Economics at the North Pole: Are Santa's Elves Slaves?

A pair of economists seek to reconcile two conflicting schools of thought in order to predict what sort of environments increase incentives for labor coercion.
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NORTH POLE — Over 400 miles above the northernmost human settlements on Earth, a towering production facility rises out of the barren Arctic winterscape. It is a factory of astonishing size, scope, and efficiency, running day and night to churn out gifts for the morning of December 25th, year after year.

Closer inspection of this miracle factory, known here as Santa Claus' workshop, reveals that it has the capacity to produce an endless number of products in every variety, shape, and size, providing over half a billion children with toys.

The workshop's output is made all the more remarkable by its vertically integrated distribution system, which boasts a supercharged sled and nine reindeer. Every year, in the hours before the dawn of December 25th, Santa Claus packs all of his factory-made toys, jumps on this sled, and circles the globe at a dizzying pace. According to one estimate, Santa must travel at a non-stop pace of 6,650,807 miles per hour to accomplish this feat.

Santa's superhuman abilities and bottomless munificence have garnered him a huge fan base. And for good reason. Under Claus' leadership over the past few centuries, countless numbers of children have been brought joy on Christmas morning. Parents love him too. Polls show strong support for his policy of denying "naughty" children gifts, which they say creates a powerful incentive structure to promote good behavior.

Despite Santa's longstanding popularity and unmatched contributions to world progeny, there are growing whispers that he has unfairly snagged all of the fame and glory of his workshop's wonders. Focus has increasingly shifted to his workers, diminutive elves who always seem to be wearing green.

While it is clear that the elves, with their nimble hands and tireless hours of work, are indispensable to Santa's enterprise, what is much less clear is how they are treated. This ambiguity has given rise to concerns about their working conditions. Over at debate.org, for instance, an online poll posed the following question: "Are Santa's elves just slaves?" A resounding 57 percent of respondents said "yes."

"They work all year long for free while a fat guy works once a year and steals all of their credit," writes one commenter who believes that Santa's elves are slaves. "I'm pretty sure jolly St. Nick didn't make you a scooter, elf number 56245 did and you should thank him instead."

"Think about it," writes another commenter named "dotchili." "He gives out all of the toys that have been produced during the year for free, and does not have any other source of income."

While it's true that Santa receives no cash payments for his services, he does earn an ample amount of cookies. It's possible that he can repackage and resell cookies on the Internet for revenue to pay his little helpers, so this piece of evidence alone is not enough to brand Santa as an elvish-rights abuser.

But there is more damning evidence against Santa: Real-world sightings of his elves are exceedingly rare. Are the elves free to leave the North Pole? And if not, just what kind of society has Santa built at the top of the world?

Has a Shortage of Labor at the North Pole Led to Slavery?

When one trudges up to the North Pole, navigating through floating chunks of Arctic ice and bloodthirsty polar bears, a few facts become strikingly clear. It's really cold: The average winter temperature at the North Pole is a bone-chilling -40° Fahrenheit. It can get dreary: There is no sunlight for six whole months every year. And it's hard to get to and from here: There are no airports or seaports or highways connecting it to the outside world.

Why Santa decided to erect his workshop in such a desolate location is a mystery. One might point to a favorable regulatory environment or its geography, which has tons of free land (mostly ice) and resources and also serves as a central location for the rapid distribution of toys worldwide. But when it comes to analyzing the potential state of the elves, the North Pole's location and tiny population is a crucial thing to consider.

Economists have long debated whether a shortage of labor and an abundance of land spurs a society to adopt slavery. In 1970, Russian economist Evsey Domar published an influential paper, "The Causes of Slavery or Serfdom: A Hypothesis," that uses a simple model to explain how a high ratio of land to labor can provide a powerful force that can push a society to shackle its lower classes in slave conditions.

An example of Domar's theory in action is the introduction of slavery in North America. European settlers who wanted to strike it rich in the New World encountered an economic problem: free land was everywhere but labor was hard to find. When they set about creating large-scale agricultural enterprises to build their fortunes, they found it hard to convince free laborers to work for them at low wages. After all, why scrape by working for someone else when you could just leave and create your own farm? The inability of the ruling class to solve this problem, according to this theory, provided a huge incentive to do despicable acts.

In the opposite situation, where there are numerous workers and land is hard to come by, Domar argues that landowners will have a much easier time earning large sums of money. This is because it is easier to profit from valuable land and competition between a large mass of workers will keep wages low. In such a climate, slavery doesn't make as much sense to the ruling class because the cost of housing, feeding, and clothing slaves won't be much different than simply paying low wages.

While Domar's logic may sound convincing, another group of economists, known as Neo-Malthusians—after classical economist Thomas Malthus—argue the opposite: When labor is scarce and land is abundant, slavery (and serfdom) tends to disappear. Some in this camp point to the fall of serfdom in Western Europe in the wake of the Black Death of the 14th century, a plague that killed scores of people in Europe during the Middle Ages, leaving remaining labor a precious resource. One economic argument on why this led to the fall of serfdom goes like this: The ruling class of medieval landowners were forced to compete among each other for scarce labor, creating incentives to pay workers more and treat them better. And one of the most attractive ways to get the best workers was to offer them freedom.

Massachusetts Institute of Technology economists Daron Acemoglu and Alexander Wolitzky published a 2011 paper, "The Economics of Labor Coercion," that seeks to reconcile the two conflicting schools of economic thought regarding slavery. They create a model of a simplified economy with a neutral government in order to predict what sort of environments increase incentives for labor coercion (which they define as "forcing workers to accept employment, or terms of employment, that they would otherwise reject").

When it comes to labor scarcity at places like the North Pole, according to Acemoglu and Wolitzky's model, there are two important economic forces that can push elites to tyrannize the lower classes. The first is what they call the labor demand effect: The greater the demand for whatever workers are producing, the greater the incentive for their bosses to coerce them. As an example, they point to intensification of slavery in the 19th century in the American South to meet the insatiable demand for cotton in industrializing Britain's textile factories.

Given the swelling demand for Santa's gifts on December 25th, this prediction of Acemoglu and Wolitzky's model does not bode well for the elves. There is a second critical force, however, that can work in their favor. This one Acemoglu and Wolitzky call the outside option effect: The more outside employment options workers have, the more power they will have in their relationship with their bosses.

"One of our main predictions is that there will be more coercion when workers have worse 'outside options,'" Wolitzky, now at Stanford University, writes in an email. "When the worker has a bad outside option, it's easier for her employer to get her to work hard (as she's willing to accept worse employment terms, including terms where she has to work harder)."

What sort of outside options people—or elves—have can be dependent on many factors. Some are within the boss' control. Wolitzky gave the example of a slave owner "hiring guards to prevent workers from leaving the plantation/factory." Other factors can be outside the boss' control: for instance, the state of the macroeconomy or whether the government supports people's brutal domination over others.

Acemoglu and Wolitzky deliberately don't model the role of the government because the point of their paper is to understand the economic dynamics at hand. "You can think of our paper as being about predicting (on the basis of economic factors) when there will be more or less coercion in a context where coercion is politically/institutionally feasible," Wolitzky says. "But a huge part of the history of coerced vs. free labor was more directly determined by politics than by economics."

The state, historically in the pockets of the people doing the enslaving, has long backed, enforced, and propagated slavery, serfdom, and other forms of labor coercion. Slavery goes back millennia. It took a Civil War to end it North America. And where stomach-churning coercion continues in many parts of the world, the political freedom of people to speak, assemble, and organize all prove critical to fighting it.

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Returning to the desolate North Pole, there is no recognized government, so the condition of the elves turns on their direct relationship with Santa. If Santa covertly controlled both the private sector and the public sector in this winter wonderland, he would be a powerful dictator. On the other hand, the elves, who outnumber Santa, could have political power in the form of a union or political party.

When it comes to Acemolgu and Wolitzky's economic model, where the role of the state is seen more as a neutral referee, the answer to whether the elves are slaves depends crucially on their economic opportunities outside of the workshop—their outside options.

"So, to know if Santa's elves are slaves, we need to know what they'd be doing if it weren't for Santa," Wolitzky says. "If their outside option is subsistence agriculture in the Arctic, then they might be happy to be in the workshop, even if the wages are low. If their outside option is emigrating to Scandinavia and becoming video game designers, and Santa is somehow preventing them from doing this, then that's coercion."

Do the elves have outside opportunities that Santa is preventing them from pursuing? We need some empirical evidence.

The Redemption of Santa: Empirical Evidence From "Elf"

Luckily, while researching for this report, I discovered a long-lost historical artifact—dated 2003 C.E.—that can provide some empirical evidence on this matter: Elf, which features a main character that bears a striking resemblance to comedian Will Ferrell. It's a dramatization, but my sources tell me it's inspired by a true story.

In the movie's opening monologue, Papa Elf (played by Bob Newhart) seeks to educate viewers on certain "elfisms." One interesting "elfism," he says, is "there are only three jobs available to an elf." These are "making shoes at night," baking cookies "in a tree," and (drum roll, please)—"the show," "the big dance"—to "build toys in Santa's workshop."

"It's the profession every elf aspires to," Papa Elf explains. So not only do the elves have outside options—but their dream job is working for Santa!

All said and done, it seems very unlikely that Santa is a slave owner. Not only are the economic conditions not right, but it doesn't fit his character. What type of person spends his life giving out gifts that bring joy to millions while simultaneously domineering cheerful elves?

And while a majority of respondents at debate.org's poll said Santa's elves are slaves, 43 percent think this is all wrong.

"Elves aren't slaves!" writes an unnamed commenter. "They choose to work for Santa, making toys to see the joyful smiles on little children's faces when they unwrap a present and see the thing they wanted."

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