Saturday, May 10, 2008

The Personal Care Economy

Here's something I don't quite understand: Demand for services that take care of people--health care, elder care, day care, education, and so on--has been steadily rising. And yet wages for these jobs are flat. Why?

A recent David Brooks column on new ideas for conservatism is asking vaguely the same question:
The British conservative renovation begins with this insight: The central political debate of the 20th century was over the role of government. The right stood for individual freedom while the left stood for extending the role of the state. But the central debate of the 21st century is over quality of life. In this new debate, it is necessary but insufficient to talk about individual freedom. Political leaders have to also talk about, as one Tory politician put it, “the whole way we live our lives.”

Some possible explanations, none of them particularly good:
  • The amount of unskilled labor in the US might be increasing more rapidly than demand for these services. I have no idea if this is true. It would seem to bode poorly for the future if it were.

  • Consumers don't care about quality for these services and are therefore driven completely by price.

  • Many of these services are delivered through opaque institutions that don't care about quality and are therefore driven completely by price.

  • The economies of scale that are necessary to deliver these types of personal services preclude them being, well, personal.

  • The marginal benefit of these services to consumers is such that they forgo them until it's an emergency, at which time they care about neither quality nor price.
None of these seems quite right. Something odd is going on here. There's an emerging consensus that education needs to be dramatically improved, that quality day care is an essential anti-poverty tool, and that elder care is a booming growth industry. I admit that the trends in health care are all about making it cheaper, which certainly isn't going to put upward pressure on wages, but why are wages stagnant in the other fields?

It's possible that the simple answer to this question is that people really don't value these services. But I think a more likely answer is that consumers don't think that they get adequate value from them.

This seems like an opportunity for some one more clever than I. If you can come up with a model where increasing professionalization of the personal care industry results in demonstrable value, you will not only see productivity rise but also eventually see average wages rise. NB: average wages will rise, but only as a result of the value proposition of these services becoming more transparent. That means, as it does for all sectors of the economy, that high-value professionals will see their wages explode, while lower-value, less-skilled workers will see them stagnate as productivity gains drive down cost commensurate with the growth in demand. Welcome to the twenty-first century, folks.

Another possibility is that an attitudinal shift in society at large is needed before these services are valued properly. It'd be fascinating to find an historical plot of these services as a percentage of GDP. I'm guessing that it would show that the percentage has fallen in the past century. I wonder if that's sustainable?

I'm writing a big essay on open education offline and will post it when it's done. I believe that this may be the answer for how to inject new value streams into education and kick-start educational productivity. (That's highfalutin-speak for "your kids will learn more and better stuff, and so will you.") Hopefully, there are other technological innovations that can be applied to child care and elder care, although I have no idea what they might be.

Health care is a different story. Sick people certainly like be attended to personally--it makes them feel better. I wonder if that need can be outweighed if technology makes them well quicker and cheaper, even if they have less human contact in the process.

There's something odd going on in this area. It's always with paying attention when there's a mismatch between what we say we want as a society and what the individuals in that society are willing to pay for it. I suspect the fundamental disconnect is technological, but I sure can't prove it.

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