In terms of money wages, au pairs are probably the lowest-paid workers in our economy. These are foreigners, usually young, European women, who work as nannies in American households.
There are about 20,000 of them in the United States, and they come here under a special program managed by the State Department.
Typically, they work 45 hours a week and they receive $1,800 a month in wages. That works out to less than $1 an hour. But they also get room and board, a chance to experience the American economy, and the opportunity to brush up on their English language skills.
Au pairs are an obvious solution to one big problem facing families: the high cost of childcare. Regulations permitting, they also could be a solution to another problem: the exorbitant cost of long-term care for seniors.
The market for au pairs illustrates a principle all students learn in Econ 101: In any voluntary exchange, both parties benefit by trading something they value less for something they value more.
For the host family, an au pair avoids the expense of ordinary childcare, which costs $18 an hour and up. If au pairs were permitted to engage in elder care, they would substitute for the current arrangements, under which a year of care in a home costs $60,000. For the au pair, it’s an opportunity to see America and get some spending money to boot.
So, who could object to that? The Biden administration for one. The state of Massachusetts for another. And, by implication, New York Times columnist Paul Krugman.
In Massachusetts, a court ruled that au pairs must be paid the state’s minimum wage rate, minus a deduction for the value of room and board. As a result, the number of au pairs hosted in Massachusetts fell by 68.1%, while rising by 4.4% in other states.
The Biden administration is considering following the Massachusetts example. In a public comment period, a widowed mother of three estimated the new regulations would cost her an unaffordable $8,000 in additional expenses per year.
This is the same administration that told us only a short while back that childcare and elder care were big social problems that justified spending billions of taxpayer dollars to alleviate.
Krugman is a Nobel Prize-winning economist, and readers of the New York Times are encouraged to believe that his columns reflect economic analysis. Yet, often, they are the opposite of what most economists think.
If you look in Krugman’s textbook, used in college economics courses, you will understand very well what happened in Massachusetts. Textbook Krugman tells us that workers get paid the value of their marginal product, which is the value of what they produce. Ultimately, wages are determined by supply and demand. If the government imposes an artificial wage above the equilibrium wage, or the market wage, fewer workers will be hired.
You won’t find any of this in Krugman’s New York Times articles, however. Columnist Krugman often writes about the unequal distribution of income and wealth. But invariably, he suggests that some great unfairness is afoot in free labor markets that can only be corrected by nonmarket forces.
In a recent column, for example, he suggested that a more equal distribution of income and wealth followed World War II because of wartime wage and price controls and the prevalence of labor unions. There is more inequality today, he suggests, because there is less government intervention and there are fewer workers in labor unions. He is also a longtime advocate of a higher minimum wage.
For the record, careful studies show just the opposite of Krugman’s statement that inequality has been growing. When government taxes and spending are included, the distribution of income between the top and bottom of the income ladder has not widened over the past 60 years.
I often wonder whom Krugman is writing for in his columns. I suppose they are readers who are sophisticated enough to read the New York Times and have strong political opinions, but who do not believe they need economics to understand anything important.
Apparently, there are a lot of people who believe that if a price is too low, the government can push it up and nothing bad will happen. Alternatively, if a price is judged too high, the government can push it down and nothing bad will happen.
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Who could believe that? Think Hollywood, the legacy media, the chattering classes, the artistic professions. People who delight in Krugman columns but would never read the Krugman textbook.
Yet, if Krugman’s advice were followed, the au pairs would stay in Europe and people with children and elderly parents would be left to fend for themselves.
John Goodman is the president and CEO of the Goodman Institute and a senior fellow at the Independent Institute.
