Beauty and the Worker - Part 2

The same is true for each of the Bob workers — they too are identical to each other. The only issue is how Al workers' wages will differ from Bob workers' wages.

Because they, like people generally, share common standards of beauty, it's likely that Cathy and Deb think somewhat similarly about the looks of their potential employees. What if both Cathy and Deb think that Al workers are beautiful, while Bob workers are not? If Al and Bob workers were paid the same wage, both Cathy and Deb would want to hire all the Al workers. But there are only enough Al workers for one of them. The only way that competition for the Al workers can assign them to Cathy or Deb is if the wages of Al workers are bid up to the point where their extra pay just offsets the extra satisfaction that the “winning” employer gets from employing the Al workers.

To win the competition for the (good-looking) Al workers, Cathy must pay them a premium, just enough to outbid Deb. Her costs are higher than Deb's, who is stuck with the Bob workers who both Deb and she view as ugly. But Cathy is just as happy about her employees as Deb, since her extra costs are offset by the extra satisfaction she gets from employing the Al workers whom Deb and she both view as beautiful. With a common standard of beauty, labor markets establish premium pay for the good-looking workers — or, viewed in reverse, penalty pay for the ugly workers — based on the extent to which employers value looks. In this case the premium is the amount that Cathy has to pay to overcome Deb's desire for the good-looking Al workers.

This example assumed that Cathy's and Deb's preferences for their workers' beauty determine what wages would be. What if, though, Cathy and Deb don't really care about their workers' looks, but their customers care about the looks of the workers who make the goods they buy, or more realistically, about the looks of the workers who are selling to them? If both Cathy's and Deb's customers prefer Al-type workers, Al-type workers will receive higher wages than Bob-type workers. The outcomes are the same, whether it is Cathy's and Deb's own preferences that determine the effect of looks on wages, or whether their behavior just expresses their customers' preferences.

Whose preferences generate premium pay for beauty, and penalties for ugliness, can't be determined just by showing the existence and size of those differences in earnings — it requires a deeper investigation of underlying causes. We must first see whether and by how much beauty is rewarded, as we do in this chapter.

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