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When we see a postal worker, a delivery person, a police officer or a medical worker, we go out of our way to say, “Thank you!” We also try to be generous in tipping those employees who put groceries in the trunks of our cars and the delivery people who bring us pizza.
Gratitude and generosity are good antidotes to the anxiety of this time. So, we are sympathetic to the notion that those bearing increased workplace risks ought to be compensated for their risk. But as economists, we suspect they are.
The economic notion of compensating-wage distinctions goes back to Adam Smith, who stated the “wages of labour vary with the ease or hardship, the cleanliness or dirtiness … of the employment.” Smith tells us the tailor earns less than the weaver because the tailor’s “work is much easier.” The weaver earns less than the blacksmith because the weaver’s work is “not easier, but cleaner.” The blacksmith, in turn, earns less than the collier (coal miner) because the blacksmith’s work is “not as dirty, less dangerous, carried out in day-light and above ground.”
Recent stories of wage hikes, sign-on bonuses and hazard pay in many unskilled and semi-skilled jobs are consistent with Smith’s hypothesis. The irony is that, while the ranks of the newly unemployed have skyrocketed to historic proportions, some firms in warehousing, retail and home delivery are desperate for more workers. So, these firms raise wages because that is the quickest and most effective way to attract new workers. That there are heightened risks to those jobs adds to this upward wage pressure.
Although we are glad to see these wage hikes, they are not a harbinger of good economic news. The reality is, COVID-19 reduces worker productivity and economic output. The plight of a currently idled hairdresser tells the tale. She estimates that, given the procedures necessary to do her job and simultaneously prevent the spread of COVID-19, her potential output per day will fall in half. She isn’t quite sure if she will go back to work under those conditions; nor does she know if or when her clients will come back.
As several of our colleagues have noted, when restrictions are lifted, consumers—not governments—will decide when and if they patronize the reopened service providers. Indeed, we are not sure when we are going to get a haircut. And that’s a drag on the economy.•
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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
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