Robert Whaples and the Modern Principles

A blog on my teaching with Modern Principles of Economics by Tyler Cowen and Alex Tabarrok

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Labor Markets, God and Mammon

Posted by Robert Whaples on September 22, 2009

Yesterday, I finished Cowen and Tabarrok’s international trade chapter and began a discussion of chapter 14 on labor markets.  In a nutshell the chapter argues that 1) just as in other markets the price of labor is largely determined by the forces of supply and demand but that 2) labor is special in some important ways — e.g. workers care about how they are used, but products rarely do.  To me the highlight of the chapter is the discussion of compensating wage differentials — explained both in terms of supply/demand forces and using a graphic of a scale combining different packages of wages and fun to balance the overall compensation and attractiveness of similar jobs.  I framed it this way in class: Accountants and clergy are both well educated and intelligent, yet we pay accountants a lot more than the clergy.  Is this because we care more about money than about God?  Ironically, the compensating wage differential argument turns this answer on its head — the clergy are compensating by social prestige, the sense of doing something important, knowledge that they’re working for a good cause, etc. — thus they get paid less BECAUSE we collectively care more about God than money.  The chapter’s discussion of discrimination is also very thought provoking — especially the section about why discrimination isn’t always easy to identify.  I’ll cover this in class tomorrow and start with the observation that left-handed male college grads earn about 15% more than their right-handed colleagues.  Should we jump to the conclusion that this reflects discrimination?  Probably not.

Follow up note: Today I read the Wikipedia article on the episode about “Spock’s Brain” — a weird episode that I some how missed back in my youth.  Apparently it isn’t only economists who think it was pretty lame.  (While I was there, as a public good I added a note about C&T’s criticism of the episode.)

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12 Responses to “Labor Markets, God and Mammon”

  1. Jayson said

    Subtle difference, but I think you mean to say that the *clergy* cares more about God than Money and will thus accept a lower wage for their services. It is indeterminate what “we” care about. Unless, of course, you yourself are part of the clergy.

    • robertwhaples said

      Interesting point. People attracted to the clergy obviously perceive all sorts of non-monetary “compensation” from the job, but I think that most of society sort of pats the clergy on the back and thinks they are special, yielding additional non-monetary compensation to them. By “we” I meant society as a whole (but obviously not every single person).

  2. ZBicyclist said

    On a related note, suppose you have two job offers after college. One is working for a well-run company that has a reputation for providing good training and good future opportunity (e.g. Procter and Gamble). The other company is in the same sector, but poorly run and with a weak reputation (let’s call them JunkCo).

    If you would be willing to work at P&G for $50,000, how much salary would be required to choose JunkCo instead? It has to be more.

    Poorly run companies pay new employees better (controlling for the quality of the employee). They have to.

    • RMG said

      Not necessarily.

      One issue is the type of training received; is training primarily ‘firm-specific’ or ‘general’?

      Second, what is the marginal product of a worker at a poorly run firm, relative to marginal product at an efficient firm?

  3. J said

    The key is “workers care about how they are used”. People who go into the clergy do so because that’s what they want (or rather, feel called) to do. I’ve never met an accountant who would say that about their career.

    In general, pay is not connected to the value of one’s work, but to replacement cost, i.e. employees they get paid slightly less than what it would cost to replace them. Because people who go into the clergy are very motivated to do so, they’re going to make less than people who go into professions they’re indifferent about.

    • RMG said

      My experience is that pastors are paid quite well. (Housing is often included in the compensation package.)

      Also, what’s the likelihood of a pastor being fired… compare that to typical private sector jobs.

  4. […] "Accountants and clergy are both well educated and intelligent, yet we pay accountants a lot more than the clergy. Is this because we care more about money than about God?"  Robert Whaples explains. […]

  5. Umm, clergy and accountants. Hmm.

    It could be that accountancy is a rare skill whereas wibbling about a non-existent sky fairy is one in rather greater supply?

  6. […] "Accountants and clergy are both well educated and intelligent, yet we pay accountants a lot more than the clergy. Is this because we care more about money than about God?"  Robert Whaples explains. […]

  7. StL Pastor said

    As a pastor, I have to say, Tim has a point.
    There are educated clergy, but there is also a big supply of people willing to preach without an expensive seminary education, or even a college education, and many of these people will preach for free.

    As a side note, In some ways its an advantage not to go to seminary-its hard to go to a reputable seminary and come out believing the Bible is infallible or that evolution is a bad explanation for reality, so if you skip seminary you have a higher likelihood of appeasing the majority of congregants who are intentionally ignorant of modern Biblical scholarship.

  8. rick larsen said

    To Tim – Oh, that’s right. Numbers exist… on what planet do they spend most of their time?

  9. […] Labor Markets, God and Mammon accountantsclergyeconomicsgodlabormarketmoneywages […]

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