Measuring and aggregating incentives to work

In The Affluent Society, Galbraith asks whether it is the products of most laborer's work or the wages paid to them that have a greater positive social impact. By a strict Pareto analysis where market value is the only measure of worth, it must be the case that the product of the labor is more valuable. Rather than solving the problem, such a result is more of an example of absurdity, casting doubt on the Pareto Optimality concept.

The question can actually be broadened, as it has been by contemporary economists. Professor Randall Wray of UMKC looks at a variety of factors that workers gain from working rather than sitting idle, and argues that the social costs of unemployment are actually grossly underrated. Rather than utilize his analysis, which is not holistic enough for my tastes, I want to develop my own system for estimating the value of employment for the laborer.

Borrowing again and elaborating on arguments developed in The Affluent Society, Generally speaking, a worker will labor for some combination of the following reasons:

1. Pecuniary Compensation (wage, salary, bonuses)
2. Ideology (feelings of the righteousness, charity or necessity of his actions)
3. Fear (punishment awaits those that do not work)
4. Personal Education (Development of skills or specialized knowledge)
5. Conveyance of Status (The worker gains some status that is valuable, such as being considered "experienced" or being considered a brave or good person)
6. Leisure (The task is the preferred alternative to boredom)

Without this broad set of motivating factors, it becomes impossible to understand why some activities become ones that individuals pay for and others become ones that individuals desire to be paid for. These may be negative or positive.

An economy is actually a dynamical system, and so there are two more general considerations. First, that the relative value of each of these factors to an individual will be evaluated by that individual on the basis of net gains/losses from the individual's current position. Secondly, that a set of filters exist which limit the potential applicant pool for any given position. Once again, speaking generally, they are as follows:

1. Status (holding specific titles or claims to experience)
2. Education (having certain skills or knowledge)
3. Geographic proximity (worker and firm must be within a certain radius)
4. Cultural Conformity (being part of a sufficiently similar cultural group, in particular having a common language)
5. Search success (the firm or worker must search each other out and will not always find all matches)
6. Miscellaneous Hiring Filters (personality tests, interview "impressions", arbitrary limits to considered applicants, etc.)

These are not numerical values. They are subsets. The space that is the intersection of all of these constraints contains all the potential qualified applicants. Ideally, firms will then evaluate potential applicants within this space, and perform a cost-benefit analysis, ultimately hiring individuals who promise the greatest positive impact on the firm given their requested wage. But, to capture a real approximation of firm behavior in this respect requires an understanding of the internal politics of firms and empirical data for theories of internal politics to analyze.

The existence of so many constraints on worker pools harms the ability of firms and workers to to find matches that would work well for them. It is appalling, for instance, that so many individuals would happily work as CEOs or Doctors but are effectively prohibited from pursuing such careers. This has led, in once case, to vastly overinflated wages, and in the other case, to shortage.

Regardless of the cause, it is clear that the empirical state of the economy is far from ideal. Not only are many individuals who seek labor not finding it, but many tasks which would be highly enjoyable to a large sector of the population, such as philanthropic work, is not available to individuals. Finally, many people work extremely hard only to make enough for bare survival. Given our natural resource position, this can be due only to gluts in worker pools. Nobody should work only out of fear of poverty, homelessness, or starvation.