Alex Taborok and Tyler Cowen have some wonderful short videos to support their "Online University" initiative. This one explains why wages tend to be higher for jobs that suck - an application of what we call "The Indifference Principle."
I can see the logics behind the wage differentials between high safety risk jobs and low safety risk fun jobs. On one hand, in order to attract committed and skilled workers to these high safety risk jobs, the incentives then have to be glamorous. Otherwise these industries would be faced with labor shortages and meager production. Notwithstanding, if labor supply and specialized skills are low, the bottom line is, companies will pay what it takes to meet productivity goals. For example, the question could to be asked, why coal miners are paid so handsomely. Is this so, because of the educational requirements of specialized skillset required? I doubt this rational would hold water. Maybe, another reason for high wages could be the fact that the coal industry drug tests is pretty aggressively and union rate for this kind of work is just naturally high. Conversely, one could argue that firefighter and Law enforcement jobs are also high safety risks jobs yet the pay is not as glamorous as coal mining jobs. In the final analysis, while high safety risk could be a major factor for high wages, it is also possible that those jobs that suck also bring in very higher revenue that is also extended to their hard workers.
Coal mining is about as extreme an example as you could come up with, the risk is guaranteed and severe with this job. I once spoke to a retired HR Director that spent 40 years working for a mining company. I will never forget how he described the career cycle of a miner, it was haunting and disturbing to say the least. Basically HR hires a new miner at 17 and when the same miner is 35 HR is handing his widow a life insurance check; it is that extreme. That is why they get compensated so well. I come from a family of NYPD officers, their job is risky; in my opinion all cops should make $1,000,000 per year but they don’t. Their risk is different than the risk of a coal miner. I believe the difference is that their risk can be reduced with better training, better equipment, and improved processes or perhaps with new policies and laws. On the other hand there are simply too many officers that are becoming victims to 911 related illnesses 14 years later, a risk that was not calculated 15 years ago. This is an extreme example of compensation differential between two very risky professions. JG
In the video, Cowen and Tabarrok discuss the correlation between compensation and job satisfaction and safety. “Wages adjust until jobs requiring a similar level of skill have similar compensation packages. Jobs that aren’t very fun have to have higher wages…” (Cowen & Tabarrok 2015). When considering the issue of safety, “wages adjust until the difference in wages compensates for the risk” (Cowen & Tabarrok 2015).
In a similar article from Adams and Artz, they found that, “Middle-aged and middle-income workers, particularly those with young children at home, showed the strongest negative relationship between health insurance and job satisfaction” (Adams & Artz 2015). They believe that the most plausible explanation is that “these workers were in suboptimal labor market situations because of their familial responsibilities to provide health insurance for their family relative to workers who were free to choose a better job match or not work at all.”
However, Cowen and Tabarrok would argue that “the major cause of increased job safety is increase in wealth and the profit motive… but this process works only when the workers know about the risks” (Cowen & Tabarrok 2015).
References: - Adams, S., & Artz, B. (2015). Health insurance, familial responsibilities and job satisfaction. Journal of Family and Economic Issues, 36(1), 143-153. - Tyler Cowen and Alex Tabarrok. "Compensating Differentials." YouTube. YouTube, 7 Apr. 2015. Web.
Indifference Principle (Froeb, 2014) is “the ability of assets to move from lower- to higher- valued uses” and “is the force that moves an industry toward long-run equilibrium”. Indifference principle tells us that if labor are “mobile, then in long-run equilibrium” will be “indifferent about where are used”. The indifference principle applies to the capital mobility too (Froeb, 2014). The risk-on investing principles applies to emerging markets. Moderate to high risks are generally associated with investments in Eastern European countries, and the most recent forecasted growth in 2015 of 1.3% is not very encouraging to foreign investment; the Ukrainian crisis and its proximity don’t help. Eastern Europe’s efforts to reform its national economies and constantly meet Brussels demands and leadership are most encouraging. Past history and current geography of the region may stifle its aspirations, while the post cold-war re-positioning of wealth and alliances seem to only be emerging.
Indifference Principle (Froeb, 2014) is “the ability of assets to move from lower- to higher- valued uses” and “is the force that moves an industry toward long-run equilibrium”. Indifference principle tells us that if labor are “mobile, then in long-run equilibrium” will be “indifferent about where are used”. The indifference principle applies to the capital mobility too (Froeb, 2014). The risk-on investing principles applies to emerging markets. Moderate to high risks are generally associated with investments in Eastern European countries, and the most recent forecasted growth in 2015 of 1.3% is not very encouraging to foreign investment; the Ukrainian crisis and its proximity don’t help. Eastern Europe’s efforts to reform its national economies and constantly meet Brussels demands and leadership are most encouraging. Past history and current geography of the region may stifle its aspirations, while the post cold-war re-positioning of wealth and alliances seem to only be emerging.
Novick, ESC, Economics It seems like common sense that, all else equal, i.e. similar jobs, the higher the risk the higher the pay. This definitely makes sense with regard to the example provided regarding fishermen in Mexico versus Alaska.
“Unattractive jobs will pay compensating wage differentials” (Froeb, 2016). The indifference principle is used with regard to “once equilibrium is reached, differences in wages reflect differences in the attractiveness of a profession” (p.116)
I found it interesting that government regulations and unions only play a small part when it comes to ob safety. I would have thought that with the implementation of OSHA, and the high fees for failure to comply, organizations would need to fulfill safety measures. Taborok discussed how with an employees increasing wealth, they are less willing to accept high risk jobs. I understand this completely. This is also talked about with Froeb and “risk premiums”. He states that “as higher wages compensate embalmers for preserving cadavers due to the unattractiveness of the profession” If a job is more risky or less attractive, there is a higher rate of return
Government regulations are getting more strict in regards to safety, but if a company just goes through the motions and does the minimum to meet those standards, they are not doing themselves or employees any good. The company I work for does road construction and their main priority is safety. They go above and beyond the minimum regulations, sending out multiple safety updates and reminders for all crews each week, providing all PPE, conducting safety training for all employees each year before the busy season starts and a couple of different incentive programs for being safe. I would say the majority of employees truly appreciate this and are more loyal to the company because of it. The pay is typically not up to us as many projects that are worked on, the rate is set by the state, but the benefits the company provides is a much better benefit package across no matter what industry you look at. Some people may not care much about benefits, but others appreciate how much is covered and mixed with the high standard of safety, are happy to be with the company.
I can see the logics behind the wage differentials between high safety risk jobs and low safety risk fun jobs. On one hand, in order to attract committed and skilled workers to these high safety risk jobs, the incentives then have to be glamorous. Otherwise these industries would be faced with labor shortages and meager production. Notwithstanding, if labor supply and specialized skills are low, the bottom line is, companies will pay what it takes to meet productivity goals.
ReplyDeleteFor example, the question could to be asked, why coal miners are paid so handsomely. Is this so, because of the educational requirements of specialized skillset required? I doubt this rational would hold water. Maybe, another reason for high wages could be the fact that the coal industry drug tests is pretty aggressively and union rate for this kind of work is just naturally high.
Conversely, one could argue that firefighter and Law enforcement jobs are also high safety risks jobs yet the pay is not as glamorous as coal mining jobs. In the final analysis, while high safety risk could be a major factor for high wages, it is also possible that those jobs that suck also bring in very higher revenue that is also extended to their hard workers.
Leo Palmer ESC Managerial Econ
This comment has been removed by the author.
DeleteCoal mining is about as extreme an example as you could come up with, the risk is guaranteed and severe with this job. I once spoke to a retired HR Director that spent 40 years working for a mining company. I will never forget how he described the career cycle of a miner, it was haunting and disturbing to say the least. Basically HR hires a new miner at 17 and when the same miner is 35 HR is handing his widow a life insurance check; it is that extreme. That is why they get compensated so well. I come from a family of NYPD officers, their job is risky; in my opinion all cops should make $1,000,000 per year but they don’t. Their risk is different than the risk of a coal miner. I believe the difference is that their risk can be reduced with better training, better equipment, and improved processes or perhaps with new policies and laws. On the other hand there are simply too many officers that are becoming victims to 911 related illnesses 14 years later, a risk that was not calculated 15 years ago. This is an extreme example of compensation differential between two very risky professions.
DeleteJG
In the video, Cowen and Tabarrok discuss the correlation between compensation and job satisfaction and safety. “Wages adjust until jobs requiring a similar level of skill have similar compensation packages. Jobs that aren’t very fun have to have higher wages…” (Cowen & Tabarrok 2015). When considering the issue of safety, “wages adjust until the difference in wages compensates for the risk” (Cowen & Tabarrok 2015).
ReplyDeleteIn a similar article from Adams and Artz, they found that, “Middle-aged and middle-income workers, particularly those with young children at home, showed the strongest negative relationship between health insurance and job satisfaction” (Adams & Artz 2015). They believe that the most plausible explanation is that “these workers were in suboptimal labor market situations because of their familial responsibilities to provide health insurance for their family relative to workers who were free to choose a better job match or not work at all.”
However, Cowen and Tabarrok would argue that “the major cause of increased job safety is increase in wealth and the profit motive… but this process works only when the workers know about the risks” (Cowen & Tabarrok 2015).
References:
- Adams, S., & Artz, B. (2015). Health insurance, familial responsibilities and job satisfaction. Journal of Family and Economic Issues, 36(1), 143-153.
- Tyler Cowen and Alex Tabarrok. "Compensating Differentials." YouTube. YouTube, 7 Apr. 2015. Web.
Indifference Principle (Froeb, 2014) is “the ability of assets to move from lower- to higher- valued uses” and “is the force that moves an industry toward long-run equilibrium”. Indifference principle tells us that if labor are “mobile, then in long-run equilibrium” will be “indifferent about where are used”. The indifference principle applies to the capital mobility too (Froeb, 2014). The risk-on investing principles applies to emerging markets. Moderate to high risks are generally associated with investments in Eastern European countries, and the most recent forecasted growth in 2015 of 1.3% is not very encouraging to foreign investment; the Ukrainian crisis and its proximity don’t help. Eastern Europe’s efforts to reform its national economies and constantly meet Brussels demands and leadership are most encouraging. Past history and current geography of the region may stifle its aspirations, while the post cold-war re-positioning of wealth and alliances seem to only be emerging.
ReplyDeleteReference: Froeb, L., McCann, B.T., Shor, M., Ward, M.R. 2014. Managerial Economics. P.106
Indifference Principle (Froeb, 2014) is “the ability of assets to move from lower- to higher- valued uses” and “is the force that moves an industry toward long-run equilibrium”. Indifference principle tells us that if labor are “mobile, then in long-run equilibrium” will be “indifferent about where are used”. The indifference principle applies to the capital mobility too (Froeb, 2014). The risk-on investing principles applies to emerging markets. Moderate to high risks are generally associated with investments in Eastern European countries, and the most recent forecasted growth in 2015 of 1.3% is not very encouraging to foreign investment; the Ukrainian crisis and its proximity don’t help. Eastern Europe’s efforts to reform its national economies and constantly meet Brussels demands and leadership are most encouraging. Past history and current geography of the region may stifle its aspirations, while the post cold-war re-positioning of wealth and alliances seem to only be emerging.
ReplyDeleteReference: Froeb, L., McCann, B.T., Shor, M., Ward, M.R. 2014. Managerial Economics. P.106
Novick, ESC, Economics
ReplyDeleteIt seems like common sense that, all else equal, i.e. similar jobs, the higher the risk the higher the pay. This definitely makes sense with regard to the example provided regarding fishermen in Mexico versus Alaska.
“Unattractive jobs will pay compensating wage differentials” (Froeb, 2016). The indifference principle is used with regard to “once equilibrium is reached, differences in wages reflect differences in the attractiveness of a profession” (p.116)
I found it interesting that government regulations and unions only play a small part when it comes to ob safety. I would have thought that with the implementation of OSHA, and the high fees for failure to comply, organizations would need to fulfill safety measures. Taborok discussed how with an employees increasing wealth, they are less willing to accept high risk jobs. I understand this completely. This is also talked about with Froeb and “risk premiums”. He states that “as higher wages compensate embalmers for preserving cadavers due to the unattractiveness of the profession” If a job is more risky or less attractive, there is a higher rate of return
Froeb (2016). Managerial Economics
Government regulations are getting more strict in regards to safety, but if a company just goes through the motions and does the minimum to meet those standards, they are not doing themselves or employees any good. The company I work for does road construction and their main priority is safety. They go above and beyond the minimum regulations, sending out multiple safety updates and reminders for all crews each week, providing all PPE, conducting safety training for all employees each year before the busy season starts and a couple of different incentive programs for being safe. I would say the majority of employees truly appreciate this and are more loyal to the company because of it. The pay is typically not up to us as many projects that are worked on, the rate is set by the state, but the benefits the company provides is a much better benefit package across no matter what industry you look at. Some people may not care much about benefits, but others appreciate how much is covered and mixed with the high standard of safety, are happy to be with the company.
ReplyDelete