We’re all paying the Karen tax

Headlines have moved on from the The Great Resignation to the The Return of Inflation, which is completely normal as far as news trends go. But I think it’s worth reflecting on how the two can be related.

I was privy to a conversation with a local food+retail business owner yesterday where she revealed she was no longer comfortable hiring teenagers for summer and after-school jobs. Not because they were inadequate to the task, but because they had to endure too much abuse from customers eager to take advantage of young people in a service position. She was confronted with a decision: either operate understaffed, increase prices to cover the cost of older employees, or completely reorganize her business model.

Behind the wave of Great Resignation articles and opinion pieces, there has been a subcurrent of related articles about increasing customer predilection for abusing employees. Whether the rate has increased or simply its observation is hard to say, but the phenomenon itself appears to be real and non-trivial. Working in retail and food service jobs has in many ways deteriorated in job quality. The first line of investigaton and blame is always management, but it looks like customers are on the hook this time as well. Karen-wants-to-speak-to-the-manager memes didn’t emerge from nothing, folks.

No shortage of ink has been spilled about stagnating wages, particularly for workers without college degrees. Such discussions, however, always exist within a framework that holds the work, and what it entails, constant. If the quality of life on the job declines without an increase in compensating wage differentials, then the true (net) wage compensation has actually decreased even when nominal or real wages remain ostensibly constant. Combined with a pandemic that made service industry work more dangerous, the precipitous increase in wages necessary to maintain a labor supply sufficient to production demands makes all the more sense. Did we really think we could live in a world where McDonald’s is offering $20/hr to start but prices would stay the same?

Now, let’s be clear, I’m not suggesting that current inflation is being driven by crappy customers eager to abuse anyone they can in a fit of narcisstic rage. But I am suggesting that it, and factors similar to it, is a non-trivial part of the recipe. The market is very good about pricing-in everything associated with the supply of a good, but that doesn’t mean there aren’t frictions and associated lags along the way. Employees and their lives are sticky, and sometimes it takes an exogenous shock to dislodge them from one equilibrium to the next. If we were so eager to accept the hypothesis that the stimulus checks and health concerns were sufficient to get people to quit, we should be no more surprised that they are returning with higher reservation wages than previously, and that these new reservation wages are getting priced into the market. Combined with an utterly flummoxed set of global supply chains and growing geo-political uncertainty, all on top of nearly $2 trillion in stimulus spending, growing prices seem a fairly natural outcome.

Returning to the original thesis: compensating wage differentials are as unavoidable as every other economic phenomenon borne of people making rational decisions given the information at hand. A generation of employees have discovered that bosses may be dour, insensitive, and obsessed with bottom lines at the expense of their employees well-being, but at least they need you. They have to see you at work tomorrow and reap the relationship they’ve sowed. There is an equilibrium of mutual respect and shared objectives to be reached there that is best for everyone, even if a lot of bosses can’t seem to get out of their way when building it.

Customer are a different beast altogether. It’s hard for us coordinate and there’s little we can individually do to punish those who opt to abuse the people serving us. We’ve got a common pool resource problem – a subset get all their gross benefit of being jerks while the cost is spread across everyone. Whether it’s refusing to wear masks, threatening violence, or verbally abusing young people, each and every one of those incidents gets steadily priced in, until one day we’re all just staring in shock at $6 hamburgers and asking what happened. I tell you what happened: the Karen Tax, and we’re all paying it.

I’m not delusional. I know we can’t boycott our family, co-workers, and acquaintences who abuse service workers. But maybe we can all agree to give them just a little more sideeye. Invite them to fewer lunches. Leave them out of the will. Because that’s the price that really needs to increase.

It’s time they paid the Karen Tax.

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