A Few Economic Questions, and Answers

Leslie: I have never been married and earn less than my fellow men. How would this be explained?

<< On AVERAGE never married women earn the same as never married men, not the same as all men, including married men. An AVERAGE men are taller and stronger and heavier than women. But, some women are taller, stronger and heavier than most men.

Renato: The Pinochet government, under the advice of the Chicago Boys, did a lot of good things for Chile. How could these good things be highlighted over the bad ones?

<< It is very difficult to compare apples and oranges. Pinochet did good things for the economy. As an economist, hopefully, I can be excused for focusing on economic effects. However, obviously, he did a lot of bad things too. I don’t know of any metric that can compare the two, and declare that overall he was good or bad.

Francisco: You mention that a cook, waiter or sweeper at McDonalds has a low wage because he is less productive. But, I wonder this: suppose there are two cooks at McDonalds, one makes 20 hamburgers an hour and the other makes 50. Apparently the latter is more productive, so shouldn’t he earn more than his workmate who makes only 20? I also have this doubt: in a McDonalds restaurant, there may be one that sweeps, cleans and does everything with great efficiency, while another may be idle and do very little in the day. But at the end of the month they will earn the same wage regardless of their productivity. Why is this happening?

<< If nothing happens, then the 50 guy will get a better job elsewhere, and McD will lose money. Probably, the 50 guy will be promoted to manager. Let’s change your numbers; suppose it is not 20 and 50, but 45 and 50. Then, the costs of doing anything about this might well outweigh the benefits of doing so. Thus, wage equals productivity is only a rough approximation in reality. But in equilibrium, which we never reach but continually more in the direction of, w = prod, exactly.

María: You mentioned that LeBron James earns that amount of money because he is very productive, and that a professor earns less because he is not as productive as LeBron could be. However… I just wonder… isn’t this difference in wages due to shortages? I mean, there are a lot of college professors in the market, but very, very few professional basketball players. So the reason why the latter earn more is not because their supply is lower?

<< good question. But productivity is determined in part by supply. Suppose there were only half as many professors as there now are; then, presumably, the productivity of the last professor would be higher and so would his wage. In my verbal remarks, I only talked of “productivity.” If I were to be more technical, I would have mentioned “marginal revenue productivity” which is decreasing. “Too many cooks spoil the broth.” That is, productivity varies inversely with quantity. More cooks, or professors, and the marginal one has lower productivity. Fewer, and the reverse occurs.

Walter E. Block, Ph.D.

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2:24 am on September 16, 2020

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