Economists and Harvard and Chicago recently published a paper1 that contains a number of estimates of the social value produced by different professions per dollar of salary. The estimates aren’t the core aim of the paper, but are nonetheless fascinating.
The first set of estimates are by one of the authors of the paper, Lockwood, and aims to stick to views that would be typical based on the the economics literature:
|Profession||Lockwood’s estimates (additional social value produced per $ of salary at the margin)|
Looking at the first figure, a value of 2 for academia means that for every $1 of salary an academic earns, a further $2 of value is created for the rest of society. One way to understand this figure is that the rest of society should be willing to pay a further $2 for the services delivered by the academic, meaning the academic only captures 33% of the value they create for themselves.
On the other hand, in financial services for every $1 of salary, $0.50 is lost by the rest of society i.e. it’s extracted as rents. For arts/entertainment, each person captures all the value they create, and there’s no broader spillovers.
What are these estimates based on? The paper says:
These views arise from taking very seriously, and perhaps to a bit of an extreme, arguments made commonly within the economics community for externalities from various professions. These include the enthusiasm for entrepreneurship and engineering and skepticism of law pushed by Murphy et al.2, the emphasis on the importance of research central to the modern growth literature,3 evidence that teachers are dramatically under-compensated,4 concerns about the social value of advertising,5 a widespread recent concern that much activity in the financial sector is zero-sum racing over information6 or may actually be value destroying78 and, most importantly, worries about managers devoting significant time to defrauding their shareholders rather than creating value for them9 and shareholders failing to correspondingly reduce pay due to competitive pressures.10
(We’ve listed and archived all these papers in the notes in case you’d like to read more).
Nevertheless, the authors caution that these estimates are not the aim of the paper and are speculative. They say:
We do not believe compelling data exist that allow the size of externality shares to be estimated in a way likely to lead to broad agreement about these. We therefore treated these as subjective estimates likely to vary widely across individuals. We therefore did not seek, as with our other data and assumptions, to find a single, “approximately correct” assumption.
For this reason, they provide three further sets of estimates. One set of estimates they believe reflect the extreme right of American politics – the Tea Party – and another set for the extreme left – Occupy Wall St. They also provide a set of estimates by Nathanson, another author of the paper, who is much more sceptical than Lockwood that large differences in the social value of different professions actually exist.
Nathanson’s position reflects largely a general Coasian skepticism of the size of externalities that persist, based on the notion that, while some externalities may persist, they most are largely internalized already by various social, public or civic mechanisms. For example, prestige that is costly either because it is limited in supply or requires scarce attention from others in society, government subsidies on various sectors and regulations on others and voluntary tithing and selective loan repayment to universities conditional on income may partly or fully offset externalities. Thus apparent lack of correspondence between material rewards of different professions, in this view, masks other rivalrous non-pecuniary or unmeasured pecuniary goods being given to different professions that internalize most externalities.
In Nathanson’s world, you should basically just take whichever job offers the highest personal rewards.
|Profession||Nathanson’s estimates||Tea Party estimates||Occupy Wall Street estimates|
|$ of social value produced per $ of salary at the margin|
As you can see, there’s substantial disagreements, which shows the need to make your key assumptions clear whenever attempting this kind of assessment.
Some of the largest disagreements include:
- The Tea Party and Lockwood think entrepreneurship is strongly positive, while Occupy Wall Street think it’s negative.
- The Tea Party think public service is strongly negative, while Occupy Wall St think it’s strongly positive.
- Occupy Wall St and Lockwood think teaching is very positive, while the others are more skeptical. The same is true of academia to a lesser extent.
However, in other areas there’s substantial agreement. In particular, most professions are pretty close to zero, which is what you’d expect in an efficient market.
How much do these differences matter?
Another striking point is that the size of the differences are fairly small. If the differences are this small, then it suggests that for supporters of 80,000 Hours, judgements about the average social value produced by different professions could easily be overwhelmed by considerations like (i) your different chances of success in different jobs (personal fit), (ii) different career capital and option value from different jobs, (iii) and differences in donation or advocacy potential between different jobs.
For instance, if you think that you can donate your income to a charity with a cost-benefit ratio of 10, then how much you’re able to donate could easily overwhelm the differences in direct impact.
This is especially true when you consider how speculative the estimates of the social value of different professions are today.