Matthew Yglesias: Street Mechanics

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Street Mechanics

The New York Times writes about street mechanics in the Bronx. It's not just New York, either, we've got them in the District in the vicinity of auto parts stores and I assume they're around somewhere in every major metro area. It's underappreciated, I think, the degree to which minority male non-participation in the labor force is driven by the fact that people are doing what's basically legitimate work off the books. In some cases, as with the auto mechanics, it's a question of overregulation. Reasonable concern about the safety and reliability of auto repairs has created a regulatory climate that incumbent mechanics use to artificially reduce the supply of legitimate repair work and drive up the price. One sees the same general pattern in a lot of the other non-tradeable blue collar lines of work that are, increasingly, the main way an American without extensive education could obtain a decent living. Other elements of policy also exacerbate the trend. A man without dependent children needs to be earning essentially nothing to be eligible for the Earned Income Tax Credit, which creates a fairly massive incentive to non-report income and avoid paying FICA. Questions could also be asked about the extent to which vigorous enforcement of child support rules actually generates additional child support money as opposed to merely driving work underground where paychecks can't be garnished. On the latter two points, however, there are important considerations militating in the other direction. The issue of general overregulation by state and municipal licensing boards, however, is pure negative for almost everyone involved. It shouldn't be so expensive to get your car fixed or some work done on your house. Not that I own, you know, a car or a house I might get work done on, but someday, maybe....

December 19, 2004 | Permalink

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Comments

I've encountered underground computer repair persons all. A well known computer retailer wouldn't help me install a new hard drive because i didn't have my original Windows operating system installation disks. Hearing this one of the workers on the floor approached me and offered to do it for half the price the store was charging. Later when i decided to put a system together from scratch I contacted him and he helped with that as well as loading me up with software. He told me a lot of the guys-many are university students majoring in computer related engineering-do this to supplement their meager incomes.

Posted by: pablo | Dec 19, 2004 11:54:34 AM

Whoh, Mr. Libertarian. I can think of lots of explanations besides "overregulation." Perhaps real estate prices have pushed blue collar work out of central cities, leading to an oversupply of skilled workers in the Bronx, many of whom don't want to move to North Carolina. Or a lack of investment capital makes owning a bricks-and-mortar garage an impossibility for the mechanics who don't want to be wage laborers. My great grandfather Wolf didn't work as a peddler because of overregulation; he did it because he wanted to be independent but couldn't afford to operate a store.

Moreover, I can think of lots of reasons to regulate not only auto repairs (a business prone to fraud), but especially oil changes (used oil being poisonous and all).

Posted by: AWC | Dec 19, 2004 12:12:26 PM

One of my first IT jobs, I was hired as a stealth developer. I had another title, but my real job was to provide software that the IT department refused to.

There's been a tendency in both computers and cars for the manufacturers to enforce greater control through their hold over the manufacturing process. In the case of cars, manufacturers have been keeping proprietary control over the diagnostic systems and codes associated with the latest models, so that it'll become harder and harder for independent garages to compete with dealers. The issue echoes in discussions of software ownership; Oracle, for example, has made an entire business out of making their system difficult to implement. I ran into trouble from them once for trying to can-open a broken datafile.

One of my running arguments when people talk about governmental vs. private power is that they don't understand just how much power controlling information gives you, and that since companies are in general trying to avoid competition, they will ruthlessly leverage asymmetric information in order to make themselves a de facto government.

Posted by: Mike Collins | Dec 19, 2004 12:18:06 PM

When a society becomes overregulated is exactly when you expect an "underground economy" to emerge. The Soviet Union, where people were officially prohibited from owning businesses or making profits, was a perfect example of this.

Regulation acts as a barrier for low-income households from business ownership. This especially impacts the urban poor, and disproportionately ethnic minorities. Because small business is the major source of new jobs, it is easy to trace how over-regulation acts to cap growth in urban and other eonomically depressed areas.

This study says all this much more eloquently than I could ever.

Good post.

Posted by: Krusty Krab | Dec 19, 2004 12:20:33 PM

And regulation of the auto repair market is totally ineffective. The problem with bad mechanics isn't that they're undertrained or careless, it's that they're dishonest. Government certification isn't going to prevent me from telling you you need work you don't, or charging you for more labor than is necessary. And good luck proving to a regulator that I did either of those things.

Most people I know assume that you have two choices in auto service - either go to someone you trust, or expect to get screwed. Government can't legislate that.

Posted by: digamma | Dec 19, 2004 12:29:54 PM

To the sound of zoooom, as the point flys over his head, AWC writes: Moreover, I can think of lots of reasons to regulate not only auto repairs (a business prone to fraud), but especially oil changes (used oil being poisonous and all).

Nobody debates that regulation is essential for society to operate harmoniously. The problem is that regulations are often put in place not for the benefit of society, but for the benefit of the industry, especially when they act to reduce competition.

A perfect example of this, is the glut of building regulations post Hurricane Andrew in 1992, which effectively prevents any work from being done by non-licensed workers. While this sounds fine, it keeps a blind eye on the fact that the shoddy workmanship which people were reacting to was licensed contracting work to start with.

What happened in practice was that regulations were changed in the aftermath of Andrew, and putting it frankly, the building industry had better lobbyists, and used the opportunity to tilt the law further in their favor. Always in favor of references, here is a discussion of what I am referring to.

Posted by: Krusty Krab | Dec 19, 2004 12:38:23 PM

Krusty Krab--

Actually, this is exactly what I study. I've written on it to some acclaim. So your condescension is really rather absurd, not to mention impolite.

Meanwhile, you seemingly haven't read the NYT article, which supports my explanations. Not one of the gents used the EITC or licensing to explain their behavior. Indeed, the protagonists who went to technical school probably have the credentials to work as licensed mechanics. The desire for independence and the absence of capital are much bigger factors explaining why they'd rather work on the street THAN IN A SHOP. And anyone who says otherwise is simply an ideologue.

I will grant that that these guys want to avoid taxes and that regulatory bodies can be captured. And yet I still support both. How? The presence of a doctor lobby doesn't delegitimize the existence of laws regulating medical procedure. Likewise, encourage the underground economy. But that's an argument for enforcing tax laws, not an justification for removing them.

And, finally, we really don't want people dumping used motor oil in the sewer.

Posted by: AWC | Dec 19, 2004 1:03:52 PM

Mike,
I think your point about the asymmetric relationship is quite important. It's one of those things that people should point out more often instead of saying "corporations are evil!" They've just got waayyy more power than any of their consumers.

Posted by: tj | Dec 19, 2004 1:45:55 PM

The maximum EITC amount for a single guy without kids is 390$ on an earned income of 5100 up to about 6400.

If he doesn't have a W-2 to show his earned income for the year, he'll have to file a schedule C or C-EZ, which probably means he'll have to file at a tax preparers, and the FICA and Medicare will have to be accounted for with a schedule SE for the self-employment tax, which would wipe out his EITC in the first place.

You don't do your own taxes, do you Matt?

Posted by: The Dark Avenger | Dec 19, 2004 2:05:53 PM

. . . since companies are in general trying to avoid competition, they will ruthlessly leverage asymmetric information in order to make themselves a de facto government.

A perfect example of corporations leveraging asymmetic information is salary information. A corporation knows exactly what it pays its employees, knows what new applicants are asking for, and has an excellent idea of what the competition is paying its employees. But most employees only know their own salaries. A classic example of a dysfunctional market.

A commenter here several days ago said that his company has a policy making even the discussion of comparative salary information a firing offense. Outrageous corporate behavior from the point of view of both morals and economics, but perfectly legal.

Very few libertarians and conservatives seem willing to acknowledge, or even to be aware that the simple ideal markets described in the first week of Econ 101 do not describe the complex non-ideal markets commonly found in the real world.

Posted by: S.Anderson | Dec 19, 2004 2:12:24 PM

And that the non-ideal complexities of real-world markets often have nothing to do with government, but rather with the vast power differences between the players in the market. For example, the vast power difference between a large, powerful corporation and its individual customers and employees.

Posted by: S.Anderson | Dec 19, 2004 2:17:52 PM

It's kind of stupid to blame it on regulation. There's always been people who work on cars outside of garages -- the neighborhood teen, amateur mechanics, friends of friends. But 40 years ago a whole lot more men knew there way around cars. Now there's a shortage, and they are in brick and mortar garages, charging the high heaven. And there are a lot of Latinos, who like Americans int he 50s and 60s, learned to fix their cars themselves, and can make money doing it for others.
So where Matt gets off saying this is all because of regulation is a mystery -- except he doesn't understand economics all that much.

Posted by: paulo | Dec 19, 2004 4:13:36 PM

This is actually something I'd be curious to look into (in my copious spare time). When you take courses in physical thermodynamics or quantum mechanics, there's usually a narrative about the failure of previous models (thermodynamics has gone through at least three). Classical models can be enormously useful as long as you recognize that there are points where the model's predictive capacity will fail as it deviates from observed behavior - once you move too fast, or scale down too small.

The validity of any model is its ability to predict empirical observations - which would seem to apply equally to economic models. I don't know much about economics past some material I've studied for my own purposes, but I'd be curious to see if it's possible to find the same type of model-breaking or corner-case behavior. I don't even know, honestly whether it's meaningful to talk about empirically evaluating a macroeconomic system except in the most qualitative of terms...

Posted by: Mike Collins | Dec 19, 2004 4:34:29 PM

Mike:The problem with economics is that it's more of a soft science (sociology, psychology), than a hard science (Math, physics, chemistry, etc).

But it oh so wants to play with the big boys and be a hard science. They have all these numerical models to describe, what, at its core, is just human behaviour. That makes these models flawed at their very core.

The problem of course, is that predicting economics is like predicting the weather. Theoretically you can do it. But there's so many varibles at play that you'll never be too accurate.

Here's a good example. Take the current debate about SSI. Most people are talking about future economic growth and the longevity in the system. What very few people are talking about, is that the forces that put SSI in psudo-jepordy in the first place are not limited to SSI. The mass retirement of the baby boomer generation has other economic effects as well, and to make it even more complicated, not all of these effects are aligned in the same direction. (Not to go too deep into it, but the two biggest factors in play here are the devaluation of capital as the BBG pulls out their investments, and the much more competitive labour market as they need to be replaced.)

Posted by: Karmakin | Dec 19, 2004 5:05:56 PM

Often things go wrong with cars that are simple and involve component changes. Streetcorner guys can do that. But when you have more complicated and tough-to-diagnose problems, many - probably the same percentage of mechs in regular shops - are gonna be in over their head. Smart diagnosticians are rare; it helps to know about cars. But you don't want some streetcorner guy messing around with your anti-lock braking system, or installing airbags, do you?

And nobody, nobody should be permitted to avoid the very necessary regulations concerning the disposal of toxics, like anti freeze/coolant fluid, brake fluid, power steering fluid, engine oil, and transmission oil. If you give many people a chance to skirt such regulations....they will. Many polluters don't give a damn. Always has been this way.

Posted by: Crab Nebula | Dec 19, 2004 8:49:46 PM

AWT: In addition to mistaking my humor for condescension, I think you also stepped past the particularly germane question of whether regulation has a negative effect on low-income and esp. on minorities. Glad that you study this. Why not point us to a URL or publication which is apropos?

I have never said that regulation isn't a good thing. The problem is, misapplied, it can have unexpected negative consequences without any of the expected benefits. This is particularly the case when businesses succeed in getting regulations changed to reduce competition in the market place.

In the example I pointed to with respect to Florida and Hurricane Andrew, the real problem was that it was the contractors who were responsible for the shoddy work to start with. The "solution" which was adopted was to restrict building work to licensed contractors, de facto to cut out freelancers from competing with them. This occurred, in my judgment, because of the $$$ and lobbying clout of the large contractors. The real problem was a lack of proper hurricane-safe building codes and a lack of the proper safety inspections to enforce them.

In my opinion, safety is not improved simply by making everybody get licenses. Rather it's improved by having inspectors who take their responsibilities seriously, where there is oversight to limit corruption, and where violators get pinned to the wall for serious violations. I think we are mostly all aware that the really serious polluters are corporations who pump on the real toxins at night (when nobody can see them), cities who divert their sewage directly into the water because of inadequate treatment plants, and so on. Individuals are generally pretty far down there on the list.

Telling a street mechanic that he can't legally operate because he can't be trusted to properly dispose of hazardous materials isn't a solution at all. First, it remove the street mechanic from inspection process entirely. Secondly, as the New York Times article clearly shows, it does not stop him from operating outside of the law, but rather forces him to do so, where there is now no opportunity for oversight. Third, it does not guarantee that legal mechanics with hallowed licenses will not illegally dispose of hazardous materials.

Posted by: Krusty Krab | Dec 19, 2004 11:56:33 PM

Peace Krusty. I'm sure you meant to be funny, but you need to stop conflating disagreement with incomprehension. I understand the capture argument, but I think it's overstated in this case.

Let me focus on the main differences between us:

1) I was trying to _explain_ the phenomenon of street mechanics. I wasn't particularly interested in judging the regulations themselves (though I did give a short shout out to licensing and environmental protection).

Now, I grant that regulation increases the cost of mechanic work, creating a niche for these guys. But, at the same time, licensing laws create a powerful disincentive for these street shops, namely the threat of imprisonment.

I think a much better explanation is financial. These entrepreneurs can charge less not because they don't have licenses. They can charge less BECAUSE THEY DON'T PAY RENT. They do their work on the public streets that you and I own, paying us nothing in taxes.

2) Licensing is very effective in some cases, not so effective in others. Thus, examples from Hurricane Andrew don't actually prove that the regulation of mechanics is corrupt, ineffective, etc. But I agree that we need to be careful that regulatory bodies remain responsive to the public.

Posted by: AWC | Dec 20, 2004 8:31:47 AM

Just a note about auto-service regulations in NYC -- my late father-in-law was a mechanic/auto parts dealer in Queens, and he was regularly visited by city EPA folks who wanted to keep an eye on what hazardous materials he was storing (oil, antifreeze, etc.), and also how he was disposing of it. It was a real expense to his business, and he just passed it on to the customers, of course. Yes, he could have taken his barrels of used oil over to the nearby deserted warehouse district and dumped them anywhere, but he didn't. However, others did and continue to do so. So, no, these regulations do not prevent some folks from breaking the law and polluting the earth, but I gotta believe it keeps most of them "honest."

Posted by: jedski | Dec 20, 2004 11:07:38 AM

I'm not sure how it works with car mechanics, but other trades, such as carpentry, plumbing and electrictians have trade organizations, that actively pursue keeping very small or single person business out of the market. They pursue regulatory laws that raise the bar too high for entry into the amrketplace. It's ture that some of these small businesses are predatory or incompetent, however, I bet more are not. They tend to be less expensive, because they have no overhead and because the people who run them are not as business savvy as those in a big company. It seems to be a trend of the current stage of capitalism that ensures that most people are working for a corporation of some kind. Note that I have not done research on this, it's purley anecdotal.

Posted by: Cathy | Dec 20, 2004 1:04:39 PM

I'm not a libertarian, but most libertarians I've read have been more inclined to claim that government failures are a more serious problem than market failures than to claim that market failures don't exist and that all markets really are like econ 101 partial equilibrium intersections of supply and demand. Now, I have talked to one libertarian who really DIDN'T seem to believe in market failures. He lives in my dorm. Anyway, though, that's certainly not the case with Matthew Yglesias, who not only believes in market failures like the better-informed libertarians I talked about, but isn't even a libertarian.

Posted by: Julian Elson | Dec 21, 2004 5:56:54 PM