Overpaid? Underpaid?
posted by Sarah Lawsky
When I was about twelve years old, I told my father that it was amazing that people actually got paid for playing the flute (my main activity at the time).
“Why?” he said.
“Because she’s amazed that someone could get paid for doing something she likes so much,” my mom said.
“No,” I said, “it’s because I’m amazed that someone could get paid for doing something so useless.”
My understanding of economics has improved a little since then, and I now think people get paid for playing the flute because there is a demand for people who play the flute. But I also know that the idea of a market for people who play the flute is complicated by the fact that many of the places that pay people for playing the flute are nonprofits, supported by donations.
I’m intrigued, then, by two related topics that recur on and off blogs (most recently yesterday, in the Chicago Tribune and on the ELS blog): (1) are judges underpaid and (2) are law professors overpaid? And I’m intrigued by the recurrence of two sorts of arguments (both of which can be seen in either the comments or main posts of the last set of links):
The Intrinsic Value Argument: Law professors are overpaid because they don’t do any work; they write useless articles; they’re not good teachers; and so forth. In other words, law professors are overpaid because what they do has little intrinsic value. (This argument shows up a lot in the comments to blog posts; for some reason it does not show up a lot in law prof blog posts themselves.)
The Comparative Pay Argument: Judges are underpaid because they don’t make as much as a first-year associate at a big law firm, or as much as a law professor. This argument seems to be that judges are important, or do something of value, or have a lot of experience, so they should make more than someone who is not important/valuable/experienced. This is a variant of the Intrinsic Value Argument.
Neither of these arguments is a market argument. A market argument might say, for example, that judges are underpaid because we do not have a sufficient supply of (good) judges. But some very smart people have suggested that there is no shortage of extremely qualified people willing to be judges (notwithstanding Justice Kennedy’s claim, which is rather insulting to sitting judges, that it is an “economic fact” that he is “losing his best judges” and “not getting the highly qualified judges that [he] want[s] in the other end coming to entry”). I’m always willing to entertain a nonmarket argument, but when it comes to something like compensation, I need some justification to do so. For example, it’s kind of hard for me to imagine that all salaries could effectively be set by someone (who? me, I hope) determining the intrinsic value of the activity for which the person was being compensated. So, here is my wish list. I would like one or more of the following:
(1) A definition of overpaid and underpaid. (I would kind of like this anyway, even for the market argument.)
(2) An explanation of why markets for law professors or judges fail and, if they do fail, why lowering law professor salaries or raising judge salaries would represent a correction to this market failure. (This might build off the fact that law professors are paid by nonprofits, and judges are paid by the government.)
(3) A non-market justification of the intrinsic value/comparative pay argument. (If you choose this, please explain either why the intrinsic value/comparative pay argument should apply in general, that is, to compensation for all jobs, or else explain why it should apply to law professors and judges and not to other jobs.)
July 14, 2008 at 10:18 am
Posted in: Economic Analysis of Law, Law Practice
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Responses (8)
Jeff Lipshaw - July 14, 2008 at 11:27 am
1. I think the market definition would be if the pay is above or below the market-clearing price. But, of course, there isn’t one market clearing price, because some schools pay more than others.
2. Actually, there are for-profit law schools. The schools in Charlotte, Florida and Phoenix are owned by InfiLaw, which is a profit-making company. And there are a number of non-law school examples of for-profit higher education (Univ. of Phoenix, DeVry, ITT). So there may be some grist for the mill. Also, my experience with non-profits (mainly hospitals and private schools) is that they tend to be as voracious competitors as for-profits. The only difference is that profit in a non-profit is reflected in the accounting as “fund balance.”
Paul Gowder - July 14, 2008 at 12:17 pm
3. The intrinsic value argument seems best justified with reference, not to a case where someone produces little value, but to a case where someone produces actual disvalue. Consider, for example, the case of a lawyer in one’s least favorite side of the Tort Wars (someone who defends tobacco companies, if one is a liberal, say, or a personal injury lawyer if one is a conservative).
In that case, the idea seems to be a mismatch between social value and the incentives of the people who are doing the paying. For some reason, those doing the paying have a lot of money, and they’re willing to spend it to do something horrible to the rest of us, and transaction costs are such that the market can’t get some Coasean solution.
Theodore Seto - July 14, 2008 at 12:35 pm
The market for law professors is sticky. Mobility is limited, except at the top. Therefore, what you start at is basically where you end up (with very modest adjustments over time).
This means that the only sure way to get a larger pay increase is to go on the lateral market. Once you’ve established that you have mobility, your pay should adjust to the market price for your resume. If you don’t, it generally won’t. That’s just deans behaving the way economists predict they will. (In economic terms: because the market for law professors is not completely efficient, most law professors are underpaid.)
Another odd feature of the law professor market is that deans feel constrained to pay professors in different disciplines equally, all else being equal. This is why corporate law types are very hard to come by; they have much higher paying alternatives available to them. Tax types typically come out of government, not the private sector, for the same reason. ACLU types, by contrast, are relatively easy to come by. (By this I mean no criticism of ACLU types; I mean merely that moving into academia involves a pay increase for some, a pay decrease for others.)
Orin Kerr - July 14, 2008 at 12:37 pm
Sarah,
In my experience, these sorts of underpaid/overpaid arguments are based on the notion that you deserve to have your cake and eat it, too. If you are fortunate enough to be able to chose between career path A or career path B, and you pick lower-paying career path B because you like it better or it is more prestigious, you still deserve to get the best parts of career path A that you voluntarily gave up (or at least something close to it). You’re then underpaid if you don’t get what you deserve.
Your market approach presupposes that you don’t deserve anything, but rather get only what you select and give up what you don’t select. I just don’t think that’s the way those who make these arguments look at the issue.
Orin Kerr - July 14, 2008 at 12:45 pm
Just an addendum to that last comment:
I also wonder if part of it is the belief that prestige is a sort of prize — something given for away for free — rather than something sold — something traded away. The claims about being underpaid are usually for jobs that are very prestigious but typically involve a significant pay cut. If you think of getting the prestigious job as sort of like wining a prize, then it may seem somehow unfair that the prestigious job comes with the pay cut: it may seem that the person who “wins” the prestigious job still sort of deserves what they would have had if they had not “won.”
Eric - July 14, 2008 at 12:57 pm
I’ve heard nearly identical arguments comparing teachers and financial analysts. Teachers do something of extraordinary intrinsic value *and* we don’t have enough good ones. Meanwhile, financial analysts provide about as much value to society as flutists, but make far more. On top of this, there are many more applicants for entry level analyst training jobs than there are for teaching jobs, so one would expect market forces to push their salaries down while teacher salaries should go up. Alas, were it so.
Of course the problem for all four of the jobs you mention (law prof., judge, teacher, analyst) is distortion of the market by the government (well, maybe also unions). Judges and teachers have their salaries set by government, which makes them extremely slow to respond to changes in the market. Taxpayers tend to get upset when pols vote themselves or other officials raises, especially when the economy is bad (which I think is what’s happening to judges now) or the officials are perceived to be bad at their jobs (teachers as a group have really bad PR). Market driven jobs don’t have to answer to the tax payer, and they can adjust salaries far more efficiently.
I know there are very good civic reasons why judges and teachers have fixed pay scales, but
they are economically inefficient. Whether judges or teachers should be paid more becomes more of a beauty contest then a question of economic merit.
Sometimes, though, even those civic reasons don’t make sense. I don’t see at all why math teachers aren’t paid more than English teachers (or corp. law profs. more than constitutional law profs). I wonder if there’s a similar market distortion for different types of judges?
Paul Gowder - July 14, 2008 at 5:42 pm
Ok, I’ve elaborated on my comment at some length here. Summary: it’s pretty easy to get content out of “overpaid” and “underpaid,” either in terms of externalities and transaction costs, or in terms of unfair divisions of surplus.
MSD - July 14, 2008 at 10:13 pm
After giving these issues some thought, my response is available here.
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