At a party recently, one of
my colleagues mentioned that his 14-year-old daughter was babysitting for her
6- and 3-year-old siblings so her parents could be at the party. I asked how much they were paying the
teenager, and he answered that she was not getting paid. He noted, however, that if his wife and he
wanted the daughter to babysit but she was called by someone else to babysit
for pay, they would match the market rate that she would have received outside
the house. My colleague is paying his
daughter her opportunity cost. When she has an alternative babysitting job
that pays, she receives a rate of pay at home equal to her opportunity
cost––what she was offered for babysitting elsewhere. When she has no alternative job, she is again
paid the opportunity cost of her time––which is then zero! Only an economist would do something like
this.
Q: If you were in the daughter’s position, would you settle for what
you would be paid elsewhere? Are there
economic reasons why you might be willing to settle for less, or to insist
on––and get––your parents to pay more than others would pay for your
babysitting services?
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