Robert Murphy Helps Resolve an Economic Paradox
If it’s true that a worker gets paid an amount just equal to what he or she adds to total economic output, then how can there be any surplus left over to benefit the masses? In particular, suppose that an incredibly productive person decides to drop out of the workforce altogether. Should the rest of society even care, or is it all a wash?
It turns out that there’s no contradiction between these principles: Even though a worker is paid the value of his or her marginal product, it is still true that the rest of society benefits from the worker’s contribution to the economy. And look at it another way: If highly productive workers were suddenly to become monks, the rest of us would be materially poorer, even though those workers were paid the value of their marginal product before becoming monks. In this essay, I’ll reconcile the apparent tension between these two standard principles, by explaining first the role of specialization and then the distinction between inframarginal and marginal units.
This is a key excerpt from Robert P. Murphy’s Econlib Feature Article for January, “Does a Worker Help the Rest of Society?”
I highly recommend it.
By the way, Happy New Year to all.