Casselman on Rent-Seeking

Monday, February 08, 2016

Ben Casselman of FiveThirtyEight has written an eye-opening piece on rent-seeking, which he defines as, "gaming the [regulatory] system to make more money than you've earned." Here's a sample:

... Occupational licenses are good for existing businesses, which face less competition, and for workers who already have licenses, who according to one study earn roughly 15 percent more than they would in a free market. But they're bad for everyone else. Research has found that occupational licenses inhibit entrepreneurship, especially among low-income workers. They also raise prices, lower productivity and limit workers' ability to change careers or cities. One recent study estimated that licensing laws cost the U.S. as many as 2.85 million jobs. [links in original, bold added]
Like most commentators, Casselman appears to believe that some regulation is necessary and good. ("I want the people filling my cavities to know what they're doing.") I regard this view as mistaken, but understandable, given how far America has been from having a capitalist economy for so long: Government has taken over so many things that third-party watchdog groups -- or even better thinking and research habits among individuals -- could and should take care of that most people can't imagine government not doing those things. That common error affects some of Casselman's analysis, but his piece is worthwhile nevertheless

-- CAV


Anonymous said...

Hi Gus,

"... and fast food. Yes, fast food: The sandwich chain Jimmy John’s has had some employees sign contracts barring them from working at any other sandwich shop near its locations. "

Back when I was a computer tech, an 'investment group' from Chicago took over our store in a Mountain West metropolis.

First day in, they bring all of the employees in to sign non-compete agreements. I was making, as tech manager, $30K.

I listened to their spiel and the terms they wanted to impose; I either had to wait 5 years or move 350 miles to practice my trade.

I asked them if they were seriously going to impose non-competes on someone making $30,000 per year. (I thought THAT was absurd until I heard about Jimmy Johns who I have patronized in the past but will no longer, based on this information.)

So I told them that if they wanted, I'd sign their non-compete under two conditions; That they raise my salary to $300K immediately and guarantee me at least 3 years of employment at that rate.

They told me, "That's absurd".

I replied, "Funny, that's exactly what I was thinking about your proposal. I could walk out this door and have another job at any one of 5 computer stores by the end of the day. Any one of my techs could do the same. So what this makes me wonder is what kind of unpleasant surprise you have, from a managerial point of view, for us peons."

Every one of my techs told them the same things, with variants, some of them hilariously crude.

One wonders at the mindset that thinks that this is 'management'. But then again, I did run into, about a decade later, a middle manager in a now-defunct freight company that insisted on 'loyalty oaths' from all his employees.


c andrew

Gus Van Horn said...


I have to agree that a non-compete for a fast-food employee takes the cake. That's a sign of an employer you don't want or need.

That said, I don't regard it as rent-seeking since employees, as you show, are free to work on their own terms. It bothers me that companies actually try this below a certain pay level and that people actually sign them. These are bad cultural signs.