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Sunday, October 29, 2006

Supply and Demand in Orleans County

The BLS reports on weekly wages in this release. For the most part, nothing exciting, but there is this statement buried in one of the paragraphs:
Over the year, the national average weekly wage rose by 8.1 percent. Among the largest counties, Orleans, La., led the nation in growth in average weekly wages, with an increase of 33.3 percent from the first quarter of 2005.
If Orleans County, Louisiana had a 33% increase in weekly wages since Katrina perhaps that would not be surprising. Yet, the claim is that the increase is from the first quarter of 2005, months before Katrina hit Orleans County.

The supply and demand of labor in Orleans County has dramatically changed since first quarter 2005. The supply of (domestic) labor is likely down as people are still scattered throughout the region and the country and the demand for labor is likely high. Principles of economics students learn that there are two things that can cause price to increase: demand increases or supply decreases. In this case, both influences are putting pressure on weekly wages and thus the 33% increase.

Amazing but true, those who are still living and working in Orleans County might enjoy a short-run windfall from Katrina in the form of increased wages. However, be careful in concluding that Katrina was a "good thing" for the Gulf Coast and those who are still there. The "broken windows" form of economic growth is a mirage.

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