Knights Apparel Offers a Test of Both the Efficiency Wage Hypothesis and the CSR Price Premium Hypothesis: Can "Nice" Capitalist Firms Prosper?
Do you remember the good old days in the 1980s when leading labor economists were debating whether wage premiums represented efficiency wages or compensating differentials for unobserved skills? Here is a good example. I had more hair back then and now it appears that we have returned to the past.
An innovative entrepreneur named Joseph Bozich, C.E.O. of Knights Apparel will be offering us a "natural experiment" that may shed some light on those boring fights that nudged me to quit labor economics. As discussed here , he will soon be hugely "over paying" workers in the Dominican Republic to make clothes for him that he will try to sell in the USA to college kids.
What is his business model? How does he really expect to make $ here?
1. Is there large exogenous differences in Dominican worker productivity and he wants to self-select the best workers by offering a huge wage premium? How will workers apply for this job? Given that supply of applicants will exceed his demand (since he is offering a very high wage), how will he choose who to hire?
2. Does he expect that U.S college kids will pay a huge price markup for t-shirts and stuff when he spreads his Corporate Social Responsibility (CSR) philosophy and asks the U.S kids to "do the right thing" and pay extra for a t-shirt that they could buy at a cheaper price from another firm.
3. Does he expect a handout from the Obama Administration as Larry Summers reads the piece in the Newspaper and directs some Federal Stimulus $ to be used to subsidize the imports of Joseph Bozich's shirts? It appears that many "double-bottom line" firms expect government incentives, is Mr. Bozich an exception?
4. Is this really a loss leader and he intends to run for U.S Senate as the "Nice Guy"?
5. Does he believe in efficiency wage theory such that his high wages will earn him worker loyalty and hard effort that will raise his firm's productivity sky high?
6. My wife believes that this is an industrial organization story. She believes that at the University Book Stores that there is a procurement agent who choses one seller to provide all of UCLA's t-shirts. Similar to a monopolist, this "monopsonist" will be more likely to pick Bozich's firm to provide the t-shirts because the Book Store Boss is eager to pursue "social justice" goals. So, this raises the issue of how non-profit universities choose who to run the University wide store and what goals are they trying to achieve. Is there a principal/agent issue there?
http://en.wikipedia.org/wiki/Monopsony
An innovative entrepreneur named Joseph Bozich, C.E.O. of Knights Apparel will be offering us a "natural experiment" that may shed some light on those boring fights that nudged me to quit labor economics. As discussed here , he will soon be hugely "over paying" workers in the Dominican Republic to make clothes for him that he will try to sell in the USA to college kids.
What is his business model? How does he really expect to make $ here?
1. Is there large exogenous differences in Dominican worker productivity and he wants to self-select the best workers by offering a huge wage premium? How will workers apply for this job? Given that supply of applicants will exceed his demand (since he is offering a very high wage), how will he choose who to hire?
2. Does he expect that U.S college kids will pay a huge price markup for t-shirts and stuff when he spreads his Corporate Social Responsibility (CSR) philosophy and asks the U.S kids to "do the right thing" and pay extra for a t-shirt that they could buy at a cheaper price from another firm.
3. Does he expect a handout from the Obama Administration as Larry Summers reads the piece in the Newspaper and directs some Federal Stimulus $ to be used to subsidize the imports of Joseph Bozich's shirts? It appears that many "double-bottom line" firms expect government incentives, is Mr. Bozich an exception?
4. Is this really a loss leader and he intends to run for U.S Senate as the "Nice Guy"?
5. Does he believe in efficiency wage theory such that his high wages will earn him worker loyalty and hard effort that will raise his firm's productivity sky high?
6. My wife believes that this is an industrial organization story. She believes that at the University Book Stores that there is a procurement agent who choses one seller to provide all of UCLA's t-shirts. Similar to a monopolist, this "monopsonist" will be more likely to pick Bozich's firm to provide the t-shirts because the Book Store Boss is eager to pursue "social justice" goals. So, this raises the issue of how non-profit universities choose who to run the University wide store and what goals are they trying to achieve. Is there a principal/agent issue there?
http://en.wikipedia.org/wiki/Monopsony
posted by Matthew Kahn at 5:09 PM
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