On compensating advantages

Milena Kremakova asks:

Why is it that in our society, there seems a general rule that, the more obviously one’s work benefits other people, the less one is likely to be paid?

There's a perspective here that I feel is under-rated, and it's one that's consistent with both friendly (pdf) and unfriendly explanations of the rising incomes of the rich. I'm thinking of Adam Smith's idea of compensating advantages.

This says that differences in pecuniary rewards are offset by non-pecuniary advantages. Smith gave the example of miners who were well-paid relative to other labourers, as compensation for having to work in dark and dangerous conditions.

I've long had sympathy for this view; I earn much less now than I did when I worked in the City, but this is offset by having more interesting and enjoyable work and nicer surroundings.

This helps answer Milena's question. If your work helps others, you can take satsifaction and self-respect from this. To offset this pleasure and pride, money wages are low. By contrast, if you're a boss, you might feel a sense of persecution or disrespect from some people you'd rather impress: in the words of the great Natalia Boa Vista, "executives are right down there with paedophiles." For this reason, you'll be well-paid for the same reason Smith thought actors and opera-dancers were well-paid - to compensate for the discredit of being in such professions.

You might reply here that the egomania of those in top jobs insulate them from feelings of shame - as we've seen recently with Bernard Hogan-Howe's claim that he's the best man to lead the Met and Danny Cohen's belief that he's underpaid.

Such narcissism, however, has a drawback. It means one is never happy with what one has got; you feel that you deserve more money and acclaim: as the song goes, it's so hard to find one rich man in ten with a satisfied mind.

We have two pieces of empirical evidence here.

One comes from Andrew Clark. It's that although income inequality (defined by the share of the 1%) has risen in recent years, happiness inequality has declined. The other is that the correlation between individuals' incomes and well-being, though positive, is low. For example, Nattavudh Powdthavee's work (pdf) suggests that raising one's salary from £100,000 to £200,000 increases well-being by only around 0.14 points on a 1-7 scale.

These findings don't support the idea that differences in income are wholly offset by non-pecuniary rewards. But they do suggest that there's perhaps a hefty mitigation.

My point here is not that we should pity the rich. Instead, it's to challenge social democrats' opinion about why inequality matters. The problem is not so much that some people are living very well at the expense of others; a focus on incomes exaggerates the extent to which this is the case. Instead, it matters to the extent that inequality (or the forces that cause inequality) has adverse social and economic effects.

Comments

[Pablo Mira]

I think that the feeling of (in)justice is much more important that the others you cite here. Inequality, then, brings a notorious negative psychological effect: those in the top do not deserve such income.

[An Alien Visitor (Resistance is futile)]

These happiness surveys are very useful for determining policy, as the following shows clearly:

http://www.huffingtonpost.com/2011/06/06/north-korea-global-happiness-index-china-happiest-place_n_871784.html

[Thornton Hall]

This is why doctors (in the US) suck so hard: they get paid like their job is horrible AND they get to think of themselves as helping others. No wonder they think they are god's gift!

[rogerh]

At least the rich can be miserable in comfort. This idea of noble sacrifice doing a worthwhile job may have been valid years back but has now become the norm and not so noble, just a daily grind. I reckon this focus on happiness surveys is pretty pointless - a low paid makework scheme.

The horrible truth is we are now reliant on the chattering classes to drive the economy and they never were all that productive.

[mat]

Why entertain this spurious bullocks based on spurious bullocks?

If there is such a rule, it's clearly perceptual. A hedge fund manager who makes a good return for his investors clearly 'benefits other people. But that's not acknowledged, as the industry is vilified and the gains are remote and diffuse. But yet it's entirely possible that they do 'more good, by protecting the future of their investors, than say a nurse.

And the bullocks jobs tings underlying it... yeah. Just no.