Wednesday, August 13, 2014

Food flight

Not surprising that two French economists--Pascal Michaillat and Emmanuel Saez--would look to the restaurant industry for insight on the macroeconomy;
In the data we observe that output is positively correlated with product market tightness, which suggests that labour demand shocks mostly reflect aggregate demand shocks and not technology shocks. To explain the argument, we turn again to the world of restaurants. If the aggregate demand for meals increases, more meals will be sold, and the share of tables that are occupied will increase. Formally, output and product market tightness move in the same direction with demand shocks. In contrast, if restaurants suddenly have access to better technology – for instance microwave ovens that allow them to prepare in meals in only 15 minutes instead of the usual 30 minutes – more meals will also be sold, but the share of tables that are occupied will decrease significantly because customers will wait a shorter time in restaurant queues. Formally, output and product market tightness move in opposite direction with technology shocks. Figure 3 shows that product market tightness and output are positively correlated over the business cycle. The implication is that labour market fluctuations are mostly driven by aggregate demand shocks and not by technology shocks. In particular, product market tightness fell sharply during the Great Recession in 2009, consistent with a collapse in aggregate demand.
Here's looking at you, Scott Sumner.

1 comment:

  1. === ===
    [Pascal Michaillat and Emmanuel Saez, edited] If restaurants suddenly have access to better technology, for instance ovens that prepare meals in 15 minutes rather than the usual 30, then more meals will be sold, but the share of tables that are occupied will decrease significantly because customers will wait a shorter time in restaurant queues.
    === ===

    They are entirely wrong. They can't know how table occupancy will change.

    Cutting service time does tend to free up tables and may also put off customers who may want a lazy lunch with drinks.

    But, waiting time is a cost for many prospective customers. Shorter waits may attract more customers who want fast service. These "economists" cannot know from first principles what will happen to the restaurant seating. Faster service may result in seating to capacity and even a 5 minute wait in line.

    Technology makes products cheaper in time or money. Dollar sales of cheaper products ususally increase. These economists are anti-technology in their basic thinking. They are making up convenient "examples" as they go along.

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