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.)