Thursday, October 6, 2011

Wages and the value of work

In classical economics, wages are assumed to be equal to the marginal product of labor. This is intuitive in production economies where workers actually make something. Where I think this approach fails is when we move to service economies where wages are then assumed to be the marginal product of some incremental stream of service (either measured in per unit time or some measure of per-service e.g. gutter cleaning).

I suspect that many economists would also assume that how much we value our “stuff” is the same as the willingness to pay for the “stuff” and if we value it more than the market price then this is consumer surplus. These same economists would also consider it an efficient outcome if consumer surplus were zero, that is, there is perfect price discrimination and everyone paid out their willingness to pay.

Now, I’m not quite sure where I am going with this except to say that while this is all well and good, many consumers who could also be economists (myself included) would think that our goal in shopping is to maximize our bargains, i.e. our consumer surplus. This is also true when we shop for services as was our case in our recent remodel of the house (although I would say that our consumer surplus there was zero).

But what about other services such as those in the “caring” professions. Recently, WaPo published the following:

… the degrees in least demand — and that pay the least — lead to jobs that help other people the most. Counseling, psychology and social work are among these.

Does this mean that we as a society value caring professions less? If we want cheap (or affordable) child or elder care, does this mean that we put a lower value on those whose jobs are to be responsible for those we care about - and by extension does this mean that we care less about those whom we want cared for? What about school bus drivers or just regular bus or train operators who are responsible for the lives of many? Does low wages imply low valuation on the lives they are responsible for?

Classical economists would argue that it is not the annual wages that matter but the stream of lifetime income that these workers make that is the correct measure. Even if this is the case, the lifetime incomes of these workers are probably lower than many other occupations.

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