23 February 2011

Desert and Income

Stephen Kershnar
How Much Money Do Workers Deserve?
Dunkirk-Fredonia Observer
February 20, 2011

People often give their opinions about which workers are paid too much and which too little. Consider teacher salaries in the context of Wisconsin’s heated budgetary fights. Commentator Michelle Malkin points out that the average Wisconsin teacher’s salary for 2009-2010 was roughly $53,000. Malkin notes that the total wages of such workers is sometimes much higher. For example, she notes that the average Milwaukee Public School teacher will receive roughly $100,000 in compensation ($57,000 in salary and $44,000 in benefits). According to Tami Luhby writing for CNN, Governor Scott Walker’s proposal would require most state workers to contribute 5.8% to their pensions and 12.6% of their health insurance premiums. Luhby states that they currently pay little for their pensions and roughly 6% of their health insurance premiums.

Police salaries have also been discussed in the context of financially troubled states such as New York, New Jersey, and California. After five years, the base salary for New York State Troopers is roughly $85,000. This understates their salary because it does not include additional types of compensation. It leaves out extra pay for certain locations, expanded duty, hazardous duty, and so on. They also get to retire after 20 years. New Jersey police make more than do police in other states. Their base salaries average $91,000 a year (median salary 2009).

NFL salaries have recently been in the news because NFL owners are threatening to lock out players. According to the NFL Players Association, this past season the average salary was $1.1 million. This does not count disability benefits, pension coverage, medical and life insurance, and so on. The average career, however, is only 3 ½ years and most college players never make the NFL.

When people claim that various workers make more or less than they deserve, their opinion often rests on mistaken assumptions. For example, politicians and commentators often assume that teachers are underpaid and overworked. There is reason to doubt this. Professor Jay Greene of the University of Arkansas and the Manhattan Institute using data from the Bureau of Labor Statistics points out that public school teachers earned roughly $34 an hour in 2005. This was 36% more than the average non-sales white collar worker made and 11% more than the average professional specialty and technical worker made. They worked roughly 3 hours less per week than the former and 2 ½ hours less than the latter. Greene notes that the teachers made more per hour than architects, psychologists, chemists, mechanical engineers, and economists. Their overall salary is not that high due to the fact that over a year they work significantly less hours than do other workers (think summer and winter breaks). They also tend to get generous retirement and health benefits and greater job security relative to others and these factors are not part of the salary differential.

People have heated opinions about whether teachers, cops, and NFL players deserve more or less. The problem with these opinions is that they often rest on mistaken theories. The dominant philosophical theories hold that persons deserve to make a certain amount of money based on how hard they worked, how much they sacrificed, or how much they contributed to others.

Consider the theory that people deserve their income based on how hard they worked. This is implausible. Imagine two persons digging ditches for an employer. One uses his own shovel, the second his own backhoe. The second will get a lot more done and intuitively seems to deserve more pay, even though he likely didn’t work as hard. Even if hard work were to explain what people deserve to make, there is the problem of determining what counts as work done for a job. For example, physicians claim that they deserve their high salaries because they worked hard in medical school and during their residencies. It is hard to see, however, how someone could work hard in a job that he doesn’t yet have. Furthermore, if people enjoyed their job, then it is less hard in some sense. Hence, this theory suggests that if someone enjoys what he does, then he deserves less money. Again, implausible.

Consider the theory that people deserve their income because of the sacrifices they made or the risks they took. However, risk is only part of the cost-benefit package that comprises a job. NFL players have short careers and risk serious injury, yet play a game that many players enjoy with religion-like fervor. Many also get the benefits of celebrity status and much better dating opportunities. There is no satisfactory theory that explains why salary should track risk rather than the overall package of costs and benefits. Of course, the value of this package depends on an individual’s taste and there is no objective worth that can be assigned to it in order to determine what people deserve to make. For example, Greene points out that teachers get less overall salary than many professions, but have far more time to spend with their families and on other interests. The optimal balance between leisure and salary varies between individuals.

Sometimes the opinionated make up their own facts. For example, politicians and other gasbags often say that police officers have more dangerous jobs than others. The data does not support this. For example, according to 2008 data from the Bureau of Labor Statistics, police officers are killed far less frequently than farmers/ranchers and sanitation workers (they are 60% and 57% less likely to be killed). They are also injured less often (57% and 40% less likely to be injured). They are also killed less often than truck drivers (27% less likely). Yet most people don’t consider farmers, garbage men, and truck drivers to have dangerous jobs. In terms of overall danger, fisherman and loggers take far greater risk than all of them and still get paid less.

Consider the theory that workers deserve money based on what they contribute to others’ well-being. As mentioned in my last column, in a free market system, in general, income tracks the degree to which one person produces goods and services that others value. What explains why consumers are willing to pay more for some goods over others is that they value the former more. The money-test is less clear when it comes to government providers and those whose actions have effects not reflected in the marketplace (specifically, those whose actions have externalities). If this theory is correct, then a person deserves what people in the free market are willing to pay him. If this is right, then people who confidently hold forth on which workers are paid too much or too little, are spouting nonsense because there is usually is little way of knowing what these workers contribute relative to what cheaper and more expensive replacements would contribute.

In most cases, the best guide to how much money people deserve to make is what they get paid in the free market. When it comes to government workers, figuring out what they contribute to others when compared to cheaper and more expensive workers is pure guesswork.

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