Wages And Production (1977)

The people who live on Market Street, you're going to see what they do. The people who live on Market Street and what they're taking you through is economics a treat. So take your seat. Here comes Market Street. Here comes Market Street. Here comes Market Street. Eleanor's Furniture Company. My company. I've been making well handcrafted furniture for a long time. We're making money now. But it wasn't always that way. Last year, business got so good, I hired Julian to assist me. you know, help me out in routine things so I could pay more attention to running the business. But let me tell you, he hasn't done too well. See this? It's a Julian memo. He's kind of cute, though. Always these ambitious news schemes to improve the shop. It's getting so I hate to go out there anymore. I'm afraid of what I'm going to find. [Music] >> Magnificent. real talent. Not everyone can do black letters like these. >> A no. No, Julian. We don't do that. We can't do that. >> But Eleanor, look at that Q. Have you ever seen a better Q? >> That's not it. We can't hire another finisher. >> But Eleanor, there's a lot of work to do around here. >> Believe me, with what finishers are getting, it won't pay. Now you try to find something else to do. Huh? Okay. Okay. Most of my problems with Julian are over trying to find people to hire. Thing is, you can't hire any old person at any old price. How many people want to work is affected by the wage we pay. The first thing I told Julian about hiring was we want to pay the going wage, not more, not less. But Julian has to learn by experience and for him that means learning from mistakes. Hey gang, guess what? We're having an addition to the family. >> You mean you, Eleanor? That's terrific. >> No, our family here in the shop. We're in the market for a couple of new Sanders. >> Yeah. What you going to pay? >> I don't know. Plenty. >> So, what does he do? He offers too high a wage. Imagine this place. [Music] >> Oh, cute. Next. You mean that's it? >> Move on, please. Next. >> But I didn't even show you my sanding g. >> Oh, isn't that lovely, Ace? >> Wait till you see this. With what you've got to pay, cottage coming out of retirement. Oh, it's a sensation with a turn and a twist. I sanded like this. [Music] >> Don't I know you from somewhere? Uh Bernie's Trade School, a class of 49. >> Well, never mind. You're hired and you. >> Yay. >> Seemed they were everywhere trying to get jobs on the phone, popping out from behind cabinets. But did Julian take that as a signal? Oh no, he's stuck with that high wage and hired too. But when payday rolled around, what did we take in last month? This isn't it. Oh, Julian, what am I going to do with you? There you are. >> Oh, hi there. What's up? >> Payday, Julian. Payroll, that's what's up. Come back here, Julian. You not only hired two new Sanders, you paid them too much money. That's why everyone wants to work here. >> Oh, personality, charm. That's what we have here. >> No losses. That's what we have here. >> But I raised the prices and just passed the higher cost on to the customers. >> No, we didn't. Setting a higher price on your furniture doesn't mean all your customers are going to pay it. You can't just pass on higher costs. Look, wait until you see it. It's wonderful. >> Is it huge? >> Here. Like it. How do you explain it? It's so interesting. Does it swivel? >> Oh, does it swivel? [Music] Woo! That's a bit too much. Julian. Julian, come here. >> And what can we do for you? >> Is something wrong with my eyes or your price? >> Oh, that that is the new price. Costs are up. That's not the price I saw a couple of weeks ago. >> Oh, but look at it. Not a splitter on it. Smooth. Sanded to perfection. And that's not by accident. You know, new Sanders. Oh, they have such grace, speed. >> But the wages. Do you know what we're paying them? More than the wage Sanders are getting other places. The going wage. That's why costs are up. So, if you want to pay them too much, go ahead. I don't have to buy your furniture. I'll go to Lucky Deal. Their prices are better. >> Come on, Lou. >> Maybe I'll buy something. No one else makes chairs like these. Not at Lucky Deal. I was going to buy four for my dinette. I guess I'll just buy two. Sure, Julian tried to cover the higher wages, but we can't take on a higher cost, like paying a higher wage than our competitors and pass it on to the customers. They responded to the higher prices in a very predictable way. They bought less from us and more elsewhere. I thought that taught Julian the importance of paying the going market wage. But when I told him to hire a new carver, what do you think he did next? He went overboard and offered a lower wage. Lower than the going competitive wage for carvers. >> A little off the earlo. >> A little off the earlo. >> A little off the earlo. >> There you go. Distinctive. >> You're hired. >> Oh, Julian, do it right. Uh, 25 bucks a day. >> Only 25 bucks a day. You've got problems. >> 25 bucks a day. >> That's no wage. I could get $40 a day as a carver from other employers. I'm going to carve a place for myself someplace else. On those wages, you may get some hack, not me. You've got a lot to learn about competition. You'll have to meet the going wage. Julian has to compete with all the other people who might want my carvings. >> Don't get upset with my little sister. Working here's got to be worth it to her. >> Anyone who might hire me as a carver is competing with all the people who might want me for any of the other things I could do instead. >> I could have been a cook. >> She could have been a cook. >> I could have been a shoe shine lady. As long as I liked what you shine, baby. I could have been a waiter. >> Or if the wage were greater, >> I could have been a secretary, >> something that's more pe. >> I could have been a sculptress. I could have been a bus driver. I could have been a juggler. Anything I wanted to be and all I could be [Music] >> Everyone tries to choose what's best for themselves. Me? I tried a paper route, but I earned more as a stock boy. You Well, you gave up working at Lester Station because Elellanar offered you enough. If not, I would have stayed at Lester's. But are you worth what you paid? Are you worth it? >> It's got to be worth it. It took a lot, but Julian learned about the supply of labor. You pay the competitive going wage. Actually, it's the coming wage because it keeps us from going away. >> You offer more and you're swamped with workers. You offer less, nobody shows. But he still has more to learn about our demand for labor. The number of workers I hire is affected by what that going wage is. >> Who's there? >> It's me. >> Me? Who? >> Me? Me? And yeah, you better come quick. >> Survey this situation. >> How did you get in here? >> Oh, the sign in the window. I'm hired. >> What did you do? You put up a sign twice. I asked you not to. >> But I hired him at the market wage for finishers. Not too high and not too low. >> Julian, pay attention. I am going to show you something about our demand for labor and the number of people we want to hire at that wage. Now, before I had any finishers in the shop, I sold unfinished furniture and took in $200 a day. Then one day I decided to try selling some finished furniture and I hired one finisher. And that finisher increased the value of our product and sales to $270. $70 more than before. So I tried two finishers. At the end of the day, I had furniture sales of $330, $60 more than with just one. The $60 value added by hiring a second finisher was an increase, but less than the $70 increase when I had just one finisher. So, I hired another finisher that made three. Then I had furniture worth $380 by the end of the day. $50 more than with just two. Three finishers were worth $50 more than two. I estimate that a fourth finisher would also increase value in sales, but only by $40 a day. Every time I hire another finisher, the increase in value in sales gets smaller. Now you can see why it pays to hire only three finishers. Look, finishers wages are $45 a day. With the first one, my sales are $70 larger. I pay him his wage of 45 and that leaves 25 for other expenses. [Music] With the second finisher, sales are $60 more a day. I pay him 45 and that leaves 15 to help cover the other expenses. [Music] For a third one, the added value of the furniture is only $50. I still can pay his salary, but there's only $5 left over. All the leftovers help pay for other expenses. But if I had to hire a fourth finisher, he'd increase the value by only $40. And if I pay him $45, I'd be losing at least $5 on him. [Music] So tata tata. >> So my customers demand for my products and the market wage for employees pretty much control how many workers I demand and can profitably employ. Thank goodness. I think Julian understands. >> Hey, that's my model. Don't you know? >> Sure. Just testing. >> Now, how do you expect I can paint it with a bite in the middle? >> Just turn it around. Besides, you can always use your imagination. [Music] You're at it again. Eating. You don't like it. How anyone can grab food all day. Brussels sprouts, cheddar cheese, cherry cheesecake, caramel colored donuts. >> This is not just food. It's models for the furniture. >> Between your eating the models and my always getting the heavy stuff. >> Now, fellas, come on. A little more cooperation, huh? >> No, Julian. A lot less cooperation. I was going to leave this job at the end of the summer anyway, but I'm gone now. I'll bet you think I'm going to hire another stock boy, huh? Wrong. I'm going to ask Eleanor what to do. Eleanor, >> who's there? >> Me. >> Me? Who? Oh, come in. >> Got bad news. Lance quit just now. Now, who should I hire? >> Julian, that's good news. Now I don't have to lay off one of the stock boys. >> That's good news. laying off a stock boy. We got furniture to move out there. >> Guess what, Big Bulletin? The minimum wage just went up. So, I've got to pay stock boys more now. So, I want less of them. Now, it's cheaper to buy a machine. And I did. >> That is it. It's a a forklift. >> It's a forklift. It's a green forklift. It'll pay for itself. It'll do that, too. >> Oh, it'll do anything. >> Well, then maybe we should get another one. Yeah. >> I am buying this machine to replace a stock boy, Lance. And now with the new high wages for stock boys, it pays. This machine will substitute for some of that more costly labor. >> They don't have a machine that can replace me, do they? I mean, could they? No, they couldn't. A mechanical Julian. Depends on what your wage rate is, Julian. For each type of worker that an employer hires, the going wage is very important. If an employer pays more than the going wage, you'll be swamped with people switching from other firms. Not only that, customers won't pay enough to cover the higher wages, like when Julian tried to cover the Sanders wages by raising the price of the stools. If employers offer less than the going market wage, people will work elsewhere. The market wage must compensate people for the other things they could have done. The amount of labor demanded depends upon the value that service adds to production. The greater the number of workers, the less the value another worker adds. Like any other employer, I add employees as long as the increased value of sales covers the wage. [Music] The higher the market wage, the fewer workers we demand. We employers find substitutes for some of those more costly workers. But what a going wage is depends on demand and supply. the demand of all the employers, not just me, and the supply of people with those skills. If you're a wise employer, the help you want will depend on the wage. And that's how you gauge how many guys you'll hire and how much worth do the value of things a new worker brings. The people who live on Market Street, you got to see how they act. We're looking at eomic fact. The economics repeat what people do here. I can't sleep.