Hi all,
A friend sent me the following article on how certain people in the workforce are paid way below the value of their contributions to society: http://news.bbc.co.uk/2/hi/business/8410489.stm
For example:
"Childcare workers
Both for families and society as a whole, looking after children could not be more important. As well as providing a valuable service for families, they release earnings potential by allowing parents to continue working. For every pound they are paid they generate up to £9.50 worth of benefits to society."
and
"Hospital cleaners
Play a vital role in the workings of healthcare facilities. They not only clean hospitals and maintain hygiene standards but also contribute to wider health outcomes. For every pound paid, over £10 in social value is created."
My response was that the marginal value product of these workers did in fact match the value of their work on the following grounds: in both of the examples, highly specialized and efficient workers (i.e. doctors and nurses) are freed to perform the tasks at which they are most efficient (saving lives, etc.) by having someone less specialized (child care worker or hospital cleaner) carry out the more menial tasks that the specialized workers would otherwise have to deal with. If the research is shown to be correct (which is dubious considering its source), it is only true that, for example, for every pound paid, a hospital cleaner frees a doctor or nurse to provide society with £10 in social value. This is certainly different than saying that the cleaner provides £10 of value him/herself.
Does that sound correct? I’m mostly satisfied by the response, but I guess I’m a little tripped up over how to determine the MVP of a factor of production, when increasing its supply by 1 seems to increase the MVP of complementary factors of production. Should not the complementary increase in MVP be considered as part of the total value contributed by the added marginal unit?
Yes!
No, it should not be. Otherwise, MVP would be merely a matter of the last piece being favored. For example, you’d then have to value a screw at millions of dollars since it’s the last screw that is put into the machine that completes the aircraft.
So how does MVP get sorted out? It has to do with the relative scarcity of each factor of production. For example, doctors are relatively scarcer than hospital cleaners. So, much of the spending that goes into medicare is allocated to doctors.
MVP is nothing particular about the factors market. It applies to the consumer goods market too. You can visualize goods in the consumer market fighting out for the limited amount of cash in the pockets of the consumers. Which of the goods in the market gets the highest amount of the consumers’ cash depends on the goods’ relatively scarcity when compared with other goods.
Hope that helps!
I think I lost 10 IQ points just reading that article. There were so many fallacies I lost track of them all. I guess the two largest were societal reification and the labour theory of value. The authors don’t understand the implications of the marginal revolution.
First of all, there is no entity known as society. Society is just an abstraction which describes human interaction. There is no such thing as “benefiting society.” There is also no such thing as “social value.” Value is an action-produced phenomenon which individuals demonstrate when they choose between alternatives. It is strictly ordinal and impossible to measure quantitatively. It is also impossible to make interpersonal comparisons of utility (value).
Money does not represent social value, which is not even a coherent concept. Money is simply the most commonly accepted medium of exchange.
Arguing that someone is not paid enough for the value they generate is an entirely arbitrary value judgement. It isn’t based on any objective criteria whatsoever.
The MVP of a factor is the difference between what the firm is presently earning, and what it would earn if there were one less unit of that factor, all other factors remaining constant.