« Not From the Onion | Main | Price controls by any other name »
Taken to the Cleaners, Again
A tariff on imports of coat hangers from China is raising dry cleaning costs. The Aplia Econ blog runs the numbers:
Advocates of trade restrictions often argue that protection will save jobs. Since we can observe price and cost increases associated with trade restrictions, we can estimate how much it costs to save each job in a protected industry. According to the NPR story, there are roughly 30,000 dry cleaners in the U.S., and on average, each pays an additional $4,000 per year due to the hanger tariff. This indicates an average annual cost of 30,000 firms x $4,000 per firm = $120 million. According to the U.S. International Trade Commission's report, U.S. employment in wire hanger manufacturing was 564 workers in 2004 and fell to 236 workers by 2006. Let's assume that employment in this sector would have fallen to zero in the absence of the tariff, and that with the tariff, employment will recover to 2004 levels. In other words, assume the tariff "saves" 564 jobs. Dividing the cost of the tariff to U.S. dry cleaners ($120 million year) by the number of jobs saved (564 jobs) indicates that each job saved costs about $212,765 per year. Keep in mind that the typical full-time worker in this sector earns about $30,000 per year. Even if we assume that industry employment doubles, the cost of the tariff is still roughly $120,000 per job.
Posted by Alex Tabarrok on May 22, 2008 at 12:29 PM in Economics | Permalink
Comments
But because we saved those 200 some jobs we avoided one of them going out, becoming a drug dealer,
murdering some poor innocent victim and the story being plastered all over CNN. Surely the gains from
this one incident justify the estimated cost of the tariff!
Posted by: Jay at May 22, 2008 1:04:14 PM
but some of these $4,000 are paid to the customs on the reduced quantity of hangers that is still imported, right? if this money is spent on tax reduction, the cost to the society per job is lower
Posted by: mic at May 22, 2008 1:19:15 PM
Simple math wins again. Forget externalities, this is just silly. This kind of stuff always reminds me of the South Park episode where the locals were mad at the "goobacks." "They tuk 'er jobs!"
I know immigration and tariffs are two separate issues, but at least in my mind there is a connection...
Posted by: Kyle at May 22, 2008 1:25:15 PM
I'm curious about how the ITC calculates the "dumping margins" on which anti-dumping duties are based. Is anyone familiar with the methods?
Posted by: Brandon at May 22, 2008 1:38:25 PM
Great story find! And Jay, you're kidding, right? ;-)
Posted by: Speedmaster at May 22, 2008 2:03:49 PM
Jay is right, though perhaps the point can be put more simply: the $400 million number is not the social cost of the tariff; it looks instead to be just a tax revenue figure, and hence a wealth transfer. The social costs is the deadweight loss caused by the tariff, which is more difficult to calculate, especially if the tax revenue is used to reduce taxes elsewhere or pay down debt. For this reason, the numerical comparison that the article makes is specious. And no, I'm not against free trade.
Posted by: Richard at May 22, 2008 2:59:56 PM
"And Jay, you're kidding, right? ;-)"
Indubitably! Although I should have used a sarcasm tag, since it is becoming increasingly prevalent for
the left and the right to make arguments based on non random samples of size N=1 and for these arguments
to be accepted as logical and rational reasoning.
Posted by: Jay at May 22, 2008 3:01:00 PM
Whoops, I meant that mic is right.
Posted by: Richard at May 22, 2008 3:13:04 PM
If a dry cleaner keeps buying Chinese, then we get mic's case: money goes to tax, ceteris paribus the national debt is reduced. This is effectively a transfer from people using dry cleaners to future tax payers.
If the dry cleaner switches to American coathangers, his loss is at most $4000, or he would have stayed with the Chinese. If wages are the only cost advantage of the Chinese, then all of that $4000 will be spend on American wages.
I might be mistaken, but I think the net loss here is roughly the value those coat-hanger-makers would have produced in another, not protected job. If (big if!) the only alternative to being a coat-hanger-maker is being unemployed, then the net effect is a transfer from drycleaning customers to the workers.
Posted by: greatzamfir at May 22, 2008 3:52:29 PM
Alex,
The math should make you suspicious. These US hanger workers aren't getting paid $120k each. Even if we assume the Chinese labor is free and we ignore shipping costs why should the cost per year per job saved be so high? How does this work?
Posted by: Randall Parker at May 22, 2008 4:28:20 PM
"The math should make you suspicious. These US hanger workers aren't getting paid $120k each."
Randall: The whole point of this exercise is to show that the U.S. consumer would be better off
without the tariff. A more efficient solution (if you think it is the gubment's job to take
care of those that lose their jobs to international competition) would be simply to trade with
China, give a $30,000 subsidy/yr to these workers to do nothing and trade with China. In such a
situation everyone would be better off than our current predicament (excluding the owners of these
domestic manufacturers our gubment is protecting).
Posted by: Jay at May 22, 2008 4:47:38 PM
Jay, that's simply not true. If 500 people earning 30k per year can make all the coat hangers that are now coming from China, then it will cost the drycleaners 500 times 30k to get those coat hangers. Not 120 million.
If it DOES cost them 120 million, then either the amount of jobs saved is much larger then 500, or the price difference between Chinese and American coat hangers has little to do with wages, which seems unlikely.
Posted by: greatzamfir at May 22, 2008 5:27:02 PM
No one has brought up the safety issues. What if Chinese coat hangers are poisonous? You scoff, but in Scary Stories to Tell in the Dark I read about a woman who died when she put on a used wedding gown, because the previous owner had toxins in her system and sweat them out into the garment.
Posted by: Bob Murphy at May 22, 2008 5:27:59 PM
"Jay, that's simply not true. If 500 people earning 30k per year can make all the coat hangers that are now coming from China, then it will cost the drycleaners 500 times 30k to get those coat hangers. Not 120 million.
If it DOES cost them 120 million, then either the amount of jobs saved is much larger then 500, or the price difference between Chinese and American coat hangers has little to do with wages, which seems unlikely."
The error here is the assumption that 500 people could produce all the hangers used in the US. However, even with the tarriff, I'm guessing the great majority of hangers are still made outside the US. Go to Target and I doubt you'll find any hangers made in America.
I agree, though, that the real cost is not tax revenues but in deadweight loss. However, tariffs are typically very bad taxes since production can be elastic from region to region. This is especially true when considering American consuming firms as well as producing firms.
Posted by: MW at May 22, 2008 5:53:42 PM
Why not charge a refundable deposit for coat hangers, sort of like for beer bottles in some jurisdictions? It could work as a kind of loyalty program to encourage repeat customers, and environmentalists will be happier.
Posted by: at May 22, 2008 9:08:39 PM
One additional point. This duty is increasing the price of the dry cleaning. There may also be some reduction in the use of those stores' services as a result. I know that I avoided buying stuff that had to be dry cleaned some years ago due to the cost rise when the chemical mix at the cleaners was changed (by legal fiat).
Fortunately, I have plenty of wire coat hangers for use in fishing stuff that drops behind the fridge, and other "off list" uses.
Posted by: Paul McMahon at May 23, 2008 9:11:24 AM
This must be an economist's blog. The "cost" per cleaned item to me must be in the order of a fraction of a cent. Wow.
Posted by: Hans Suter at May 23, 2008 12:47:26 PM
Hans:
This is a textbook example of the diffuse costs/concentrated benefits problem. We all pay an extra fifty cents a year for our dry cleaning, and one wire hanger firm makes many millions more in profit. So, yes, that IS the kind of thing that economists like to talk about. 50 cents may seem trivial, but when industry after industry exacts the same toll, well, those half dollars start adding up.
Anti-dumping laws are rank stupidity. If foreign governments want to subsidize my consumption, all I can say is, bring it on.
Posted by: bartman at May 23, 2008 1:00:36 PM
I have a degree in Economics and own a large dry cleaning plant. This duty may increase our costs by over $20,000 a year.
None of that may go to the ONE US producer of hangers who brought this issue before the Feds. I will no longer buy any US made hangers on principle as long as foreign hangers are available at close to competitive prices. We are also stepping up our already popular hanger recycling program.
From what I've seen of it, working in a hanger factory is not a very desirable job. In fact, it is the sort of job that Americans shun and illegal aliens often fill. While I'm very pro-immigration, I won't be surprised if a lot of those "120K to create" jobs are filled with illegals.
It will be interesting to see how the dry cleaners respond after seeing the prices go way up. There are 30,000 small business people that are each getting gouged for the benefit of one company. The trade publications seem to be in the bag for the hanger company because they are an industry supplier and the trade publications depend on industry suppliers for all of their revenue. I haven't heard of the largest industry association doing anything yet.
Just another example of our government stepping all over hard working small business people. It's hard to pass these costs on to customers because dry cleaning demand is very elastic and dry cleaning plants have high fixed costs- which in many markets has left low end prices barely above variable costs.
Posted by: Tom Kelly at May 24, 2008 1:20:04 AM
@Bob Murphy: my Sarcasto-meter is also a bit untuned. Bob, are you really Jay?
Posted by: wgrtqweiul at May 24, 2008 8:00:21 AM
Many people now use the Internet to do business, after receiving the business should be the best as far as possible, to allow customer satisfaction. But some Internet companies, not to start on your money to begin with, so on and then close the first half, resulting in Juankuan flee. Not only did not complete 租車the project, customers would also like to once again spend money and time to decoration. Dear Customer: This is no guarantee as the company not to find the.
Posted by: 抓漏 at Dec 3, 2008 11:04:21 PM
aion gold
aion money
cheap aion gold
cheap aion money
buy aion gold
Mabinogi online gold
Mabinogi gold
buy Mabinogi gold
cheap Mabinogi gold
Mabinogi money
2moons dil
2moons gold
buy 2moons dil
2moons dil
cheap 2moons dil
flyff gold
flyff penya
flyff money
buy flyff penya
cheap flyff penya
cheap flyff gold
Dofus kamas
buy Dofus kamas
cheap kamas
Dofus kama
Dofus gold
Dofus money
Knight online gold
Knight Gold
Knight Noah
Knight online Noah
Posted by: aion at Jul 10, 2009 9:29:23 PM
