What does economics tell us about replaceability?

Introduction

‘Replaceability’ has become a core concept in discussions of career choice among Effective Altruists (EAs) – put simply, people should not simply consider the ‘direct impact’ from doing a job, but instead the difference in outcomes resulting from taking that job, relative to not taking it. Ben Todd and Seb Farquhar have both written blogs introducing this concept, and the importance of counterfactual reasoning in general (read these first if you’re not familiar with replaceability!); Paul Christiano and Ben Kuhn (among others) have written blogs further exploring the concept, and its various representations and applications. Some Effective Altruists (EAs) have noted that representations of replaceability have varied in their sophistication, and Will MacAskill summarises this nicely as the ‘simple view’, ‘simplistic replaceability’ and ‘correct replaceability’.

‘Correct replaceability’ is particularly nuanced and complicated, and comprises taking into account the full set of counterfactual outcomes not only in your (potential) job, but in any other jobs affected by the employment decision, through knock-on and labour market effects. Given this, and that ‘replaceability’ varies significantly across different industries and jobs, Will MacAskill and Ben Todd asked me to think about what Economics has to tell us about the concept. For clarity, rather than think about the ethical considerations of ‘replaceability’ as a whole, they asked me to answer a sub-question, namely: “according to mainstream economics, if I add myself to the labour pool for job type X (being a doctor, or an aid worker, or a banker), then how many more type X jobs come into being (on average)?”. Although these issues have been discussed before, this blog post is a first attempt at providing a thorough analysis of this question.

Summary

  • I set out the classical, Econ 101 supply and demand model and discuss the assumptions it makes. I argue that this is a useful framework for considering our question, then show how the answer depends crucially on the elasticities of labour supply and demand. Unfortunately, empirical economic research cannot tell us much about these elasticities for individual industries.

  • There is no ‘one-size-fits-all’ answer to our question – it will vary considerably across different industries and we must try to understand how each industry functions in order to make an informed estimate.
    I believe that the supply and demand framework, or some variant of it, is useful for analysing our question for most jobs and industries, particularly those that are not highly specialised.

  • I discuss how (and whether) this framework should be applied in a few industries, most of which are seen as viable EA career paths. This framework can lead us to some (tentative) conclusions:

    • Entrance into industries with a quantity restriction (e.g. through a limited number of occupational licences) is likely to have (close to) zero impact on the number of jobs in that industry. This may apply to medical school and licensed professional industries (e.g. becoming a barrister in the UK).
    • Entrance into (narrowly defined) industries which require relatively transferable skills is likely to result in less than 0.5 additional jobs in this industry, as (potential) workers can easily substitute into other industries (labour supply is elastic). This may apply to banking and consultancy.
    • Entrance into industries in which (potential) workers have a strong preference to work is likely to result in more additional jobs (perhaps between 0.5 and 1), as workers will not substitute into other industries at such a high rate (labour supply is inelastic). This may apply to jobs in the charity sector.
    • In highly specialised industries/jobs, applying this framework may not be appropriate, as the hiring process will not resemble a competitive market. This may apply, for example, to taking a job with Givewell, who likely follow a process more akin to ‘threshold hiring’.In this case, it seems likely that taking this job may increase the number of overall jobs by close to 1.
  • This post only discusses one aspect of replaceability, and does not consider other issues related to the (direct) impact of a job, effects on the quality of employees, or long term effects of a job, such as creating social value.

Continue reading →