In middle school, I broke my leg in a soccer tournament game. I needed to go to the hospital and get extra support for the next month. Some of the workers who helped me were not highly paid, but my value of their services was very high.
Why bring this up? There has been conversation about the label “low skill” work this week. Brian Albrecht summarized the debate. Brian tangentially mentioned the “diamond-water paradox,” but I think it is worth talking more about that. Economists have a few models and stories that change the way you think about the world.
When I teach Labor Economics, we read an excerpt from Average is Over and then I explain the diamond-water paradox in class. I ask the students why diamonds cost more than water, even though water is more important. The answer can help us understand how wages get set for human workers (I say “human” because by that time we are deep in the topic of robot workers as substitutes).
I tell my students that some of the low-pay work performed by humans is extremely important. I’m still looking for the perfect illustration here. The one I use goes something like this, which is related to my broken leg anecdote… imagine if you tripped on train tracks and couldn’t get yourself out of the way of an oncoming train. How much would you pay a human to haul you to safety? Almost any human could perform the task. That service would be as valuable as a glass of water if you are about to die from thirst, which is to say that your value for it is almost infinite.
The key to understanding the market price of cleaners as opposed to the high wages for repairing Facebook code is marginal thinking. There is a lot of water, so the next glass is going to be cheap.
In writing Average is Over, Tyler Cowen is trying to understand why wages for the-less-highly-paid-skills have stagnated recently, while wages for the-highly-paid-skills are increasing along with GDP. He brings computers and technology into the conversation, as one culprit for recent changes. There is a limited supply of humans who can show up to a tech job and contribute reliably. “Programmers” are not the only highly paid class of workers, but it’s easy to see that the supply of people who are proficient with Python is limited.
I see two opposing forces in the tech world, which I have been following for a few years. First, we have boot camps, code clubs and all kinds of resources to both equip and encourage people to go into tech. I volunteer to advise a club that provides resources for female college students taking a technical route. On the other hand, lots of people who do get a foot into the door of a tech company become upset and quit.
Here is a quitter (a twitter quitter?):
You can read about this specific situation at this woman’s website. It seems like she made the right choice for herself. She is actually on a mission to change tech for women. I’ll reproduce the text here, in case someone can’t see the tweet: “first day at my new job! i am now a ceramicist because it lets me have no commute, make my own hours, decide the value of my work, and bring people joy. make no mistake, i wanted to code, but tech fulfilled none of that. so i hand off the baton. please fix tech while i make pots!”
The point is that she is one of many people who have dropped out of the tech workforce. Those employees who remain are pushed up toward the “diamond market price” and away from the “water market price”. Here is a blog about “burnout” survey data from 2018.
Populations in rich countries are not growing and labor force participation is down. Could the market wage for lower-skill-requirement jobs in the US rise dramatically in the next century, or at least keep pace with the wage increases that were recently enjoyed by those-with-the-capabilities-that-are-highly-valued? Marginal utility still apply, but prices will change if supply shifts.
See my old blog about Andrew Weaver who is researching skills that are in demand.