Empty ZMP billboards in Greece

Here is a lovely photo display and sequence.  Again, nominal wages clearly are sticky in a wide variety of circumstances and in a way which matters for macroeconomics and monetary policy.  Still, it would be a significant mistake to reduce unemployment to issues of stickiness.


For the pointer I thank Marty Messer.


So how exactly is the fate of this poor billboard not due to demand? Is there something wrong with the billboard? Are billboards in Germany 'more skilled'? Did consumers in Greece suddenly develop poor eyesight making the billboard useless? ZMD---zero marginal demand---seems to be the real issue here.

Toss in a flexible price, and another blade of the scissors, and you are getting somewhere...

So a point of clarity, what exactly does ZMP mean then? It costs, say, $1,000 a month to keep a billboard in good shape. If the demand for the best possible ad that could be put on that billboard is only $800 a month, the billboard will simply become 'unemployed'. But the term ZMP worker sounds like it's a problem with the billboard rather than demand. Let's say during a period of 'full employment' the best ad that can run is worth $3000 a month. In that happy world the billboard is fully employed.

Now people obsessed with 'structural unemployment' might point out that a bunch of silly regulations might be forcing the min. cost of keeping the billboard in good shape to be higher than it need be. Some sensible reform could mean that the billboard could be maintained at only $500 a month. In that world the billboard could become employed again by charging $800 for the ad. (The analogy here might be min. wage laws, union protection laws, environmental and safety regulations etc.)

What's odd about this reasoning is:

1. It's not obvious what the problematic regulation/taxes/laws/whatnot are. There's lots of laws, lots of regulations and each industry is different. Who do you trust to identify these problems? Lobbists?

2. You aren't really solving much of the problem. A recession isn't so much unemployment as a loss of income. In the fully employed world the billboard earns income of $3000-$1000=$2000 a month. In the bleak world the billboard is either making $0 a month or in the case of 'structural reform' a mere $800-$500=$300 a month. Granted $300 is better than $0 but it's pretty paltry compared to the $2000 that 'should be' the case. Cutting unemployment by 25% by changing the laws so millions of people can get jobs for $2 an hour may lower the unemployment percentage rate but doesn't dramatically improve the economy itself. $2 an hour is still just $80 a week at a 40 hr week.

3. Very limited upside with 'structural reform' here. Even if you could drop the cost from $1000/month to $500 a month you're not going to achieve $0 a month. How good could things get if all regulations, all laws were made by ideal 'philosopher kings'? With demand, though, there's no theoretical cap on the upside. If an economy has plenty of consumers, the billboard could command $3K a month, $6K, $10K even $100K.

Of course maybe 'structural' people will say it's not just tax and regulation. It's also wise investments like better schools, ways for people to be more flexible about learning new skills etc. Maybe it's not just making it easier for an unemployed ditch diggers to work for sub-min wage but make it easy for them to goto nursing school or pre-med school so they can change careers. Sure go ahead but it's not clear to me why demand isn't easier to pull off and would work a lot faster and wouldn't stop you from implementing wise structural reforms.

I wonder this all the time about retail spaces downtown which stay empty year after year. Why don't the owners of the spaces lower the rent? They refuse to because it's a high-rent district, I'm told.

What is the average length of commercial leases? Rather longer than the one year residential lease, I'd think. So it could be rational to not want to sign away prime office space for 10 years at bottom barrel rates.

Could this be a hint to the problem of unemployment?

That's one part of it. Another is tenant improvements. This is the build-out thelandlord does for the tenant and then usually accrues into the rent.
However, even in marginal areas where one year leases have become acceptable as well as very minimal, if any, tenant improvements; the property taxes and tax consequences mitigate against going to low. I'm thinking of marginal areas in Cook County, Illinois, for example.
In Cook County, the property taxes, as a part of the economy model of commercial properties is very, very high in poorly performing areas compared to successful areas.

A lot of those billboards look like they haven't been used in 10 to 20 years. So I'm not really sure this is relevant to post 2007 events.

Good point. When I was leaving Greece earlier this year, I did notice however empty billboards on the way to the airport, which normally are full of adverts, so indeed there is this phenomena, but as you say these photos are of old decrepit billboards. Here in the Philippines, any billboard more than 1 years old looks almost white, bleached by the sun. In fact the tropical sun and rain makes any building more than 10 years old that has not been repainted (and that's most of them here) look about 100 years old.

Every time I see a mention of "ZMP something", I cannot help but feel that this basically is a fancy name for "cost > optimal price".

Look at the billboards: sure the company could find a price low enough that some firm would be willing to pay for an ad on it, but if that price is lower than the cost of maintaining the billboard, you don't bother and just leave it empty. Voilà. Basic economics. Why do we need to use some ZMP theory? I just don't get it.

My understanding goes, because then you get to claim that the problem are the regulations, like minimum wages or environmental policies or good ol' dumb bureaucratic overhead, that establish cost floors that are the problem.

Which is ideologically convenient. It's certainly appealing for these kinds of edge cases.

I find it more offensive when applied to "zero marginal workers", because instead of saying "we don't seem to know how unemployment works, lol sociology is hard" it rather harshly prefers to say large tracts of the population are useless.

Which is also ideologically convenient.

Given that labor has costs (that are non-negotiable at the low end, thanks to those "regulations" you almost seem to deny create a cost floor), it seems baffling that you can (evidently; I don't know how else to read your post) deny that there might be some labor, at least whose marginal product is non-positive...

If Joe Worker can't (legally) be employed for less than $N/hr (total compensation cost, not take-home, remember!), and his labor produces only $N worth of value, what IS his marginal product if not zero?

Why bother to even hire him? (Even more so if his labor only produces $less-than-N worth of value and his marginal productivity is negative, and you lose money for every hour he works...)

Can you explain why this Just Never Happens? It need not be the only, or the main cause of unemployment to be something that must be addressed in discussions of unemployment, rather than handwaved away as "offensive" and "ideologically convenient" - neither of which are arguments against it being so.

Or is it that it happens, but you'd prefer nobody ever mention it because it's "offensive" to point out that some labor isn't worth paying for at a given cost?

No, because I'd rather not spend time discussing policies that are almost wholly undisguised ideological arguments.

Surely *some people* must have worthless labour; but surely they must also be a vanishingly small percentage of the unemployed. I'm sure it's really fun to use this tiny edge case as an example to push your preferred policy solutions, but it occurs to me that we could spend time instead discussing actual major causes of unemployment.

Well, you can blame those things for increasing cost with the same "basic economics"; you don't need ideological convenience to point out that imposed costs affect (reduce, ceteris paribus) the usage of factors of production, do you?

The only debate is how much they do so, and whether any non-production benefits justify the production effect (reduction).

(Not sure what the difference really is between "zero marginal product" and "unused resource" though. Isn't the entire point that everything with a positive marginal product will be employed? Is "ZMP" just shorthand? I'd gotten the impression it was supposed to be adding some meaning...

By which I mean, if "ZMP" is not the same as "basic economics, where the ZMP factors are unused because unprofitable", what is it?

And if it is that, well... it's not news, is it?)

Your hypothesis is the ZMP hypothesis. From a previous ZMP post (http://marginalrevolution.com/marginalrevolution/2011/01/cowen-and-lemke-on-the-job-market.html) quoting an article in "Foreign Policy" by Tyler:

"In essence, we have seen the rise of a large class of "zero marginal product workers," to coin a term. Their productivity may not be literally zero, but it is lower than the cost of training, employing, and insuring them. That is why labor is hurting but capital is doing fine; dumping these employees is tough for the workers themselves — and arguably bad for society at large — but it simply doesn't damage profits much. It's a cold, hard reality, and one that we will have to deal with, one way or another."

What if there is a lot of zero marginal product effort at the tail end of a boom? So, once this work is dropped since it was break even or even money losing (perhaps contributing to the boom-bust) the bottom line of the company improves.

Nothing to do with unemployment or wage stickiness. Legal restrictions...


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