Different River

”You can never step in the same river twice.” –Heraclitus

November 29, 2005

Workers Price-Gouging Employers in New Orleans

Filed under: — Different River @ 7:54 pm

Dave Gallagher reports on the Ludwig von Mises blog on an article (no longer online) that appeared in the Arizona Republic:

BATON ROUGE, La. – Burger King is offering a $6,000 signing bonus to anyone who agrees to work for a year at one of its New Orleans outlets. Rally’s, a local restaurant chain, has nearly doubled its pay for new employees to $10 an hour…

On any given day, contractors and business owners pass out flyers in downtown New Orleans promising $17 to $20 an hour, plus benefits, for people willing to swing a sledgehammer or cart away stinking debris from homes and businesses devastated by Hurricane Katrina …

“I’d say I’m paying two to three times as much as I would in normal circumstances,” said Iggie Perrin, the president of Southern Electronics, a supplier in New Orleans, who has offered as much as $30 an hour when seeking salvage workers on Canal Street…

“This region is going to be going through a huge boom for the next three to five years rebuilding the coast,” Bollinger said. “That’s very good news for those who want work and really worrisome news for employers who have to compete with everyone else for labor.”…

For Bollinger, welders are just one of his labor headaches. His company pays welders $16 to $17 an hour. “When Sheetrock layers start paying $25 an hour,” he said, “I’m either going to match it or I’m out of luck….”

The right way to think about this is: When everyone evacuates and a substantial percentage of houses are damaged too much to be lived in, the labor supply decreases because people aren’t there, and the labor demand (for construction jobs at least) increase because there’s so much to rebuild. Both of these push the price of labor up, so employers have to pay more.

The wrong way to look at this: The employees are “price gouging” — taking advantage of the disaster to raise prices, even though their costs of working (the amount of time and muscle power they have to use) has stayed the same.

When gas stations do this, it’s illegal and the gas station owner is arrested — even if in that particular case his costs actually did go up. But when workers do it, everyone celebrates.

Why is it that employers have to pay these higher wages, but get arrested if they raise prices?

One Response to “Workers Price-Gouging Employers in New Orleans”

  1. Jacob Williams’ Blog Says:

    Wage Gouging
    Different River has an insightful analysis of the labor shortage in New Orleans:
    The right way to think about this is: When everyone evacuates and a substantial percentage of houses are damaged too much to be lived in, the labor supply decreases beca…

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