David R. Henderson  

Boudreaux and Ewell on Low Salaries of Essential Workers

Subsidizing Stadiums: Economic... Prices Sing...

We've often heard the complaint, "Isn't it awful that public safety workers such as firemen, whose work is so important to us, are paid so little while professional athletes are paid so much?'

Before getting to some interesting answers to this complaint, I would note that firemen in my part of California are paid a lot: by working enough years, they can get to high 5-digit salaries and, after 30 years on the job, can retire with a retirement benefit equal to 90% of their top pay, inflation-adjusted. That retirement benefit, for firemen and policemen, is what well could lead to bankruptcy for my city of Pacific Grove.

I also note that the median salary of a professional athletes is not that high. The complainers typically have in mind a small percent of professional athletes, namely those in the NFL, MLB, NBA, and NHL.

But let's take it at face value: it is the case that firemen are paid substantially less than the average top-echelon athlete.

The usual answer that economists give is the one Alex Tabarrok gives here: it involves thinking on the margin.

And it's a good answer. But in his class last night, Don Boudreaux gave a different take, one that incorporates the typical answer economists give, but also goes beyond that:

It's an understandable sentiment. But when you know economics, this reality - so upsetting and mysterious to so many - is also understandable. And this reality becomes, at some level at least, a cause of celebration rather than lamentation.

First-responders' pay is as low as it is because there are plenty of people able and willing to work as high-quality first-responders relative to the 'need' that we have for first-responders. With so many highly skilled and dedicated people already working as first-responders, the value of the additional first-response services that we'd enjoy if we hire one more equally skilled and dedicated person to work as a first-responder is very low. So we're - rightly - unwilling to pay very much to hire this additional first-responder. It makes no sense to pay an additional, say, $100,000 annually to get labor services that produce an additional, say, $30,000 worth of output.

So understand our good fortune! We live in a society blessed with an abundant supply of high-quality live-saving labor services.

I should note that this point was actually in the last two sentences of Tabarrok's post, but it's a nice elaboration.

That's the first part of the one-two punch. Then a student of Boudreaux's, Ricky Ewell, added another powerful insight:

After class, one of my students, Ricky Ewell, pointed out to me that people who complain about life-saving pharmaceuticals costing so much are inconsistent if these people are also among those who complain that life-saving first-responder services cost so little.

Comments and Sharing

CATEGORIES: Labor Market

COMMENTS (11 to date)
Finch writes:

> namely those in the NFL, MLB, NBA, and NHA.


David R. Henderson writes:

Oops. Fixed.
I just lost my Canadian cred. :-)

Finch writes:

I was a little disappointed. :)

Bob writes:

Isn't the high pay of major league athletes an example of rent seeking? If they were not paid as much, wouldn't that wealth go to the team owners instead? Isn't that fundamentally different from municipally employed first responders?

Brad D writes:

Do professional sports, such as NBA and NFL, enjoy the benefits of government-protected monopolies? If so, this would explain some, but not all, of the rise in players' salaries. Millions of fans demand outstanding athletes, of which there is very little supply.

But what would sports, and players' salaries, look like absent their sacred monopoly?

Don Boudreaux writes:

Brad D:

What monopoly do the NBA and NFL enjoy? Are there government prohibitions on other professional basketball and football leagues organizing to compete with these leagues? Do not these professional-sports leagues compete not only against each other (as well as other professional leagues such as MLB and the NHL), but also agains collegiate sports as well as other forms of entertainment?

I don't see there anything remotely resembling monopolies (which is not to say that I do not recognize that the popularity that these leagues have succeeded in creating for their products means that they can charge premium prices for their products).

Don Boudreaux writes:

P.S. to my earlier comment:

In light of Art Carden's most recent post here at EconLog, I also recognize - and disapprove of - the fact that many professional sports get special favors in the form of taxpayer-financed or subsidized stadiums. But I still see no government-erected barriers to entry; I still see no genuine monopoly power possessed by any of today's professional American sports leagues.

MG writes:

Don Boudreaux:

I think that the what Brad D could be alluding to as government sanctioned monopoly is government's acquiescence to what looks like collusion in the management of franchises. (Ironically, most of this collusion was aimed at suppressing compensation, not propping it up. And since the late-70's these practices have not been very successful at accomplishing this.)

May be government is still somewhat priviledging professional sports by simply not being as intrusive in its monitoring and micromanagement as it does with many other businesses.

In any event, you are right that government's biggest compensation-propping distortion is through its subsidy of stadiums.

Finch writes:

I think the structure of the pro sports leagues with collusive management and organized labor(*) serves to lower overall compensation to the players and spread it out more. In a purely competitive league, LeBron James would earn more money and the benchwarmers less, relatively speaking, and the total size of the compensation pie would increase.

(*) Teasing out the net effect of organized labor on total compensation is likely tricky.

To David's point about complaining about high drug prices and low firefighter salaries, I wonder whether there are nerd versus jock biases at play here. Everyone likes the jock. It's much safer to beat up the nerd.

ThomasH writes:

The fact (if it is true) that Pacific Grove failed to raise taxes enough to put away enough to fund high 5 digit pensions for the number of firefighters it employed (and now faxed bankruptcy) does not mean that firefighters are overpaid. Maybe city officials were incompetent at financial management or hired too many firefighters.

Infopractical writes:

Mr. Ewell's point depends on the reason for complaining about high pharmaceutical costs. Those costs remain higher due to intellectual property laws of philosophically debatable merit.

Comments for this entry have been closed
Return to top