The New Economic Foundation (NEF) is “an independent think-and-do tank that inspires and demonstrates real economic well-being.” It aims “to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environmental and social issues. We work in partnership and put people and the planet first.” It has just published a study into pay, A Bit Rich: Calculating the real value to society of different professions (see link below). This argues that narrow notions of productivity, whilst having some relation to pay, are a poor way of judging the worth of particular jobs to society.
“In this report NEF … takes a new approach to looking at the value of work. We go beyond how much different professions are paid to look at what they contribute to society. We use some of the principles and valuation techniques of Social Return on Investment analysis to quantify the social, environmental and economic value that these roles produce – or in some cases undermine.
Our report tells the story of six different jobs. We have chosen jobs from across the private and public sectors and deliberately chosen ones that illustrate the problem. Three are low paid – a hospital cleaner, a recycling plant worker and a childcare worker. The others are highly paid – a City banker, an advertising executive and a tax accountant. We recognise that our incentives are created by the institutions and systems around us. It is not our intention therefore, to target the individuals that do these jobs but rather to examine the professions themselves.”
So, to what extent do rates of pay reflect the ‘true value’ of what is being created? How could we establish this ‘true value’? Does pay even reflect marginal productivity in the narrow private sense? The report and the articles look at these issues.
A Bit Rich New Economics Foundation (14/12/09), (see also)
Top bankers destroy value, study claims Financial Times, Chris Giles (14/12/09)
Hospital cleaners ‘worth more to society than bankers Telegraph, James Hall (14/12/09)
Cleaners ‘worth more to society’ than bankers – study BBC News, Martin Shankleman (14/12/09)
Cleaners worth more to society than bankers, says thinktank Guardian (14/12/09)
Hospital cleaners ‘of more value to society than bankers’ Scotsman, Alan Jones (14/12/09)
Bankers and accountants a drain on the state, says think-tank Management Today (14/12/09)
Are cleaners worth more than bankers? BBC World Service (14/12/09)
Questions
- What is meant by the marginal productivity theory of wage determination? Does the NEF study undermine this theory? Explain.
- Why are elite bankers, tax accountants and advertising executives paid so much more than hospital cleaners, waste recycling workers and childcare workers?
- “Until the prices of goods and services reflect the true costs of their production, incentives will be misaligned. This means damaging activities will be relatively cheap and profitable, while positive activities will be discouraged.” Explain this statement and whether you agree with it.
- To what extent can the misalignment of pay and social worth be explained by externalities?
- What is the basis for arguing that tax accountants and City bankers have negative social worth? Do you agree? Explain.
- What would happen if hospital cleaners were give a pay rise and bankers given a pay cut so that cleaners ended up with a higher pay than bankers?
- In the light of the NEF study, what policies should the government adopt toward pay inequality?