What’s the Right Mix of Money and Drugs for Your Employees?

A startling realization hit me after a sip of coffee during class the other day. I had just told students a maybe-apocryphal and likely-misremembered story about a pizza delivery driver whose employer paid with cash wages and drugs (tranquilizers and marijuana, if I recall correctly). I was laughing at the absurdity of paying employees with drugs when I realized I was drinking coffee–a vehicle for caffeine. Caffeine is my drug of choice, and I had poured the coffee from the coffee pot in the kitchen down the hall from my office. 

It’s true: my employer literally pays me in money and drugs.

They pay me in a lot of other things, for that matter, as people don’t work for wages alone. I certainly don’t. We supply labor in exchange for a whole host of things in addition to wages: health coverage, life insurance, gratis coffee in the office kitchen, job satisfaction, job security, scheduling flexibility, retirement contributions, enjoyment, the sense that we’re making a difference, and so on.

This got me thinking about the importance of markets in deciding who does what and for how much. In fact, it got me thinking about how what we mean by “labor” is defined in the process of its emergence. It also got me thinking about the consequences of messing with the whole process. 

Holding everything else constant, economists argue, fun jobs tend to pay less. This is because, at a given wage, people are willing to supply a bit more labor in fun jobs as opposed to boring jobs. Imagine you could earn $50,000 per year doing something you hate or $50,000 per year doing something you love. Unless you’re just a masochist, you would take $50,000 doing something you love (and if you are a masochist, then do you really hate the non-fun job?). Someone who wishes to lure you into a non-fun job will have to offer additional compensation–like additional wages–to make up for the tedium and boredom.

Here’s an example. We professors spend a lot of time feeling sorry for ourselves because we aren’t paid as much as similarly-educated professionals in other fields. We often make less than people with even less education. As I’ve heard it said, when you go to graduate school in anticipation of an academic career, you are foregoing current income in order to also forego future income.

Our woes ignore the fact that a lot of our compensation comes in the form of freedom, flexibility, and job satisfaction. We do spend a fair amount of time writing reports and such to satisfy various accreditors, but the paperwork burden isn’t that high. By and large, our jobs are to think, read, write, and talk about things we find fascinating. In other words, what we call “work” is what most of the world calls “leisure.” To top it off, we’re not paid poorly: a professorial salary is comfortably middle- to upper-middle-class.

In occupations like ours, it isn’t clear where work leaves off and leisure picks up. I recently finished reading Randall Holcombe’s 2018 book Political Capitalism, most of which I read outside the normal business day. What’s more, I really enjoyed it, so you could argue that it was leisure. At the same time, I’m going to use it in my teaching, research, and writing, so you could also argue that it was labor. The Man of System who imagines he can arrange the members of a great society with the same ease with which he arranges the pieces on a chessboard is not well-positioned to make this judgment. I am–for myself, anyway. I can think about what I might do in your situation, but since I don’t actually enjoy the benefits or realize the costs of the choices you’re considering, my advice might not be worth that much. I’m certainly not in any position to compel you to act against your will.

“Hold on,” you might say. “There are a lot of low-paying jobs that are very dangerous, and many high-paying jobs that aren’t. You don’t face a lot of occupational hazards sitting at a desk in the offices of a New York law firm or a Birmingham university. That’s absolutely true, but it doesn’t mean that economics is wrong. The important phrase in thinking about the laws of demand and supply is all else held constant. People with low productivity and bad options will not have as much ability to choose combinations of wages and working conditions. People with high productivity and good options, on the other hand, can be pickier. Empirically, people tend to be willing to accept a lot of risk in exchange for slightly higher wages far lower on the productivity distribution. As people get more productive and as their options improve, they tend to be willing to sacrifice wages for workplace comfort. It’s hardly clear that we can make them better off by presuming to make their choices for them.

Altogether, this is one of the reasons why market processes are important. I can sit in my office, stare at my navel, and think about a bunch of “nice if” scenarios or dream up a bunch of things to which I think people have a right. I lack, however, knowledge of “the particular circumstances of time and place” that mean contexts differ in ways that might not be apparent to me as an ivory tower observer. Some people will want to work for a company that expresses their most deeply-held values. Some people will value the thrill and fulfillment that comes with being a risk-taking entrepreneur. Others will value job security. Others will be willing to accept lower job security for higher wages. Others might value a good dental plan. Some people want to be paid with drugs (like coffee). There isn’t a “right” combination of wages, benefits, and other perquisites, and the pattern of things that “work” for people is not planned by a central authority. It emerges from trial and error in the market.

Related Articles – Economic Education, Free Markets