Thursday, October 04, 2012

And now, on the lighter side of innovation studies.

Earlier this year, Roger Pielke posted "Hooters Girls are not Hicks Neutral" on his blog. Pielke is a professor out in Colorado who knows a lot about science and technology policy.

Higgs Neutral technological change is change in technology that does not involve in the ratio of capital to labor in the production of goods or services. Pielke is interested in the innovation made by Hooters that has led to the rapid expansion of its network of restaurants and increase in its volume of business and profits. He writes:
So what Hooters has done, in Schumpeterian innovation terms, is to combine input factors in a new way. In this case the company has carefully selected its labor in a precise manner intended to increase the demand for its product. Presumably, the underlying assumption is that a different labor pool would result in a lower demand. So while all of the other inputs (food, appliances, etc.) could have remained the same as any other restaurant chain, the Hooters innovation led to a restaurant chain that (they claim) “has continued to rank high amongst the industry's growth leaders.”
I am not sure that Hooters has changed the ratio of capital to labor. Do the attractive young women in their Hooters costumes earn more or less than other wait persons working in restaurants? Indeed, they might make more in tips, but would that count. If the wages in the Hooters restaurants are the same portion of total costs, or more specifically of the capital cost of running the restaurant, then the innovation is Higgs Neutral.

Apparently Pielke has not noticed that many restaurants employ attractive young women as waitresses and hostesses. The Playboy clubs years ago not only hired attractive young women, but put them in scanty costumes tailored to emphasize their mammary endowments. Topless bars have been around for years. I recall hearing that there was a topless pancake house in Las Vegas.

I suppose Pielke is right that Hooters innovated in a way that led to its business success. I suspect the innovation was not in the selection of its labor force. Perhaps it was in the way it displayed and advertised the attributes of its women workers. Any businessman would be happy at an innovation that increased volume of sales and profits and thus allowed expansion. Indeed, increasing scale of a business may result in changes in factor costs and thus not be Higgs neutral. But it would also seem quite possible to expand a business by techniques that are Higgs neutral.

The current New Yorker magazine has an article on the impending success of a Korean music group (shown above). Apparently its managers are planning a somewhat similar business innovation to that used by Hooters management.

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