BrettRants

Specialization

Works for Some
Sucks for the Rest

It seems to be a cornerstone of Economic Theory that specialization is a good thing and that both sides in a specialization arrangement benefit even if one is paid at a higher rate than the other.  This notion is usually supported by some simple algebra equation:
And this turn of events is great for Paul; and in fact, the math holds in every instance where these two little facts hold true:
But suppose we change things around a little to fit the real world.  Suppose we have a regular wage earner, making somewhere along the lines of $25/hr, which many would consider a good, high paying job.  And this relatively well off individual wants the services of a plumber, which let's assume they can get for the rate of $85/hr.  Well, if they are just as skilled at sink repair as Paul the Proffessional, they would be better off doing it themselves.  After two hours, they would have a fixed sink and been paid at overtime rates, to boot.  That is to say, fixing their own sink would have been the highest paying thing they'd done all week.  And in most instances, for most things, this is the case... except where specialized equipment, training, or licensing is involved.

Most jobs go faster with the right equipment.  One could spend an entire summer excavating a hole for a pool or rent a bulldozer and you can do it in a day.  Of course, I've never driven a bulldozer.  And I'm sure there's a learning curve involved... along with the danger of knocking over the birdbath, flattening a fence, or punching a hole through the back porch.  Which is another way of saying, training is important.  So important, that often special licensing is involved.

And in these three ideas, I believe, we will find the real reason most folks outsource labor.  If they can do it themselves (iron clothes, do the laundry, wash dishes, clean the bathroom), most folks find it cheaper and more cost effective to do these things themselves.  And in fact, I'm willing to wager, the average consumer of this sort of domestic service is someone who gets paid so much more than the service provider that the classic formula for specialization holds:
But Marla is only ever going to hire Paul (or anyone in his wage bracket) when she absolutely has to, when she has no other choice, when she couldn't possibly get the job done otherwise.  Or in other words, according to classical Economic Theory, Marla is only ever going to hire Paul when:
And I think you will find the most pricing abuse comes with the later category, wherein Marla is forceed for her own 'protection' and 'good' to pay someone a wage rate far above and beyond her own if she wishes to consume certain goods and services (i.e. those of a Certified Professional).

And actually, I believe this last so much, that I'm willing to reformulate my initial suggestion and propose that the Economic Theory of Specialization breaks down the most severely when governmental regulations are involved.  That is to say, when there is No Way to get the job done other than hiring a Certified Professional, you can bet that the classic formula of:
That is will make sense for:
But Marla will be better off avoiding the services of either for as long as she can, which of course, won't be very, because as we all know, neither Dan nor Larry's houses are going to clean themselves and poor Marla, well, it won't be long before she's talking to lawyer about getting someone to pay her massive doctor bills for that repetitive stress disorder she's gotten from working extra hours to get her sink repaired.  If you ask me, she should have done it herself...


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copyright 2014 Brett Paufler
reach me at Brett@Paufler.net

So, um, yeah.
Level Playing Field: not happening while a government is dominated by special interests.
Fair Trade: ditto.