Did Craigslist Eat Your Job?

The internet is a wonderful thing, but it hasn't done much for overall job growth.

Major internet companies employ few people (Google employs 20,000, Facebook employs 1,700 and Twitter just 300), and the jobs are reserved for those with highly-specialized technical skills.

Free Beer!

And to make matters worse – or better, depending on how you look at it – most of the pleasures of the internet are free. You may have to spend a little on a computer (pad, smart phone) and add broadband to your cable TV service, but in return, you get free access to news, social media, music, videos, email, complete books (free at gutenberg.org), exhaustive and up-to-date encyclopedias (who buys an encyclopedia nowadays?), and I could go on all day.

But why bother? Point is, some economists have suggested that the free pleasures of the internet, by keeping people glued to their computers gobbling up free content, are reducing demand for everything from restaurant meals to movie tickets and gasoline. And they are almost certainly right.

The true evil of Craiglist exposed

But I think there is a far more powerful internet force delaying our economic recovery, and that force is – Criagslist!

Think about it. Say that 25 years ago, you made a New Year's resolution to start working out and decided to buy a BumBuster. You would go to a store and fork over a tidy sum for the thing, lug it home, then lose interest when in six weeks you did not look like the BumBuster Man.

So now you are stuck with this BumBuster. What to do with it? Go to the local newspaper, pay $1 a word for a classified ad ("BumBuster like new $500 555-555-5555 after 4 weekdays") and hope someone who reads the newspaper, knows what a BumBuster is, and wants one will see the ad. Good luck, Jack.

And say that 25 years ago you were actually looking for a used BumBuster. You might check the classified ads in the newspaper or one of those "shoppers" (remember those?). After checking for a month, one shows up. The ad has a street address. Where is that? Do you have a map? Google Maps does not exist then, remember, and no GPS in your car or on your iPhone, either. You call the guy (no cell phones then, so you have to catch him at home) and get directions. You get lost on the way there and give up.

Fast forward to 2011. Want a used BumBuster? You go to detroit.craigslist.org and search for "BumBuster." No hits. Guess they're obsolete. So you try Bowflex instead, and lo – there are a gazillion for sale! And they have pictures and thorough descriptions and the owner has a cell phone and wow, what a deal! No wonder Craigslist is the #10 ranked internet site in the United States.

So what happened here? Several things. The transaction cost of buying a used durable good – that is, the time and money you spend to locate the used good and take possession of it – has plummeted, thanks to the internet in general and Craigslist in particular. Information asymmetries have been greatly reduced because photographs of used goods and descriptions are readily available (cripes, for cars, you even have Carfax), and sellers and buyers can readily compare prices, since large numbers of similar goods are offered for sale.

And now for the punch line

And how is all this eating your job and delaying economic recovery?

Well, it seems highly probable that as transaction costs in the used goods market decline, the used goods market increases at the expense of the new goods market. And your job making or selling new goods is eaten. Munch munch gobble gobble.

This effect continues until there are no more wasted (unsold) used goods, and the supply of used goods equals demand. See the chart above. Beyond this point, the used goods market continues to grow, but also begins to stimulate demand for new goods, since the price of used goods has risen high enough that persons who like the "newness premium" will prefer to buy new.

There is not a lot of research on this, but at least one noted economist I have asked about it thinks the effect is real and significant. If you are interested in a theoretical exploration, see this article.

So, how about you? Have you found yourself shopping more for used goods now that Craigslist makes it easier? Has Craigslist eaten your job? Leave a comment and let us know.