Tuesday, September 24, 2013
This blog post cost $0
Author: Guan Yang
Based on data collected by Ritchie King, Ben Walsh tries to calculate the opportunity cost of the cronut and iPhone lines. Ben estimates the amount of time spent in the line, converts a $80,326 median/average (huh? go read the original article!) income in the area to $40.16 an hour, and performs some multiplication. He arrives at an opportunity cost of $95.37 for the cronut line and $359.65 for the iPhone 5s line.
The first problem with this calculation is that most people don’t have a marginal wage: they won’t be paid any more if they work an extra hour between 5am and 9am. Or maybe they do—perhaps through the mechanism of facetime with the boss leading to raises in the future—but the marginal cost of taking a very early morning off once a year is not very high even for that group of workers.
Some of the people waiting in the cronut or iPhone 5s lines may be unemployed or underemployed. If cronuts and iPhones existed in the 1990s when there was full employment in the United States, you could perhaps have argued that everyone in line could have worked an extra hour, and that’s the opportunity cost of waiting in line.
Even workers who are paid by the hour do not always have a marginal wage because the work schedule is set by the employer in advance. If you happen to work during cronut line hours and plan in advance, you might be able to get time off during to stand in line, and the lost wages would be an opportunity cost. But I would guess that only a small fraction of cronutters fall into this category.
I decided to use the Current Population Survey (CPS) data to see exactly how this breaks down in the New York area. There are 1,642 employed people (unweighted) in the sample for the New York–Northern New Jersey–Long Island metropolitan area; the unemployment rate in the city is 8.3%.
Of the employed people, 43% are paid by the hour, and 57% are not paid by the hour. For those who are paid by the hour, the average hourly wage is only $10.59, a lot less than the $40.16 Ben assumes. The annual wage income of those paid by the hour is $34,798, while it is $63,007 for those who are not paid by the hour. The overall average is $50,775.
Those who are paid by the hour work an average of 34.4 hours a week, while those who are not paid by the hour work 40.4 hours.
All this means that if you assume everyone in line is actually paid by the hour and the population of line standers reflects the general population of workers in the New York metro area, the opportunity cost is less than Ben has calculated.
I am only counting wages here: some income is investment income, which is typically not “earned” at 5am. Even if you are a hedge fund manager and have a ton of carried interest that should be counted as wage income, taking an hour off before the market opens on a day of your choice probably won’t affect it too much.
Of course the opportunity cost of the cronut line may not be zero, but I think most of the cost is non-economic.
What if I told you that you had to get up at 5am, on a morning of your choice, and stand in line for 3 hours in SoHo. How much would you pay to avoid that? I probably wouldn’t pay more than $20, so that’s my opportunity cost.
Alternatively, we could assume that you have to go to bed 3 hours earlier the night before. If you were forced to do that on an evening of your choice this summer, how much would you pay to avoid that? For me, personally, the standing in line for 3 hours part is much worse than the lack of sleep. If you gave me a chair, or even better, a motorized wheelchair, my opportunity cost would fall a lot.
Whatever that figure is (should we commission a survey?), averaged over all the line standers, forms the bulk of the opportunity cost of the cronut and iPhone lines.
One thing that could mess up my argument, especially as applied to the iPhone line, is if many of the standers are self-employed consultants who are not only paid by the hour, but who could actually be working and earning marginal income at 5am.
Disclosure: I own Apple stock. I do not own any Dominique Ansel Bakery or Ben Walsh stock. Please send cronut donations care of Noah. Also, the underlined word was added a few minutes after I first posted this.
Update: Ben reminds me that he did partially address the concerns about marginal wage. Consider this post an expansion on his.
Posted at 4:34 PM