Puppies and Angry Customers

An Economic Parable

Let’s say you’re the head of central planning for a small country, and your only goal is to maximize fairness.

Your country has two industries: puppy-sitting and angry-customer-handling. The puppy-sitters spend the day playing with cute puppies. The angry-customer-handlers are sent to other countries on year-long assignments, posted in stores, and their sole job is to get screamed at by angry customers while maintaining perfect composure like a British royal guard, until the customers tire themselves out. Each citizen is randomly assigned to one of these jobs based on a lottery.

As it stands, the angry-customer-handlers get paid more than the puppy-sitters, $60k vs $40k. One day the puppy-sitters notice this and complain. “This is unfair!” they say. “Why should they get paid so much more than us? We demand equal salaries!”

You agree and decide to issue a new decree from the office of central planning: from now on, puppy-sitters and angry-customer-handlers will be paid an equal salary of $50k.

Does this make things more fair? I don’t think think so. It makes things more equal in terms of monetary compensation, but this actually seems quite unfair when we consider non-monetary factors (in this case, one job is obviously much more fun than the other). Equalizing salaries for puppy-sitters and angry-customer-handlers has almost certainly made things more unequal in terms of overall happiness and job satisfaction.

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This thought experiment is exaggerated to make a point, but here’s a real example: a court in the UK recently ruled that Next (a retail company) must have equal pay for store staff and warehouse employees. The ruling is based on a claim of gender discrimination, since the store staff (who were paid less) are predominantly women, while warehouse employees (who were paid more) are about half men and half women.

Some more info from the article:

More than 3,500 current and former workers at Next have won the final stage of a six-year legal battle for equal pay.

An employment tribunal said store staff, who are predominantly women, should not have been paid at lower rates than employees in warehouses, where just over half the staff are male.

Lawyers for the shop staff described the judgement as "hugely significant" and the amount of back-pay owed could amount to more than £30m.

Importantly, the claim in this case was not that men and women were paid unequally for doing the same jobs. The claim was that two different jobs paid differently, and this was a problem because they had different gender-compositions. So the court ruled that the two jobs must have the same salaries, ostensibly to make things more fair and equal.

Now, we could oppose this on the usual free-market grounds (infringement on personal freedom, inefficiency due to misallocation of labor, etc, etc). But those points aren’t even really necessary. This ruling still seems pretty bad, even if we’re only concerned with fairness and equality, once non-monetary factors are accounted for.

Alex Tabarrok at Marginal Revolution writes:

In fact, the court case reveals that Next was struggling to fill the warehouse positions and offered any retail employee—including the plaintiffs—the opportunity to switch to warehouse work. On cross-examination, one of the plaintiffs admitted that, given the unpleasant conditions in the warehouse—described by the court as “the drone of machinery,…vibration, alarm sirens and the screeching of machinery, wheels and rollers, continuously present in all areas”—the warehouse job “did not seem particularly attractive” compared to the greater autonomy and more appealing environment of the retail job. The plaintiff added that she would only have considered the warehouse job if it paid “a lot more money.”

This is the key point. Even the plaintiffs — the store staff demanding to be paid the same as the warehouse workers — acknowledge that working in the warehouse is generally less enjoyable than working in the store, and that they would not want to switch jobs to work in the warehouse unless it paid a lot more money.

I can confirm this myself. Unlike most British employment tribunal judges, I’ve actually worked in both a retail setting (supermarket) and a warehouse before.

Left pic - After a shift of chopping watermelons at a supermarket (2014); Right pic - working in a government supply warehouse during Covid (2020)

In my opinion, the warehouse work is not only more difficult and generally unpleasant, but also more physically exhausting, and dangerous. So in this recent case in the UK, like the puppies and angry-customer-handlers thought experiment, requiring equal salaries for warehouse workers and store staff probably makes things more unequal in terms of overall job satisfaction and happiness of the workers — one of the jobs is still less enjoyable than the other, but no longer has any extra monetary benefit to make up for it.

Remarkably, the original BBC article seems to make this same case, but unwittingly (I think, based on the tone of the article):

There have already been cases in the public sector over lower pay for workers, including teaching assistants and dinner ladies paid less than men employed in refuse collection and similar roles.

Yes, garbage collectors get paid more than teaching assistants. Again, forgetting about labor market dynamics, supply/demand, etc, this seems right just from the standpoint of fairness and overall equality of wellbeing — being a garbage collector is a much more unpleasant job than being a teaching assistant!¹ If you mandate that garbage collectors and teaching assistants get paid the same, that will actually make things more unequal in terms of their overall wellbeing and job satisfaction!

To give yet another example, I currently work as a research scientist in academia and sometimes hear the idea that academic research scientists are paid unfairly because we make much less than people doing similar work in the private sector. So sometimes I have this conversation with myself:

Me: Ah man, I wish I was paid more, this is unfair. There are people working in finance doing similar work to me, making twice the salary.

Also me: Um ok. Then why don’t you go work in finance?

Me: …what?

Also me: You could literally quit your job right now and get a different job doing very similar work, except modeling financial data rather than biological data, and it would probably pay a lot more.

Me: Well, I don’t want to. Finance is boring and academic research is more fun.

Also me: So it sounds like you’ve navigated a tradeoff between monetary (salary) and non-monetary benefits (fun, interesting work). And since you don’t want to switch when given the chance, it seems like in terms of overall fulfillment you’re getting more at your current job than you would at a finance job. In fact, if the government mandated that you had to be paid the same as the finance people, that would actually be kinda unfair because you’d still get all the non-monetary benefits you’re enjoying and they wouldn’t.

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I want to emphasize that in this post I haven’t appealed to the usual arguments against central planning: personal freedom (people should be free to engage in voluntary contracts with each other without government coercion) and economic efficiency (society is generally less prosperous and people are generally worse off when the government interferes with market dynamics).

I largely agree with those points, but I’m trying to respond to the argument that central planning proponents usually make: “we need government involvement to ensure fairness and equality, and this is more important than personal freedom and economic efficiency.”

But even accepting this as the goal, we face the same information problem² that central planners usually face: while ensuring equal happiness and wellbeing of people is arguably a justified goal for the government to pursue, this involves a lot of information that is inherently decentralized, subjective, and unknown to the central planners — what is it actually like to work in a warehouse? Is being a garbage collector more or less enjoyable than being a teaching assistant? How much more fun is playing with puppies all day compared to getting yelled at by angry customers?

Without this subjective information, if central planners try to equalize things based on the limited information they have access to — like salaries — they could very well end up making things more unequal in terms of overall job satisfaction.

Is there a better way to do things? Let’s go back to the original example — you’re the head of central planning, and you’re only goal is to maximize equality and fairness among citizens, subject to the constraint that 50% of citizens must be puppy-sitters and 50% must be angry-customer-handlers.

You’re beginning to suspect that the puppy-sitting job might be more fun than angry-customer-handling, so maybe the angry-customer-handlers should be paid more to make up for it. But how much more? 10%? 50%? Twice as much?

First, you eliminate the job lottery system. Citizens will be allowed to choose which of the two jobs they want (again, this is not about personal freedom, still strictly a plan to maximize equality and fairness). If both jobs pay the same, then every single citizen will choose to become a puppy-sitter. So you adjust the salaries, lowering the puppy-sitter salary and raising the angry-customer-handler salary. Then maybe you get a 90/10 split instead of 100/0. So you keep gradually adjusting them until you get to 50/50 for each job — at this point, the median citizen is roughly indifferent between the two of them.

1. This one I can’t confirm myself. I have been a teaching assistant (and thought it was a lot of fun), but I’ve never been a garbage collector. Although my job at the supermarket involved taking out the garbage a couple times per shift, and I can only imagine that a job based entirely on handling garbage would be pretty terrible.

2. Described by Alex Tabarrok in his post on the British case, and previously by Hayek in his famous essay “The Use of Knowledge in Society.”