The Importance of the Sociological, Psychological, and Cultural Elements in Understanding the Labor Market

In the January 16, 2020 edition of the Financial Times, Edward Luce reviewed three books trying to understand the rise of populism in the United States. One of the books he reviewed was Dignity by Chris Arnade, which sounds like a fascinating read, as do the other two books. I have not read any of the books, yet, but they all of them are at the top of my reading list beginning with Dignity. Luce’s review is a fascinating read, but one brief paragraph in his article really grabbed my attention. To provide some context to the quote, Arnade was a bond trader on Wall Street before quitting his job to travel to poor communities around the U.S. to observe an experience what poverty in America is really like instead of just relying on data analysis and theories. His observations were counter to his preconceived notions.

Arnade’s journey also taught him about the importance of place. Again and again, he would ask people in desperate straits why they did not simply pack up and leave. “Because this is my home,” they would reply as if talking to a child. Whether he was in a black or white neighbourhood, or mixed, the answer was usually the same. None of the Arnade’s spreadsheets could explain why. He had to leave his own world to understand why religion and place were the life rafts people clung to (Source given below).

The reply, “Because this is my home,” really struck me because in economics we more often than not assume perfectly competitive labor markets, and in order for such markets to exist, we assume labor is mobile. So, if workers find themselves in a situation where they are not making enough money (i.e., they are living in poverty), they will simply move to find a higher paying job, if possible. Clearly, this is not always possible (or reasonable to expect) and is yet another example of why we need to understand the sociological, psychological, and cultural elements of economic behavior, if we really want to understand it.

Source: Luce, Edward. January 16, 2020. “Populism and the Smouldering Rage of American Poverty.” Financial Times. https://www.ft.com/content/24bb69aa-3621-11ea-a6d3-9a26f8c3cba4