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Tuesday, January 13, 2009

Noodling Around with Economic Justice

I have an honest question: Why should managers, officers, principals, lawyers, doctors, make more money than workers, soldiers, teachers, secretaries, nurses?

I describe this as an honest question because I am not saying that this is wrong. I am just wondering what is the justification (if there is one) for the differences. Is it hours worked? Is it value, preparation, rarity of skills, impact on profit, reward for an undesirable aspect of the job?

Just so the discussion has some grounding, not because these numbers are particularly solid, but they seems generally close to what my understanding is, here is what Indeed.com says about various folks who work in my field.



Josh said...
This comment has been removed by the author.
Josh said...

My friend and author extrodinare, Daniel Abraham, wrote what he calls a parable about economics. It's a good story. You can read it online.

Josh said...

It was nominated for a Hugo, by the way.

Matt Dick said...

It's scarcity. If you lose a worker who requires 40 hours of training, you must spend 40 hours getting a new person up to speed. If you lose a worker who requires 3 years of training, you must pend 3 years getting a new person up to speed.

Monetize 40 hours and 3 years and you have your difference.

JimII said...

Scarcity may be a part of the answer. I think it is pretty obviously not the whole answer, even with a particular field.

Look at the national trend in partner and associate compensation.

Matt Dick said...

Partners are partners, though, not "more highly skilled employees". If law firms are making less money, partners' incomes will drop toward associates' income.

A corporation has no partners; the VPs' salaries will not drop toward middle managers' salaries in the same way when corporations start to lose money.

shadowfax said...

I think there is a necessity for stratification. If you accept the premise that some people are better at things than other people, then it makes sense to get the better performers into the key positions. The most efficient way to do that is to pay them more, which makes the positions competitive, which ensures that the better performers are more likely to apply and be selected.

Case in point: ER Charge nurses. They have a great deal of responsibility at a very complex task -- managing the ER in real time. It's a challenging job and not a lot of fun, but it is critically important. It pays $2 more per hour than a staff nurse position. So nobody wants to do it, and many of the better candidates just stay staff nurses. Big problem for us, that steeper stratification would fix.

I think there are other variables that you and Matt identified -- scarcity, time, and value -- but those determine the magnitude of the pay differential, not the fact of its existence.

I should point out that there is one other factor: opportunism. This is an inefficiency, I think, which is exploited by those in power (CEOs and "managing partners" and the like) to inflate their salaries beyond their justifiable value. But that's another topic.

JimII said...

Matt, can we tweak your scarcity model to accommodate for some jobs being less desirable than others? In other words, it is not just a matter of required training that produces scarcity.

If we do that, then it seems the market forces are pushing up on the salary of the charge nurses. Your institution is not running as efficiently as it could if the salary/wage was higher.

Liam, I think you are pushing another idea, though. The idea that wage difference is necessary for maintaining chain of command. Am I right?

Matt Dick said...

I think there are other variables that you and Matt identified -- scarcity, time, and value -- but those determine the magnitude of the pay differential, not the fact of its existence.

Liam, I disagree, I think scarcity is sufficient to produce stratification, if you assume jobs have value.

Desirability reduces supply, so yes, it is also an important variable.