish potato famine: they couldn’t sell their potatoes at a sufficient price buy other food, and they couldn’t eat the potatoes that were contracted for sale (as I recall).
Look, as I noted to telerion and Palynka, I’m reaching way back here—and everything I say ought to be taken as a question (to paraphrase Niels Bohr).
Originally posted by vistesdIs it your sense that neoclassical approaches to labor economics are also nearly dead and buried in the U.S.?
[b]Vistesd, I don't want to break your stride here, but typical neoclassical approaches to labour markets are nearly all dead and buried... This is a quick simplistic explanation, but I just wanted to illustrate that labour economics has changed dramatically in the last decade and a half.
You are absolutely welcome to break my stride! 🙂 I am happy ...[text shortened]... son’s 10th edition, which i cut my teeth on as an undergrad, and kept for sentimental reasons).[/b]
I think telerion is better apt to answer that one. I haven't seen a presentation on labour economics theory that wasn't based on search models, so I think that my answer would be a definite "yes".
Neoclassical labour markets are still as a feature of models that attempt to explain other things (for example, growth or monetary policy) as sometimes the added complexity doesn't really serve the purpose of the paper. But even there, we can now see a growing trend of trying to integrate search models in them in an attempt to make them as realistic as possible.
In relatively aware of the recent literature on this, but it's not my field. I'm mostly working on monetary issues these days, focusing on monetary unions.
Regarding the measurement of capital, I think that Griliches work is still one of the most important references. Not only he addressed issues as the different types of capital, but also the problem of measuring quality. If you are really feeling brave, Caselli's entry on the handbook of economic growth is also reasonably readable and addresses the issue of the composition (or distribution of types) of capital (physical and human) being dramatically different across countries and the best way to account for this.
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Originally posted by PalynkaBut even there, we can now see a growing trend of trying to integrate search models in them in an attempt to make them as realistic as possible.
[b]Is it your sense that neoclassical approaches to labor economics are also nearly dead and buried in the U.S.?
I think telerion is better apt to answer that one. I haven't seen a presentation on labour economics theory that wasn't based on search models, so I think that my answer would be a definite "yes".
Neoclassical labour markets are still as man) being dramatically different across countries and the best way to account for this.[/b]
Okay, I see how out of date I am. This is the kind of thing that was being argued for when I was a grad student. (As I say, my schooling was almost entirely neoclassical, though my thesis advisor was more of an institutionalist, and that was my tendency.)
Thanks for the references, which I will pursue. How brave is brave? I often jump in at the deep end, and then paddle backwards, without embarrassment, as much as I need to. My maths are really all gone, though (I used to have dreams in differential calculus—and now I’m not sure that I could pick it up again on my own with a basic textbook, if I really wanted to. Same for statistics. Sad. That really is embarrassing!).
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Originally posted by vistesdPerhaps I wasn't clear. In many ways these models are all still neoclassical in their utility maximization approach. They're just different from the traditional neoclassical model where "unemployment" was mostly a decision not to work. In the search models, you can explain the existence of vacant jobs AND job-seekers at the same time due to this need to match both sides of the market. Orthodox economists are still sort of seen as more of philosophers than real economists. (I'm very skeptic of most of it myself, to be honest)
[b]But even there, we can now see a growing trend of trying to integrate search models in them in an attempt to make them as realistic as possible.
Okay, I see how out of date I am. This is the kind of thing that was being argued for when I was a grad student. (As I say, my schooling was almost entirely neoclassical, though my thesis advisor was mo ...[text shortened]... xtbook, if I really wanted to. Same for statistics. Sad. That really is embarrassing!).[/b]
There is some modelling in Caselli's chapter, but it's fairly simple for today's standards as it's mostly there for illustration purposes. I think you'll do fine with the maths.
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It seems we have some interest in the subject after all, and I'm glad to see Palynka and vistesd have joined. I think the quality of the discussion will be much improved from the last thread.
I do not have time today to give a well-constructed contribution, but I would like to take just a moment to clarify the subject of the discussion.
While I do not think that no1 fairly characterized my position in the OP, it is true that the degree of monopoly power was an important topic in our discussion of immigration. Specifically, is it reasonable to believe that reduced costs of production due to cheaper labor inputs have a negative effect on market prices within a given industry? It is important to keep this context in mind. For the purpose of determining the wage effect on prices, it is not as important to point out the number of firms in an industry or market share of the largest firms as it is to investigate how much firms act like they're in a competitive market. Monopolies* may or may not exercise their market power. The number of firms or their share of the market is not a hard and fast determinant of this behavior. Instead one must do a more careful analysis of the data in the industry to infer the degree to which market power is exercised.
I will look through the literature for papers studying this question for markets that are known for having a high concentration of immigrant labor. An earlier brief search through the literature, turned up papers on the meat-packing industry and so I referred to them. I will try to find others for different industries. I generally use JSTOR, EconLit, and ScienceDirect to find papers. Because of copyright issues, I may not always be able to provide URL links to .pdf's. Whenever possible I will link to a working paper version on the author's webpage.
Finally, let me follow Palynka's example by admitting upfront that I am neither a labor economist nor an industrial organizational economist. My principle area of research is macroeconomics. My current work focuses heavily on political economy, and I try to keep up on computational economics as computational methods are crucial for my studies. Because I spend most of my time thinking about the macroeconomy, I tend to overlook industry specific details. As Palynka wrote, this is because for the "big picture" the characteristics of one industry often have little effect on the qualitative results of research. In this case however I think the details may be important. I will do the best within my capacity to bring my training to bear. In some cases, however, I may not be well-versed in methods used in particular IO/labor papers nor well-aware of the current popular position in that literature. Several of my peers work in IO and labor however and if their office door is open I will ask them questions about methods common to their field and get direction to other papers.
I look forward to an engaging discussion. I find that one of the best ways for me to become better informed about economic topics outside my main concentration is to talk to both economists and non-economists. It forces me to stay on my toes and track down current answers to interesting questions.
* - In many cases I use the word "monopoly" to refer both to a true monopoly (single firm with price setting power) and oligopoly (multiple firms with price setting power) as just monopoly. In cases, where I wish to distinguish between these two cases, I will attempt to make it clear through context.
Originally posted by PalynkaWell, I haven’t been very precise myself—bear with me man! I’ve spent that last 3-4 years on the Spirituality Forum! All models have to simplify—how one simplifies has to relate to the question one is asking.
Perhaps I wasn't clear. In many ways these models are all still neoclassical in their utility maximization approach. They're just different from the traditional neoclassical model where "unemployment" was mostly a decision not to work. In the search models, you can explain the existence of vacant jobs AND job-seekers at the same time due to this need to matc ...[text shortened]... as it's mostly there for illustration purposes. I think you'll do fine with the maths.
I really don’t have a problem with utility maximization per se (maybe I should); I do think—again depending on the question one is asking—that it ought to be considered as part of the supply side in labor markets: workers negotiate non-pecuniary working conditions; non-union workers seek to organize (in part) because they don’t want to have to pee their pants while cutting my sirloin; etc.
I suppose that Marxian economics has not been stagnant either; though I never really learned much of it.
I just pulled an all-nighter, and so have to get some sleep. Thanks for your comments, my friend.
Originally posted by telerionI have a vested (even a vistesd) interest in going slow. Will catch as catch can with you and Palynka. I actually feel more ignorant having once known some stuff, and now knowing that I don’t know it anymore (besides the 25 years of advancement) that I think I would if I just never knew anything at all. I recently had to turn down an attractive offer to participate in a seminar (other area of knowledge) because, after having retired from the field 7 years ago, I considered myself no longer competent to contribute. On here, I’ll take the risk (as I said, just for fun).
It seems we have some interest in the subject after all, and I'm glad to see Palynka and vistesd have joined. I think the quality of the discussion will be much improved from the last thread.
I do not have time today to give a well-constructed contribution, but I would like to take just a moment to clarify the subject of the discussion.
While I do ...[text shortened]... o distinguish between these two cases, I will attempt to make it clear through context.