Jay and Claire partner up with a local design company to expand their operations. Pritchett’s closet has a lot of space to manufacture, but the design company has new ideas that are revolutionizing the closet industry. They believe this merger is mutually beneficial given each others’ strengths and weaknesses.
It turns out that the design company spends a lot of time on non-pecuniary benefits for its employees to make the company a “cool” place to work, but they lose a lot of money. Jay wants to go back to a more traditional workplace that focuses on production and not fun. The concept of efficiency wages means that firms pay above equilibrium wages in order to motivate and incentivize workers to perform better. Jay doesn’t agree with this management style, and we learn later that the design company wanted to merge because they needed more discipline in their finances.
See More: comparative advantage, compensation, costs, efficiency wages, labor, mergers, nonpecuniary benefits, production, worklife balance
Manny’s girlfriend Sherry is staying with the Pritchett’s for a while and she and Manny have taken up improv in the hopes of becoming an improv actor one day. Jay isn’t amused and feels like Manny should focus on trying to get a different job.
See more: labor, nonpecuniary benefits, preferences, skills, talent
Claire feels like she is not contributing to the family because she doesn’t have a job. She has applied to 5 jobs recently, but despite her college degree, she is rejected from all of them. Because she has been out of the labor force for so many years, her human capital has depreciated. The second important component of this scene is to consider the non-pecuniary benefits of work. Not all workers are income maximizers as some have other motivations for working in paid employment.
See more: college, education, human capital, human capital investments, human capital depreciation, job search, labor force, labor force participation, labor market, nonpecuniary benefits, skills, unemployment
Haley is interviewing for a job and it isn’t going well. The labor market is often characterized by adverse selection – there are more candidates who are not suited for a particular job than who are well suited and it’s tough to tell them apart. Screening is an action taken by an interviewer to determine whether or not a candidate will be a good fit. Signaling is action taken by the candidate in order to demonstrate that s/he is a good fit. What examples of signaling and screening are in this scene?
See more: adverse selection, interviewing, labor, product differentiation, screening, signaling, signals
Claire tried to make friends with the owner of Closets, Closets, Closets, Closets (CCCC) but Jay convinced her that the friendship was just a ruse to steal information about the business. In retaliation, Claire and Jay decide to “poach” CCCC’s most valuable employee, Lazlo. While trying to recruit him to their closet business, they learn that the friendship was genuine. But now, they really can’t trust each other and both businesses will be hurt.
See more: competition, cooperation, duopoly, game theory, labor, oligopoly, preferences, Prisoner’s dilemma, tit-for-tat strategy
Jay takes Joe out to the driving range and discovers that Joe is a natural. Joe’s natural skill is a form of human capital that gives him the potential to earn a large salary in the future. Human capital is often acquired through years of training, education and hard work. But sometimes, luck gives some people an edge over others. If Joe works hard and practices, he could follow the path of other young golfers with natural talent like Tiger Woods and Lexi Thompson. Jay wants to do all he can to make that happen.
See more: human capital, incentives, income inequality, labor, productivity, tournaments, wages, winner take all
Jay and Claire discover that Alex and Luke have started a business selling used shoes online. Jay praises Luke for taking the initiative to build a business from nothing. Claire praises Alex for making the business successful. An argument ensues that makes it clear that this is personal for Jay and Claire. Jay built a closet business but retired a few years ago and let Claire take over. Under Claire’s leadership, the company becomes even more successful and receives international acclaim. They fight over who deserves credit for the success and honors that the business currently has. The reality is that both are responsible. They both demonstrate entrepreneurialism and each played a different and equally important role in building the business. Entrepreneurs start and grow businesses. But can they admit this to each other?
See more: entrepreneurism, human capital, labor, management
There are two concepts shown in this clip that can be used based on the portion of the course. First, Haley weighs two different career options and must consider the costs of each. Haley meets a woman who is interested in searching for a new husband who will die soon so that she can take their inheritance. The woman essentially offers to hire Haley as her personal assistant, but she’ll get to do leisurely activities. Luke tries to convince Haley to stick with the golf course because it provides a better future for her. Selecting one jobs means she can’t enjoy the benefits of the other.
The second concept covers the notion of labor-leisure tradeoffs. In the standard Income Leisure Tradeoff model, consumers are given a choice of determining their distribution of time based on the available number of hours in a day. Haley considers similar options here in terms of one job, with Luke, that requires a more work, but higher income while the other job provides more leisure activities. In this section, it helps students to realize that leisure has value similar to income and decisions makers are willing to give up income in exchange for leisure.
See more: employment, income leisure tradeoff, indifference curves, labor, leisure, nonpecuniary benefits, preferences, tradeoffs, wages
Economists often suggests that competition improves efficiency in markets and Jay seems to agree. He fosters competition within his family to help them achieve their goals. At this moment in the episode, he appears that his motivation worked out and everyone has been successful, but later in the episode, we find out that there were some unintended consequences of his actions.
See more: competition, extrinsic rewards, incentives, intrinsic rewards, labor, motivation, perverse incentives, unintended consequences
Luke is baby-sitting for Gloria. She expects him to care for her son in a responsible way. When Luke posts a selfie on social media, Gloria worries that her son might be in danger. This represents the principal-agent problem. Luke is the agent and Gloria is the principal. Is he acting in her best interest? Of course not! He’s shirking. To cover up his shirking, Luke tells Gloria that he has a series of photographs of her son in dangerous situation but they’re all fake. Now, he needs a series of photoshopped pictures but doesn’t use photoshop. So, he decides to only give Manny something that he wants if he photoshops Gloria’s younger son in to dangerous situations. This represents trade through barter. Luke has a pass that Manny wants. Manny has a skill that Luke needs. They trade because they have a double coincidence of wants.
See more: barter, double coincidence of wants, exchange, labor, moral hazard, network externalities, principle agent problem, social media, trade
Phil and Jay are stuck in a dispute about which of the two job candidates to hire as their newest parking lot attendant. The two candidates have vastly different personalities, but Jay and Phil believe their preferred candidate’s personality is best for the job. Instead of considering the costs and benefits are hiring each worker, they opt to flip a coin with their two heads on it. While marginal analysis focuses on “one more” of an item, either-or-decision making typically involves weighing costs and benefits to determine which would have the highest economic profit.
See more: cost benefit analysis, decision making, either-or-decisions, labor
One of the tougher topics to get across to students is why older Americans start to leave the labor force. One explanation for the leave is that they see a decrease in their human capital and that some of their previous training is no longer relevant. This clip does a good job bringing humor to a topic that often sounds derogatory.
See more: human capital depreciation, innovation, labor, life cycle considerations, technological change, technological knowledge