The High Cost of Do-It-Yourself Cost Cutting

But the average annual pay increase has been below 4% since 2002. In the 1990s, pay increases outpaced inflation by about 2 percentage points a year. Recently, pay increases have only outpaced inflation by 1 percentage point or so. Subtract higher co-payments and premiums for company health insurance, and that pay increase just about vanishes.

Which explains the "popularity" of part-time work, either in the form of an official part-time job -- according to the Bureau of Labor Statistics, the number of persons working part-time increased by 495,000 from March through June 2004 -- or in the form of a "do-it-yourself" job, such as waiting in line, installing your own modem or assembling your own furniture.

When cash pay is stagnant or worse, consumers are willing to substitute their "free time" for paying higher cash prices. It's a good trade-off, in this economy, to spend six hours assembling a piece of furniture from Ikea instead of spending more for a more expensive factory-assembled table or desk, for example. Think of those assembly hours or that time waiting in line or on hold as a second job that pays in discounted prices.

Converting free time into lower cash prices isn't without its cost to consumers. I don't know about you, but I don't have a lot of free time as it is. Taking away some so I can wait on a help line or install my own replacement gasket on my washing machine may save me dollars, but it eats up another commodity that's in high demand in my life. I have a suspicion, but no way to put it into numbers, that patience is in increasingly short supply in the U.S. and that we're all crankier than we once were. Do-it-yourself cost-cutting strategies play a role in this.

Stock Winners: Efficiency and Lower Prices

Smith's perspective does suggest a way to pick stock winners and losers in an environment of do-it-yourself cost cutting. The winners are those companies that, when all the dollar savings and free-time consumption and potential aggravation are netted out, offer customers real value in the tradeoff of free time for lower prices. If the cash price is lower but customers think they have to spend too much time on the transaction, or the price of frustration outweighs the cash savings, then the customer is likely to conclude that the full toil-and-trouble cost is too high. The company may have successfully cut costs only to discover that it has also cut customers.

And the biggest winners are those companies that have combined lower prices and efficient transactions. They haven't just found a successful cost-cutting strategy, but a positive competitive weapon in this economy.