Econ 002

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The Economics of Office Space

• Econ 002
• Section 3
• Group 40

Bryan Krawiec Jeremy Hill Scott McCloughan
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Overview of the Movie

• The movie Office Space satirizes a dysfunctional
  nine to five office job. The workers at this
  company get fed up with the conditions of the
  workplace and rebel by stealing money through the
  use of a computer virus. Their brilliant plan to
  earn millions backfires and causes a surprising
  twist of events.
• Office Space was released in 1999.
• It won no awards for its original version but was
  nominated in 2005 for Outstanding DVD Extras
  and Outstanding Overall DVD.

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Why Choose Office Space?

• Where else can you find economics than a movie
  that concerns stereotypical office job workers?

• Peter and his coworkers decide to steal money
  from Initech and pursue criminal activity.

• Economics studies how people make choices and
  throughout the story, many choices are made by
  all characters.

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and now its time for our feature presentation
The Economics of Office Space
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Main Economic Concepts

• Micro vs. Macro
• Rational Self- Interest
• Incentives
• Scarcity
• Opportunity Cost
• Comparative Advantage
• Law of Demand
• Inelastic Demand
• Common Property
• Free-Rider Problem
• Non-Price Rationing
• Income Distribution
• Rationality of Crime
• Asymmetric Information
• Marginal Utility
• Externalities

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Micro vs. Macro

• Microeconomics- The decision making undertaken by
  individuals, households, and by firms.
• Macroeconomics- The study of the economy as a
  whole. Deals with unemployment, general price
  level, and national income.

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Office Space Micro

• Office Space mainly deals with a company called
  Initech and the employees that work there.
• Decisions made by Initech are reflective of a
  single firm, making it a microeconomic issue.
• Decisions made by the employees of Initech and
  other characters are individual decisions, which
  is also in the microeconomic realm.

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Rational Self-Interest

• People engage in activities that benefit
  themselves.
• Examples
• Peter doesnt work very hard at Initech because
  he gains no extra benefit from doing so.
• Joanna doesnt add extra Flair to her outfit at
  Chachis because she receives no incentive from
  doing so.
• Peter and his coworkers decide to steal from
  Initech, not because it is a bad idea, but
  because they should get more benefit from
  stealing than not doing so.
• In all of these examples, the workers put
  themselves above the company and are making
  choices in their own interests.

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Incentives

• Incentives are rewards for engaging in a
  particular activity.
• Examples
• In Office Space, there is a flip-flop on how
  incentives should work.
• Instead of rewarding the hard workers, Samir and
  Michael, they are fired.
• Peter however, who doesnt work at all and slacks
  off most of the time, is rewarded with a
  promotion and receives stock options as well.
• This distribution of incentives is ineffective
  because it doesnt reward hard work.

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Incentives Continued

• There are also examples of where a lack of
  incentives operate in accordance with standard
  economic theory in Office Space.
• Examples
• Peter has no incentive to work efficiently. He
  doesnt receive any additional money or benefits
  from hard work on a daily basis.
• This causes him to stare blankly at his cubicle
  for hours of the day, waste the companys time,
  and even go as far as coming to work late and
  entering the side door so that he gets to his
  workspace unnoticed.

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Incentives and Suicide

• Although this is a rather morbid example and
  should not be acted upon in real life, the
  decision to commit suicide can be seen in terms
  of economics and incentives.
• Tom Smykowski was fired from Initech and realizes
  that he has no job and no means of supporting his
  family. Because of that Tom decides to go into
  his garage, turn on his car, and attempt to kill
  himself by use of the carbon monoxide emissions
  from the car exhaust.
• Tom Smykowski believes that there are no more
  incentives to live.
• Living his life, to him, has no more value.
• Luckily for Tom however, his wife comes and saves
  him. This rather immoral economic decision was
  avoided.

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Scarcity

• Time, energy, and money are limited, while human
  wants and desires are unlimited.
• Examples
• Initech hires consultants to weed out the
  inefficient workers because money and resources
  for the company are scarce. They cant afford to
  waste them on workers who dont get the job done.
• Peter comes to the realization that time is
  scarce and too precious to waste at a job like
  Initech. Instead he would rather pursue a career
  in construction. This career would give him a
  greater sense of fulfillment.

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Opportunity Cost

• The highest-valued, next best alternative that
  must be sacrificed to satisfy a want.

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Opportunity Cost Examples

• Choice Peter decides to sleep in when Lumbergh
  asks him to work on Saturday
• Next Best Alternative Peter could go to work and
  keep his job secure.
• Peter sacrifices job security and the approval of
  his boss in order to sleep.
• Sleep is Peters highest valued alternative.

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Opportunity Cost Examples

• Choice Milton is forced to move his desk area to
  other locations and eventually into the basement.
  By doing this, it will keep his job secure.
• Next Best Alternative Milton could stand up to
  Lumbergh and fight for his right to remain
  working in the same place.
• Milton sacrifices his workspace and moves to
  other locations because he values his job more
  than the specific place in which he works.

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Comparative Advantage

• You can gain by specializing in producing what
  you do best.

Tom Smykowski has no comparative advantage over
any other worker. His job is essentially a
menial task and is virtually pointless. He takes
complaints from the customers to the engineers.
This task can be accomplished by anyone and
because of that, Tom is fired from the company.
If Tom had specialized and produced something
that the company had valued, he would have
probably remained as an employee at Initech.
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Law of Demand

• There is an inverse relationship between the
  price of the good and the amount of it buyers are
  willing to purchase.
• The demand curve shifts when factors that violate
  Ceteris Paribus change like future expectations
  for a company.

(P1,Q1) is the market price or equilibrium for a
good before a change in Ceteris Paribus. (P2,Q2)
is the equilibrium for a good after a change in
Ceteris Paribus. The new quantity demanded and
price of the good both increase when the demand
curve shifts right.
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Law of Demand Examples

• Initech is a Y2K company and works to correct the
  problem with computers only having a two digit
  year code instead of a four year one.
• If the problem was not fixed, many computers
  would crash and some believe that the world would
  even come to an end!
• Because of its relevance to this dilemma, Initech
  was expected to be successful in the coming times
  and therefore, the demand for its services
  skyrocketed as the new millennium approached.
  This represents a shift in the demand curve to
  the right as shown in the previous slide.
• From this violation of Ceteris Paribus, the price
  and quantity demanded rose. In order to take
  advantage of this fact, Initech hired consultants
  to assess the efficiency of their workers.

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The Inelastic Demand for Initech

• Because Initech is a company that fixes faulty
  software for the Y2K computer crisis and the year
  that Office Space takes place is 1999, the demand
  for their services is relatively inelastic. It
  fits the three major criteria of inelastic
  demand
• The amount of time that companies have to fix
  their software is very small.
• There are few substitutes for fixing the Y2K bug
  because Initech is one of the major companies
  offering the service.
• Relative to the amount of money large
  corporations make, the portion of their budget
  that they would need to devote to Initechs
  services is very minimal.

• This causes these companies to have very little
  flexibility and the demand for these software
  corrections is inelastic as a result. With
  inelastic demand, demand changes very little even
  in response to large changes in price.

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Common Property

• Common property is property that is owned by
  everyone
• Thus, common property is also owned by no one.
• Problems
• Since no one owns the property, no one is forced
  to or has the incentive to care for the property.
• Anyone is welcome to use the property and free
  riding can occur

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Common Property in Office Space

• An example of common property would be the fax
  machine in the office.
• Since it is common property to all workers of
  Initech, no one has any incentive to fix it when
  it has a problem.
• Also, because it is common property, no one has
  the incentive to buy a new one either because it
  is really owned by no one in particular. No one
  wants to give up the money to buy a new one.
• Additionally, the fax is usable by everyone at
  Initech, so no one has the responsibility to keep
  it safe or out of harms way.
• This leads to its demise when Peter, Michael, and
  Samir smash it to pieces.

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Free-Rider Problem

• A free-rider is a person that consumes more than
  their fair share of a resource.
• In economics this is a problem because it limits
  production.
• In Office Space, an example of a free-rider is
  Peter. Though Peter produces nothing due to his
  non-existent work ethic, he still receives the
  benefits of a successful company. Initech hires
  the consultants in order to determine which
  workers are free-riders, though ironically they
  fail to correctly identify Peter as one.

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Non-Price Rationing Mechanisms- The Cake Dilemma

• When an office birthday party is held, Milton is
  one of the first people in line for cake.
• Typically, as a kind gesture, an individual will
  cut the cake and pass it to others. This
  represents a rationing dilemma as those who come
  first are served last.
• The cake is continually passed to people farther
  back in the line than Milton and by the time it
  is Miltons turn to receive a piece of cake,
  there is none left. He, ironically, is the only
  one without some.
• This kind of rationing mechanism, where those who
  come last are served first, is similar to the
  rationing system of elevators. The people that
  get in the elevator last get to leave first.

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Income Distribution

• Example 1 Lumbergh is the boss of Initech so he
  gets paid substantially more than the workers
  under him who do all the work. This includes
  Peter, Samir, Michael, and Tom.
• Example 2 Joanna needs money and needs a job to
  get it, which is why she finds herself at a low
  income job at Chotchkies . She doesnt possess
  the skills needed that will enable her to gain
  more money.
• These differences in income are due to factors
  like
• Non-homogeneous people- Lumbergh and Joanna
  possess different skill sets.
• All jobs are not equally attractive- Someone like
  Joanna would want to work in Lumberghs job
  because of the high salary and the appeal of
  being a boss. Conversely, Lumbergh would not
  want to work in Joannas job, which is
  essentially a blue collar job.
• All workers are not perfectly mobile- All of the
  jobs in Office Space are local to where the
  characters live and are were chosen by the
  characters because of the convenience or the
  location. The characters would not go out of
  their way to go to a different job and because of
  that, they may get paid less in their current job
  than in another job.

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Rationality of Crime

• As with all other decisions, crime involves
  marginal costs and marginal benefits.
• Although crime is not morally justified, it can
  still be rational if the benefits outweigh the
  costs of committing the crime.

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Rationality of Crime

• As the table shows, the benefits of stealing
  money from Initech by use of Michaels computer
  virus outweigh the costs of the crime.
• Costs
• Based on the way the virus will work and the fact
  that they will only collect the remainder of a
  rounding error in Initechs computer
  transactions, the chances of being caught are
  quite minimal. They are only taking fractions of
  a cent at a time, which is an unnoticeable
  amount. Over time this will accumulate though
  and no one will even know it is gone. Peter
  compares this to a take-a-penny leave-a-penny
  tray at a convenience store.
• Guilt is a minimal cost because Peter, Samir, and
  Michael will actually enjoy stealing from Initech
• Benefits
• Over time, the fractions of a cent per
  transaction will accumulate and they will all
  become rich.
• They will take great pleasure from stealing from
  Initech and getting back at Lumbergh for firing
  them.
• Wth the extra money, Peter, Michael, and Samir
  will have freedom and additional luxuries that
  they previously would not have had.
• As is seen, the benefits clearly outweigh the
  costs of stealing from Initech and prove that the
  economics behind this crime are perfectly
  rational.

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Rationality of Crime

• However, as fate would have it, their plan did
  not work as expected and an interesting twist of
  events followed.
• The virus did not work as planned and they stole
  too much money from Initech in a given period of
  time. With this, they would surely get caught
  and the cost of their crime became unimaginably
  higher.
• Because the costs now outweighed the benefits of
  the stealing, Peter, Michael, and Samir attempted
  to return the money to Initech for a chance to
  clear their names.

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Asymmetric Information

• Adverse Selection- People in a transaction have
  incomplete information and therefore are at a
  risk in making a decision.
• Example In Office Space when Peter, Samir,
  Michael, and Tom were hired, Initech may not have
  realized how inefficient they were and hired them
  under the impression that they would be hard
  workers. This creates a risk for the company and
  is why the consultants were brought in in the
  first place.
• Principle-Agent- A conflict of interest that
  occurs when agents or managers of a firm pursue
  their own objectives, which do not coincide with
  the goals of the principles or owners of the
  firm.
• Although this typically relates to a problem
  between shareholders and managers of a
  corporation, the same kind of relation can be
  seen between Lumbergh and his employees.
• Peter does not really care about his job and
  slacks off whenever he gets the opportunity.
  This wastes the companys time and money, which
  is not the intent of his boss, Lumbergh, who
  probably wants him to make efficient use of his
  time.

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Marginal Utility

• Marginal utility is the additional change in
  total utility due to a one-unit change in the
  quantity of a good or service
• At the restaurant Chotchkies where Joanna works,
  the boss has established a minimum amount of
  flair that the waiters must wear. Joanna chooses
  to wear this minimum amount of flair due to her
  belief that any additional flair would not aid
  her in any way, thus not giving her any extra
  utility.
• Conversely, her coworker Brian has a very high
  marginal utility for each additional piece of
  flair above the minimum. This explains his
  decision to wear as much flair as he can.

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Externalities

• An externality is the effect of one activity that
  has consequences for another activity.
• Externalities present a situation where the costs
  or benefits of a situation are not completely
  borne by the two parties involved.
• In Office Space, an example of a negative
  externality is the congestion of the commuter
  traffic. This is shown in the opening scene of
  the movie where Peter finds himself in a traffic
  jam on the way to work. Not only does this kind
  of congestion have negative effects on the
  drivers, who are forced to leave earlier for work
  in order to make it in on time, it has negative
  effects on the environment. This much traffic
  causes a considerable amount of pollution, which
  is detrimental to our air quality.
• In order to combat this congestion problem, there
  are various solutions. The first is similar to
  the system used in London called the London
  congestion tax. This tax causes drivers to have
  to pay in order to enter the center city, hence
  reducing the amount of drivers to the drivers who
  only need to enter.
• The second possible solution is to encourage
  carpools through HOV lanes and other carpool
  friendly measures. If more people were to carpool
  there would be less cars on the road, and less
  congestion and pollution as a result.

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Conclusion

• In the business world, corporations like Initech
  are constantly faced with economic challenges
  that force them to make decisions that maximize
  their efficiency and yield the most profits.
• Additionally, the individuals in such jobs are
  also forced to follow the principles of economics
  when faced with similar decisions.
• Overall, we found three major reoccurring
  economic ideas throughout Office Space that are
  prevalent both in terms of the decisions made by
  the firm and those made by the individuals.
• Rational Self-Interest Both Initech and the main
  characters act in accordance with their own
  interests. Initech must do what is best for the
  company (like hire consultants) and the
  characters must do what is best for themselves
  (like steal from Initech).
• Common Property In an office situation, there
  are many pieces of common property. This creates
  frustration among the workers with items like the
  fax machine and it creates a free-riding problem
  among individuals as seen when Peter slacks off
  at his job.
• Demand Initech is a Y2K based company. At the
  time the movie takes place, the demand for
  Initechs services is quite high. As a result,
  Initech acts in a way to maximize the profits of
  this opportunity.

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Division of Labor

• All components of the project were worked on at
  group meetings.
• Bryan, Jeremy, and Scott all took an active roll
  in the brainstorming of economic ideas, the
  searching for images, and the construction of the
  power point.
• On an individual level, prior to meetings, we all
  watched the movie and formulated suggestions for
  the project. This way things would run smoothly
  as we tried to put it all together.

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Works Cited

• Miller, Roger LeRoy. Economics Today The Micro
• View. Boston Addison-Wesley, Inc., 2006.
• Office Space. Dir. Mike Judge. Perf. Ron
  Livingston,
• Jennifer Aniston, David Herman, Ajay Naidu,
  Diedrich Bader, Stephen Root, Gary Cole. 2005.
  DVD. 20th Century Fox.
• Office Space. Imdb.com. 28 November 2006.
•          http//www.imdb.com/title/tt0151804