In labor markets, there exists the idea of the reservation wage. A worker may want $25 per hour, but she’ll settle for $19. If a firm offers her a job that offers her $17 per hour, she’ll reject it. She’ll keep looking. She has some good experience and a university degree, after all. She could be employed if she wanted to. But she knows it won’t be long before she’ll get an offer that pays at least $19. She knows she’s worth it.
What’s so interesting about the reservation wage is how it can change over time. When the stock market is booming, home values are soaring, and credit card debt seems manageable, a worker may feel more confident about his ability to find a job. He might be able to borrow a little on his credit cards or tap some of his home’s equity. He doesn’t worry about missing contributions to his retirement account. His account value keeps increasing, after all. His reservation wage may have been $22 per hour and he kept get offers at $20. He can afford to wait for a better offer. It’ll come.
But then the housing market tanks and brings the financial system down with it. His credit card company decreases his credit limit. His retirement account tanks. And his home—his biggest asset—just plunged in value. The job market doesn’t look better.
The facts have changed for the character in our story. Does he keep his reservation wage at $22 per hour? Of course he doesn’t. Our friend will lower his reservation wage. The facts have changed. So he changes his mind.
“When the facts change, I change my mind. What do you do, sir?” —John Maynard Keynes
Labor markets are full of highly personal decisions. People set their reservation wages not based on what opportunities exist in the market but what opportunities they think exist for them. Further, it’s not just the wage that matters when deciding whether or not to accept a job. It’s the benefits. It’s the hours. The location. The prestige. It’s the opportunity to learn, to advance. These non-wage factors matter a lot. If they didn’t most of us would work very different jobs. Labor markets are personal.
What’s another very personal market?
The market for votes.
“We vote Republican because our parents always did.”
“I’m a Democrat because my father was a union man.”
“We’re a Republican family.”
“My husband and I are Democrats.”
“After Obama, I don’t see myself voting for a Democrat again.”
“Once Trump was elected, I knew I couldn’t vote for another Republican. I’m a Democrat now.”
Politics was once local. Now it’s national. But it’s still very personal.
Laid off with a Republican in the White House? A Democrat? Did a candidate used to represent your district in the House? Did she visit the district often?
Politics, like labor markets, is personal.
A difference between labor markets and voting markets
When the facts changed in the labor market, our friend changed his reservation wage. He changed his mind. But let’s say he was a Trump supporter going into the 2016 election. He voted for change in 2008 and 2012 by supporting Obama. And, in 2016, he voted for change again by voting for Trump. He’s a believer. That’s why he voted for Obama twice. He sticks with his gut. He felt the hope, he trusted his candidate enough to be patient for the change. And now he’s patient again.
But there’s a difference here. Obama was famous for his “no drama Obama” White House. Trump has been anything but no drama.
Shortly before the November election, the Access Hollywood tape was released to the public. Our voter held out for Trump. He believed.
Spicer was fired. He held his ground.
Priebus was fired. He deepened his trust in the President.
Scaramucci was fired. He still believed.
Our voter bought a promise. Trump would make America great. Our voter thought that Trump would work with both parties. He believed he would listen to the experts (not Steve Bannon). Conservative pundits promised this to him. The promise was broken. The facts have changed. Why won’t he change his mind?