Free trade and free labor markets

This caught my eye:

[Arindrajit] Dube responds that “one has to be honest about not knowing what would be the impact in every place.” But he points to 2019 research by Anna Godoey and Michael Reich of the University of California at Berkeley, who found that increases in state minimums didn’t hurt employment even in low-wage counties where the new floor equaled 82% of the prevailing median wage. And even if a high minimum wage does kill some jobs—as many studies, though not Dube’s, show it would—it can still be worthwhile if it raises incomes of low-wage families overall, he says. Some experts say that as with free trade, which helps more people than it hurts, any losers could be made whole with government assistance.

Yes, free trade is an excellent analogy for labor market policy, but not for the reasons cited by Peter Coy in this Bloomberg article.

Economists typically evaluate issues from both an equity and efficiency perspective.  Many economists favor policies that maximize efficiency (making the pie as large as possible), combined with some redistribution to compensate the losers.  Thus they favor free trade, combined with a program to help workers that lose their jobs due to import competition.

Oddly, Peter Coy seems to think this analogy points in the direction of boosting the minimum wage.  Exactly the opposite is true.  If we wanted to match the standard economic approach to international trade, we’d abolish the minimum wage and replace it with some sort of subsidy for low wage workers.  Even if that were politically impossible, you would definitely not want a $15 minimum wage.  A much superior policy would be a $10 minimum wage combined with a $5/hour wage subsidy, where the subsidy phases out at the rate of 50 cents/hour for each $1/hour pay raise, ending entirely when pay reaches $20/hour. (Teenagers could be excluded from the subsidy, if they are not living independently.)

I’m not saying this would be ideal (I’d prefer no legal minimum), but it would be much more in the spirit of the “free trade plus compensating the losers” analogy that Coy uses to justify a higher minimum wage. It would be aimed at making the pie as large as possible, while compensating the less fortunate.

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Hayek, Prices, and the Super Bowl Halftime Show

“I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.”

~ FA Hayek, The Use of Knowledge in Society

 

The price system is one of the greatest, and most understood, elements of society. Prices drive market exchange. They tell us who wants what and how much of it they want it, and they give others a reason to supply it. The ways in which prices and markets guide human interaction are endless and fascinating.

Anyone who has taken Econ 101 knows – or should know – that market exchanges are based on mutual benefits. If I want a cup of coffee more than I want $2, and you want $2 more than a cup of coffee, an exchange takes place and we’re both better off.

The purchase of a coffee is an example we’re all familiar with. But an interesting feature of markets is that it’s not always clear who should pay whom.

How much is the old couch in you garage worth? Maybe you could get $50 for it. Maybe it would be taken if you left it by the curb with a “FREE” sign. Maybe you’d have to pay for two guys with a truck to come and haul it to the dump.

Which brings us to the Super Bowl halftime show.

The NFL needs a big musical artist to perform. Viewers have come to expect a big show, and many of them aren’t actually that interested in the football game. A promising up-and-comer with a niche following just won’t do. The big game needs a big star.

The performer who takes the stage at halftime is guaranteed a massive audience –more than 100 million– plus lots of media coverage. Even globally known artists like Jennifer Lopez, Shakira, and Maroon 5 have seen increased sales and streams following a Super Bowl performance, enough to put millions of dollars into their pockets.

So should the NFL pay an artist to perform? The singers and bands who are offered this opportunity typically earn hundreds of thousands for every show they do.

Or perhaps the artist values the opportunity enough that they should pay the NFL? A 30-second advertisement during the Super Bowl goes for upwards of $5 million. At that rate a 15-minute show provides exposure worth over $150 million!

In recent years the solution has been that the musical artists play for free and the NFL and its sponsors pay for the costs of producing the show – estimated to be upwards of $10 million. It’s a simple solution that avoids haggling over fees and writing checks. Some performers do turn down the opportunity, but there doesn’t seem to be a shortage of rock, pop, and rap stars for whom “nothing” is the right price.

But what if someone is leaving money on the table? If 15-minutes during one of the most-watched events of the year is really worth $150 million, then musicians and their labels should be shelling out for the opportunity.

But perhaps the rules of marketing soft drinks and cars don’t apply to music. The NFL spends tens of millions of dollars organizing the Super Bowl. Shouldn’t they be willing to pay a million-dollar performance fee to have just the right entertainment at halftime, rather than insisting on someone who will play for free? Wouldn’t the most popular artists in the world demand such a fee if they believed they could get it?

Well, it turns out that The Weeknd paid $7 million to perform at Super Bowl LV. The singer “spent almost $7 million of his own money beyond the already generous budgets to make this halftime show be what he envisioned,” his publicist told the New York Post.

Perhaps The Weeknd is just an uncompromising artist with a specific vision for what his turn on one of the world’s biggest stages should look like. But perhaps he knew that compared to the immense value of the air time he was receiving, $7 million was a relative bargain and a shrewd investment in his brand.

It will be interesting to see what happens in future years. Some candidates for next year’s show might be willing to work with the NFL for free, but the ones who really want it may have to show them the money.

 


Matt Bufton co-founded the Institute for Liberal Studies in 2006 and has served as the Executive Director since 2010.

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