On the Relatively Low Salaries of Relatively Essential Workers

by Don Boudreaux on October 3, 2013

in Economics, Myths and Fallacies, Seen and Unseen

Last night in my ECON 385 class (International Economic Policy) my students and I began discussing the effects of international trade on wages.  As a preface to this discussion I reviewed the basics of the economic theory of wage determination.  (Most of my students in this class are Global Studies majors; for many of them, this class is the first one in economics that they’ve ever taken.)  That theory, in a phrase, predicts that workers’ pay is determined by the value of the ‘marginal’ worker’s output.

Among other facts, this theory clearly explains that we in modern society should be pleased that so many occupations that are essential to the maintenance of human life and civil order pay those who work in those occupations so little relative to what workers in many other and less-’essential’ occupations are paid.

At first, this insight is counterintuitive.  How often do you hear friends and acquaintances lament, or express befuddlement over, the fact that the pay of people who work as paramedics, as police officers, as firefighters, or as home-health-care providers is only a tiny fraction of the pay of professional athletes, Hollywood stars, or opera divas?  ”It’s appalling!” goes the standard complaint.  ”Throwing touchdown passes on Sunday afternoons is a frivolous activity while prying unconscious people out of wrecked automobiles literally saves lives.  And yet the guy who throws a football for a living is paid millions of dollars annually while the men and women who risk their lives as first-responders to save others’ lives are each paid, if they’re lucky, $40,000 annually.”

It’s an understandable sentiment.  But when you know economics, this reality – so upsetting and mysterious to so many – is also understandable.  And this reality becomes, at some level at least, a cause of celebration rather than lamentation.

First-responders’ pay is as low as it is because there are plenty of people able and willing to work as high-quality first-responders relative to the ‘need’ that we have for first-responders.  With so many highly skilled and dedicated people already working as first-responders, the value of the additional first-response services that we’d enjoy if we hire one more equally skilled and dedicated person to work as a first-responder is very low.  So we’re – rightly – unwilling to pay very much to hire this additional first-responder.  It makes no sense to pay an additional, say, $100,000 annually to get labor services that produce an additional, say, $30,000 worth of output.

So understand our good fortune!  We live in a society blessed with an abundant supply of high-quality live-saving labor services.

Ask: would you prefer to live in a society in which people’s ability and willingness to work as first-responders were as scarce, relative to our ‘need’ for such services, as is the ability to work as a N.F.L. quarterback?  If our society were populated not with tens of thousands, but only with a few dozen, people who can supply top-notch first-response services, would we be better off than we are in reality today or would be worse off?  The answer is obvious: we’d be worse off.

First-responders would be better off.  They would each be paid very handsomely for their services.  But many more of us would, as a result of this wage-raising scarcity of first-responders, die in automobile accidents and home and workplace fires.  High-quality first-response services would be very scarce and, hence, very highly priced.  Fortunately for us, our world has an abundance of high-quality first-responders.  It’s a blessing that we get such essential life-saving and life-enhancing services at relatively low costs.

See this recent, related post by Alex Tabarrok.

….

After class, one of my students, Ricky Ewell, pointed out to me that people who complain about life-saving pharmaceuticals costing so much are inconsistent if these people are also among those who complain that life-saving first-responder services cost so little.  Ricky’s insight is brilliant.  It’s one that I wish I’d have thought of.  I have no idea if others elsewhere made the point that Ricky made, but it’s a credit to Ricky – and to my colleagues at GMU Econ – that Ricky made this fascinating and spot-on connection.  (Ricky is one of the few students in my ECON 385 class to have had more than one econ class at GMU.)

Be Sociable, Share!

Comments

comments

Add a Comment    Share Share    Print    Email

Previous post:

Next post: