Informal Economics 200
In further conversations with Gerardo, I'm compelled to revise my estimate of how much he money he earns, and happily, revise it upward. He told me that on average he sells an entire 100-piece box of chiclet each day. To do so, he tries not to go home before he has sold the entire box, and that frequently means staying out in the main plaza and making a last pass by local hotels and restaurants until 8pm. He's on the streets by 8am, so that makes for 12 hour days, seven days a week. My own observations suggest Gerardo’s exaggerating a bit and sells closer to 3 boxes every 2 days. With this information and the assumption that he works about 350 days per year, it appears that he earns closer to 14,000 cordobas, or about US$830, per year. The majority of this goes to his mother and provides food for her, him and his younger sister. If these estimations are correct, Gerardo makes about 20 cents per hour, about half of Nicaragua's minimum wage. According to a recent government-published guide to investment in Nicaragua, the market wage in Nicaragua is just 67 cents per hour, the lowest in all of Central America, and nearly half of the going rate in Guatemala.
Talking with Gerardo has opened up a new vista and some interesting questions about informal economics, especially related to children. The other day, I brought a few packets of gum from Gerardo and afterward he smiled at me and said, "Regálame uno" (roughly, "Give me one"). I did so and was surprised to see him pop the box open and chomp away on the chiclets within. Yet a few days later when I offered him the same, he said no because he already had some. Indeed, he was chewing away as we talked. In both cases, I had figured that Gerardo would simply have pocketed the gum and resold it. These little packets of gum are, in essence, fungible. Drop one back into the big box of 100 and you'd be hard pressed to pull that exact one back out again. But Gerardo doesn't drop it back in. At the same time, I have never seen Gerardo eats his profits--no packets are chewed before they're sold. It’s hard to know what Gerardo really thinks when someone offers him one of his own just-sold packets of gum. Does he not resell them because they are gifts and thus to be enjoyed and savored for the kindness they imply? Or can they not be resold because this double exchange (seller to buyer to seller) because the gum is now “used” and no longer fit for sale? Either or both of these might be correct, but I’d like to hazard another theory.
Gerardo is just a kid. A savvy businessman at 10, no doubt, but still a kid. And in his 10-year-old mind, his job is to go out every day and sell a 100-box of gum. The sooner he does it, the sooner he goes home, eats, spends time with his family, plays and goes to sleep. Understood in this way, reselling the gum is extra work, not extra money. Now, an economist might argue that Gerardo doesn’t want to resell the gum because the marginal utility of earning, say, 5 cordobas for turning around 5 packets of gum is not worth his lost leisure time. That’s certainly true, and when I do see Gerardo late in the evening with just a few packets left he face often bares a tired desperation that says, “Just let me go home.” Still, Gerardo is a different sort of homo economicus, for he has a number of options that he ignores. He could save these extra pieces and try selling them the next day, slowly but surely increasing his profits. There’s no real cost to Gerardo of holding 5 pieces of gum in inventory, and he might even be able to justify keeping this money for himself. Or he could give himself a treat at the end of the day and eat the 5 pieces, or even save them and chew them the next day. But Gerardo does neither of these. He’s a child and has yet to develop the kind of future-focused thinking that will come with the onset of adulthood. How does this affect the economies of countries dependent on child labor?
Talking with Gerardo has opened up a new vista and some interesting questions about informal economics, especially related to children. The other day, I brought a few packets of gum from Gerardo and afterward he smiled at me and said, "Regálame uno" (roughly, "Give me one"). I did so and was surprised to see him pop the box open and chomp away on the chiclets within. Yet a few days later when I offered him the same, he said no because he already had some. Indeed, he was chewing away as we talked. In both cases, I had figured that Gerardo would simply have pocketed the gum and resold it. These little packets of gum are, in essence, fungible. Drop one back into the big box of 100 and you'd be hard pressed to pull that exact one back out again. But Gerardo doesn't drop it back in. At the same time, I have never seen Gerardo eats his profits--no packets are chewed before they're sold. It’s hard to know what Gerardo really thinks when someone offers him one of his own just-sold packets of gum. Does he not resell them because they are gifts and thus to be enjoyed and savored for the kindness they imply? Or can they not be resold because this double exchange (seller to buyer to seller) because the gum is now “used” and no longer fit for sale? Either or both of these might be correct, but I’d like to hazard another theory.
Gerardo is just a kid. A savvy businessman at 10, no doubt, but still a kid. And in his 10-year-old mind, his job is to go out every day and sell a 100-box of gum. The sooner he does it, the sooner he goes home, eats, spends time with his family, plays and goes to sleep. Understood in this way, reselling the gum is extra work, not extra money. Now, an economist might argue that Gerardo doesn’t want to resell the gum because the marginal utility of earning, say, 5 cordobas for turning around 5 packets of gum is not worth his lost leisure time. That’s certainly true, and when I do see Gerardo late in the evening with just a few packets left he face often bares a tired desperation that says, “Just let me go home.” Still, Gerardo is a different sort of homo economicus, for he has a number of options that he ignores. He could save these extra pieces and try selling them the next day, slowly but surely increasing his profits. There’s no real cost to Gerardo of holding 5 pieces of gum in inventory, and he might even be able to justify keeping this money for himself. Or he could give himself a treat at the end of the day and eat the 5 pieces, or even save them and chew them the next day. But Gerardo does neither of these. He’s a child and has yet to develop the kind of future-focused thinking that will come with the onset of adulthood. How does this affect the economies of countries dependent on child labor?
posted by Justin at 7:32 PM
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