Supply and Demand to the Rescue

I thank God for the coordination possible through supply and demand under prices.

Economics is most exciting when it is counter-intuitive. It teaches us that artificially supporting exports to "get more money" for a country leads to less goods or that price ceilings of rent actually lower the availability of "affordable" housing.

Don Boudreaux posted another counter-intuitive insight on why "necessary" occupations make little money. Prof. Boudreaux uses marginal product theory to explain wages. It is just supply and demand, which everyone should remember from econ 101, but most people forget. He wrote

...We in modern society should be pleased that so many occupations that are essential to the maintenance of human life and civil order pay those who work in those occupations so little relative to what workers in many other and less-’essential’ occupations are paid.

At first, this insight is counterintuitive.  How often do you hear friends and acquaintances lament, or express befuddlement over, the fact that the pay of people who work as paramedics, as police officers, as firefighters, or as home-health-care providers is only a tiny fraction of the pay of professional athletes, Hollywood stars, or opera divas?...

It’s an understandable sentiment.  But when you know economics, this reality – so upsetting and mysterious to so many – is also understandable.  And this reality becomes, at some level at least, a cause of celebration rather than lamentation.

First-responders’ pay is as low as it is because there are plenty of people able and willing to work as high-quality first-responders relative to the ‘need’ that we have for first-responders.  With so many highly skilled and dedicated people already working as first-responders, the value of the additional first-response services that we’d enjoy if we hire one more equally skilled and dedicated person to work as a first-responder is very low.  So we’re – rightly – unwilling to pay very much to hire this additional first-responder.  It makes no sense to pay an additional, say, $100,000 annually to get labor services that produce an additional, say, $30,000 worth of output.

So understand our good fortune!  We live in a society blessed with an abundant supply of high-quality live-saving labor services...

First-responders would be better off.  They would each be paid very handsomely for their services.  But many more of us would, as a result of this wage-raising scarcity of first-responders, die in automobile accidents and home and workplace fires.  High-quality first-response services would be very scarce and, hence, very highly priced.  Fortunately for us, our world has an abundance of high-quality first-responders.  It’s a blessing that we get such essential life-saving and life-enhancing services at relatively low costs.

I, for one, am thankful for all the great first-responders and teachers who are willing to work. Yes I wish everyone could make more money and I hurt for the families who struggle to get by. But, scarcity is omnipresent and the laws of supply and demand hold.

 

Leave a Reply

Your email address will not be published. Required fields are marked *