Feb 28, 2009


If you have read Freakonomics [Revised and Expanded]: A Rogue Economist Explores the Hidden Side of Everything, you will know it has been a wildly successful bestseller and has (almost) made economics a popular subject with the general public. After reading this book I then picked up The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor--and Why You Can Never Buy a Decent Used Car! upon the recommendation of a friend, and I have to say that I found 'Undercover Economist' to be a better book than 'Freakonomics'. Be aware that I would without a moment's hesitation strongly recommend both to everyone; the observation about 'better' is relative. Both books are excellent, it's just that one is better than the other. While I shall try and review both books in future posts, one of the most striking observations from 'Freakonomics' and one that has stayed with me for the past few years is on the determinants of wage. Allow me to quote:
This is one of four meaningful factors that determine a wage. The others are the specialized skills a job requires, the unpleasantness of a job, and the demand for services that the job fulfills.
The delicate balance between these factors helps explain why, for instance, the typical prostitute earns more than the typical architect. It may not seem as though she should. The architect would appear to be more skilled (as the word is usually defined) and better educated (again, as usually defined). But little girls don’t grow up dreaming of becoming prostitutes, so the supply of potential prostitutes is relatively small. Their skills, while not necessarily “specialized,” are practiced in a very specialized context. The job is unpleasant and forbidding in at least two significant ways: the likelihood of violence and the lost opportunity of having a stable family life. As for demand? Let’s just say that an architect is more likely to hire a prostitute than
vice versa.
[page 105, 106]