HomeBudget & Tax NewsWhat Does It Mean to Say that a Job Is Underpaid? (Commentary)

What Does It Mean to Say that a Job Is Underpaid? (Commentary)

By David Boaz

The market is ultimately the most efficient determiner of wages.

A Washington Post reporter writes, “Child‐​care workers have long been underpaid.”

By what standard? How does the reporter know that? There’s no official list of the “right” wage for any job. The reporter goes on to say, “The country’s economy depends on child care, but its workers, nearly all of whom are women, earn an average of $27,680 — less than bellhops and taxi drivers.”

There are about 130 million private‐​sector jobs in the United States. No central planner sets their wages. Wages and salaries generally reflect supply and demand, that is, what consumers are willing to pay for a service, what an employer can pay for workers to provide the service, and what wage a potential employee is willing to accept.

It’s understandable that we “feel” that child‐​care workers should be paid more — they take care of our children, what job could be more important? And who is the “we”? If parents seeking child care think providers should be paid better, they can seek out child‐​care facilities that do pay workers more and probably charge customers more.

We hear complaints about salaries all the time: Why does a movie star make more than a teacher? A few years ago a theory called “comparable worth” emerged, arguing that employers should be “required to set wages to reflect differences in the ‘worth’ of jobs, with worth largely determined by job evaluation studies, not by market forces.” But economists insisted that such theoretical analysis could not be as accurate, efficient, and dynamic as the market process.

Elected officials can always increase the wages of government employees, in response to either voter demand or special‐​interest pressure, and there’s evidence that government jobs pay more than similar private‐​sector jobs. But private employers have to make revenue exceed expenses, or they go out of business.

The economy isn’t perfect at any moment. People’s wants and needs are constantly changing, and so are wages and prices. The average pay for child‐​care workers isn’t “right,” it’s just the one that has emerged — for now — out of the play of supply and demand. If child‐​care workers become more likely to leave to become taxi drivers, bellhops, or Walmart greeters, then wages would tend to rise.

Originally published by the Cato Institute. Republished with permission under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

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David Boaz
David Boaz
David Boaz is a distinguished senior fellow of the Cato Institute. Over more than four decades as vice president for public policy and executive vice president, he played a key role in the development of the Cato Institute and the libertarian movement. He is the author of The Libertarian Mind: A Manifesto for Freedom and the editor of The Libertarian Reader.


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