So The American Prospect wants us all to think about paying care workers lots more money. They then bring in what they think is an economics type to try to explain the problem to us. That economics type not actually knowing any economics:
The Failed Economics of Care Work
The care market is high-value but offers little reward to providers. Economists don’t know how to explain this.
Economists have this nailed to the wall by its ears rather than being unable to explain it. This is the diamonds and water thing explained by Adam Smith in the first real economics book of them all.
What is something “worth” in the marketplace? Who gets to decide that? If you ask someone steeped in classical economic theory, they will tell you that something is worth exactly what someone else is willing to pay for it. They will say that the “market” decides, through the laws of supply and demand. And they will say that all of these individual market transactions come together to make up “the economy.”
Err, no, that’s not classical theory. Which tended to go in for theories about labour value like Marx. The value of a thing is the value of the labour embedded in it. The idea that it’s worth just whatever will be paid for it is rather more a neoclassical theory of value.
True, there’s no strict dividing line there, but that is how it tends to play out.
It should be clear to most of us by now, but classical economic theory doesn’t actually explain how the economy works, at least not in a way that is meaningful to those who actually live in it.
Care work is a perfect example. Classical economic theorists would tell us that care work simply isn’t very valuable, and neither are the workers who conduct it.
No, that’s not how it would be explained.
So if a form of work is so important that its elimination would make all other work difficult or impossible, and if it adds so much value to an economy that its removal causes massive productivity declines, does it truly make sense to say that domestic workers aren’t “worth” very much? Clearly not. So how does this make sense from an economic perspective?
Diamonds and water. Water is hugely more valuable, in one sense, than diamonds are. Which is why in extremis people will offer up a diamond for a glass of water. However, water is vastly more common than diamonds. That is, diamonds have a rarity value.
So, that care work – or those care workers. Just about every sentient adult – and sentience not being entirely required – is capable of performing that care work. We also have some tens of million who do in fact offer to do that with their lives. That is, care workers are not scarce nor is the ability to expand the supply. Therefore care workers are cheap.
Economics really has got this nailed to the wall and it most certainly doesn’t have any trouble in explaining why care workers wages are low.
The relationship between wages and value is often measured through productivity, or value of output, and this is extremely hard to measure in care work.
An economist wrote that?
But that’s not all. As noted earlier, traditional economic assumptions state that the price of a product or service is equal to how much the consumer is willing to pay. But this doesn’t tell the whole story. Very often, domestic care isn’t a luxury, it’s a necessity—whether that’s to care for a sick or elderly family member, or to allow both parents to keep their jobs and keep their heads above water. In economic terms, this means that the price is “inelastic,” meaning that the price doesn’t change much in response to demand.
And that? Elasticity is normally the other way around, demand changing with a change in price.
For example, consumers of health care will typically spend whatever it takes, assuming they have the resources, to be treated. Other types of care are similar. Thus, prices might not be a particularly good or useful “signal” in the care economy. Consumers of care are not likely to be willing to sacrifice quality for savings, if they can afford it. Who would willingly select substandard care for their children or grandparents? So when it comes to domestic work and the care economy, like we see in health care, we can’t really rely on the “market” to work its magic by counting on consumers to comparison-shop and drive prices down through competition.
And that. So, you want to go out for dinner. You hire a professional do you, or the teenager next door to come babysit. The difference in prices having any influence upon your choices?
Similarly, classical economics assumes that people are making choices with perfect information, comparing costs and benefits to maximize their self-interest.
She’s just dropping half understood phrases in there. It’s utility that’s maximised, not self interest. Perfect information is just a modelling assumption, not a necessity.
Caregiving infrastructure is a perfect example of something that is being failed by a classical economic view of value, and it needs to be taken out of a market that will continue to view it through that prism. Actual people value domestic work. Actual people value the care economy. The economy is made up of these actual people, not the models that classical economists use to try to predict what actual people “should” value. Treating caregiving as a public good, and making sure that the actual caregivers receive their fair share, could help us assign value to this work where it belongs.
It’s just not economics, is it? It’s not even a description of economics.
Janelle Jones is the managing director for policy and research at Groundwork Collaborative. Previously, she was a researcher at the Economic Policy Institute, the Center for Economic Policy Research, and the Bureau of Economic Analysis.
Yup, the country’s screwed.