Economic value of labour
anonymous
I have a simple question:
A worker gets paid $x per hour.
Some event (maybe a power failure in his office) stops
him from doing the work for 1 hour. He still gets paid.
What is the average total economic welfare cost of this event as
a result of the worker being unable to work?
What is the correct way to handle this question?
I assume that to the employer, the work is worth $y (greater
than $x), so the worker loses $y. If the worker is indifferent
to doing the work, this is not a factor. But the purchaser
of the employer's product may lose out more than the selling price
if the product is unavailable.
Does the total cost depend on income tax or VAT/GST rates,
or Corporation Tax?
I would like to be able to work out the typical total cost of
a delay on the metro, a power failure, or being stopped by the
police for questioning.
This calculation must be routine in economic analyses - but
I'm not sure what to Google(tm) for - I'm not an economist.
Thanks in advance for any advice or pointers!
--
Anon
anonymous
> I have a simple question:
>
> A worker gets paid $x per hour.
>
> Some event (maybe a power failure in his office) stops
> him from doing the work for 1 hour. He still gets paid.
>
> What is the average total economic welfare cost of this event as
> a result of the worker being unable to work?
Answering my own post...
How about calculating the average GDP per unit wage in the economy?
Assuming the GDP loss at the margin is the same as the average rate,
multiplying the wage lost by the above ratio will give the GDP loss.
Using per capita US figures (some guesswork here):
Per capita income $18000
Per capita GDP $40000
So the GDP/income is about $2.22 per dollar. So if a worker is
blocked, multiply their wage by 2.22 to get the GDP loss.
OK. What about the total welfare? GDP doesn't consider all the
economic welfare in the nation - ignores the value of leisure,
voluntary work and black markets, for a start. Should there be
another factor? How much? GDP is too narrow for this.
And is the marginal GDP cost reasonably estimated from the
average?
At least we have an answer of a sort :
loss = 2.22 x wage
Thoughts?
--
Anon
Frank Palmer
One question is whether the labor of the man making $8 /hour is
contributinging the same to GDP as the man making $ 80/ hour.
anonymous
My hunch is the GDP contribution at $8/hour is less than 10% of
the $80/hour. That's because the $8/hour is probably in a commoditized,
business with low margins. At $80/hour, you're more likely to be
leveraging more training, capital etc in a business with much higher
profitability in relation to its labor bill. Actually, I have no idea...
I'm interested in this to get ideas for cost/benefit analyses of
government policy. Current analyses seems seriously screwed up.
--
Anon
Gunnar Kaestle
[What is the average total economic welfare cost
as a result of the worker being unable to work?]
Capital <-- increasing cap. stock
| ^ ^
v | |
Value of Resources --> Economic Process --> Value of Products -*
^ | |
| v |
Value of Labour <-- Consume |
|
natural, social, cultural, symbolic, |
etc. dimensions of capital <----*
Well, I believe that the primary cost are the expenses for the life support
system, i.e. the consume. On the other hand, the opportunity costs (what if
he had worked) are difficult to identify as this depends strongly on which
kind of economic sub-process the worker is involved.
Best,
Gunnar
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lysa...@comcast.net
In theory what a person is paid is equal to the value of production he
adds. Therefore, the economic loss of one hour work that is done but
paid for is the wage. That is the lost value of production because the
wage should equal the value of extra production the worker provides.
Steven E. Landsburg
>> A worker gets paid $x per hour.
>>
>> Some event (maybe a power failure in his office) stops
>> him from doing the work for 1 hour. He still gets paid.
>>
>> What is the average total economic welfare cost of this event as
>> a result of the worker being unable to work?
to which lysa...@comcast.net <lysa...@comcast.net> replied:
>
>In theory what a person is paid is equal to the value of production he
>adds. Therefore, the economic loss of one hour work that is done but
>paid for is the wage. That is the lost value of production because the
>wage should equal the value of extra production the worker provides.
Not quite.
Suppose the worker's marginal product is \$10 per hour, except during
a power failure, when it is \$0 per hour. If power failures occur
50\% of the time, the worker is paid \$5 per hour, but the cost of
a power failure (as opposed to the alternative "no power failure")
is \$10.
In general, the right answer is (wage)/(probability of no power failure).
Of course, if the power fails only rarely, this is well approximated
by the wage.
--
Steven E. Landsburg
http://www.landsburg.com/about2.html