Some Thoughts on Comparative Advantage

This morning, a boy from our neighborhood knocked on our door. He was looking for yards to mow and he offered to mow ours for $15 a pop.

Our yard takes roughly an hour to mow with our push mower. I tend to enjoy the process, actually, as it gives me a good excuse to get exercise. I often come in pretty sweaty after mowing on a hot summer day.

So I turned the boy down.

Now, are there tasks I would pay someone $15 per hour to take care of around our house? Yes, but it depends on the task and the situation. The real question is will I get an additional $15 of net earnings or $15 of life enjoyment out of that hour as compared to just doing the task?

This idea is called competitive advantage, and thoroughly understanding it can be a huge benefit for your finances. I wrote about this idea three years ago and largely concluded that one should simply look for opportunities for comparative advantage in their life, but what does that mean, exactly?

Here’s an example. Let’s say there’s a job in my home that I get little or no value out of doing. Washing dishes comes to mind, actually, as does doing the laundry. Now, if I have something that purely generates more than $15 worth of post-tax earnings or more than $15 worth of life value that I can do in the hour that I’ve gained by paying someone to do that task, then I should do that. What generates such value? A guest article on another website might do the trick, as might an hour spent playing tee ball in the yard with my children.

Where things get more difficult is when I start looking at replacing stuff that does have value for me, like mowing the lawn. How much is mowing the lawn actually worth to me, considering the exercise I get out of it? I have to know that before I can really consider hiring someone to do it for me, because then I would be losing not only my (minor) enjoyment from mowing the lawn, but also the cost of paying someone to do it. I’d have to gain more than I would for hiring someone to wash the dishes.

Simply put, you can make your life a lot better through maximizing comparative advantage, but it requires you to have a real understanding of how you value things in your own life and realistic assessments of how you can earn money in your spare time.

For example, if you’re paying someone $50 to do three hours of cleaning in your home, are you gaining $50 in value out of those three hours you’ve gained? If you’re just sitting there watching whatever happens to be on television, you’re not gaining that value, but if you’re doing something that improves your career or something that deeply improves your personal relationships, you’re gaining far more than $50 of value out of that time.

Comparative advantage is a stark example of how self-analysis can lead directly to a richer and more well-rounded life. The better you know your life – what you value, how much you value it – the more you can take advantage of comparative situations.

The best part of this kind of self-analysis is that you can do it all the time as you move through life. Ask yourself consistently how much this experience is worth to you, or how much you’re actually earning from this hour of work.

Soon, you’ll begin to get a sense of how much various things are worth to you, which makes it easier to find points of competitive advantage in your own life.

What’s more valuable to me: staying up for another half an hour to watch this show, or going to sleep a half an hour earlier?

What’s more valuable: spending all day the day before my child’s wedding prepping a meal for forty or hiring a caterer to take care of the whole thing?

What’s more valuable: driving an extra thirty minutes round trip to shop at a warehouse store or paying a bit more to buy several items at a nearer store?

What’s more valuable: hiring a babysitter to watch your three children so you can go out to eat with your spouse or taking the family to a family restaurant instead?

Such choices become easier and more clear the better you know yourself and what you value, and when you’re making better choices consistently, your life becomes better.

I think I’ll go mow my yard now and work up a good sweat.

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32 thoughts on “Some Thoughts on Comparative Advantage

  1. Tanya says:

    Your comment about the stores hit home with me. I would much rather shop at stores I enjoy – even if they cost a little bit more – than endure a certain big box store whose business practices I question. A calmer, more attractive and pleasant place in which to shop – where I can actually find the products I’m looking for – is worth a lot to me!

  2. Vicky says:

    In situations like this, I will tend to give the boy $15 to mow the yard.

    While I like being outside, I realize the boy is trying to earn money for something in exchange for work – something I’d like to see encouraged.

    Just like I pay a gentleman in my neighborhood three dollars a bag to bag up leaves – I don’t mind doing the work and I don’t have anything better to do, but I feel like I’m giving someone else an opportunity.

    Though I also tend to be nice and offer free lemonade or juice, too!

  3. Tracy says:

    Don’t forget the flipside:

    Sometimes it’s about minimizing the negative, though. I hate mowing the lawn. It would also take me about an hour to do it, but even if I absolutely waste the hour even by my standards, I pay someone to do it. I’m not gaining 15 dollars of value, I’m avoiding what would be more than 15 dollars of discomfort.

    Of course, there’s a theory of thought that if I am not productive during that time I am wasting it but it’s not mine. I’m only gonna live once!

  4. krantcents says:

    We chose a long time ago that it was better for someone else to clean the house and do the laundry. The cost compared to time was a no brainer since both of us work at stressful high earning careers.

  5. Johanna says:

    Vicky makes a really good point. You’re analyzing these situations as if it’s all about you, but you’re not the only person who’s affected by the decisions you make. So if your “comparative advantage” calculation comes out to pretty close to a wash, maybe it’s worth tipping the balance in favor of giving work to someone who needs (or really wants) it.

  6. ysabet says:

    Paying someone to clean my house is a luxury I pay for whenever we can afford it.

    Because I’d rather spend that time relaxing with my husband, building our relationship, or just winding down. This is very valuable; I know the consequences if I don’t take that time out. Relationship-wise, the time with my husband is the most valuable thing in my life. Not only that, it’s a lot cheaper to hire a cleaner than for me to lose my job due to burnout because I never get time to relax.

  7. Troy says:

    so a neighbor kid has the guts to knock on your door and ask for a job…and you turn him down.

    I suppose you turn down the kids selling cookies or popcorn or whatever because it’s comparative advantage doesn’t equate.

    Even if you like mowing, you could have acknowledged the initiative and given the kid another job opportunity, either one time or recurring.

    You know that theory of the pendulum swinging too far the other way. Yeah…that’s you now. All this talk for years about going after things, initiative, working hard, finance, etc and you can’t encourage it in your own life with a neighbor kid.

    This post says more about you than likely intended

  8. Sonja says:

    I was raised by European parents who were mighty frugal. Their philosophy was “Whether you want to do it or not doesn’t matter. It needs to get done, so you do it as long as you are able-bodied.” To NOT do it yourself was considered lazy or extravagant. Along with this was to do your best no matter what task you were doing so the standards for chores were pretty high and if you didn’t do it right you did it over again.

    We don’t analyze or compare anything until our yard work, housework, laundry, shopping, and cooking resposibilities are completed, LOL!

  9. Cathy says:

    It was costing me $140 a month to have my yard “serviced.” One day my husband said, “We can buy a lot of plants for $140.” So now we split the work and I don’t feel guilty when I pay for plants.

  10. Sara A. says:

    I turn down kids selling random useless stuff for school, but if they are learning about business and work I always help out. I would have totally hired that kid, or, if I didn’t need my lawn mowed, I might have suggested another task like washing a car.

    Two of the neighborhood kids had a bake sale. I bought from them to support them even though I had a food allergy to what they were selling. The cookies ended up in the trash but the kids learned how to make change and signage and all sorts of other important skills.

  11. Jamie says:

    I think that Vicky and Tracy (#s 2 and 3) had great points to make in their comments.

    Troy- It also would have been very contradictory to TSD for Trent to give the kid the $15 for a job Trent would rather do himself. $15 is not pennies– It’s enough to feed Trent’s family for a day. The kid knew that he was pricing himself at a rate that was not just throw-away money.

    This article is not about work ethics in youth and it’s not about charity. This article is about Comparative Advantage. And for Trent, giving the kid $15 to take away his enjoyable outdoor gym is like a double charity– not a good comparative advantage!

  12. Mari says:

    Troy, if you like paying kids to do chores to reward their initiative, you should move to my neighborhood. I had six different kids try to get me to hire them to mow my yard this summer. Quite frankly, I prefer to do it myself (as I like the exercise). Also, I’ll put the money to better use (times are tight) than the 12-year old who was trying to earn money for a $600 bike or the 13-year old who needed a new Wii.

  13. Troy says:

    #11 & 12.

    Sorry, I don’t buy it. Tman always discusses social capital. Working with your neighbors. Etc.

    Then one swings by and gets dissed. You can analyze it all day and on paper you are probably right. Trent did an analysis and found rightly so that the kid would cost him money.

    But it was still a poor thing to do in my opinion. I think you help young kids out. I think you give to those who need it, or who are trying. Giving to a charity is certainly difficult in trying times as well, and is surely not a beneficial comparative advantage.

    But you still do it. because the right thing isn’t always about the money.

    What if it were his kid and his neighbor.

  14. valleycat1 says:

    #13 Troy – “What if it were his kid and his neighbor.” Exactly what I was thinking. I’m guessing that as Trent’s kids get older he’s going to be encouraging them to be entrepreneurial. And I also agree with Sara A #10 about not buying unsolicited stuff but considering services.

    I agree with those who suggested alternate job offers to the lawn mower, or maybe an intimation he would hire him for the time they’re traveling out of town on lawn day.

  15. Ray says:

    I think some of you are missing the point.

    If it was me, you could replace cutting the grass with washing the car. I’d happily pay someone to cut my grass for $15, but I wash my own car because I enjoy it, so I don’t pay the local school $3 to wash my car.

    Trent LIKES cutting the grass. He doesn’t get any value out of paying someone else to do it.

    Yes, it sucks to be the kid who got turned down, but that is also “life.” I have realized that there are just too many charities and good causes to support everybody who comes to my door – we pick a few good ones, donate to those, and say sorry to the rest.

    Speaking to this specific instance, if Trent really wanted to help the kid out, he could have offered to pay him $15 to do some other yardwork that needed to be done or other general labor. We have done that with extended family members who need money – we pay them to come do services we are unable/unwilling to do. (Having small kids makes it very hard to get things done for a couple of years.)

  16. Borealis says:

    My prior comment is awaiting moderation because I linked to a picture, but I agree Ray at comment 16. The kid is not looking for charity, he is looking for work. If you want to mow your own lawn, fine. Please don’t hire him to mow your lawn and then use that time to go to the gym!

    But it would be nice if you thought about any other jobs you might hire him for too.

  17. con says:

    I think Trent has a right to turn the kid down because he likes to mow his lawn. Nothing wrong with that (I also think a lot of Trent’s posts get taken too literally for a point he is trying to make). However, I have had kids come by every spring/summer asking to mow my lawn and, basically, I cannot easily afford to have them do that when it can be done by myself. I pretty much agree with #8 Sonja’s parents. But…if I had the extra money to spare, I would probably find something for the kid to do. I can remember being a kid and it thrilled me to no end if I landed a “job.”

    Heck, I can remember little 5 year-old twins living next door to me wanting to buy a video game back in the day and begging me for ANYTHING they could do. I could afford to give them $2 apiece to sweep my driveway and they were thrilled!

  18. moom says:

    This article defines comparative advantage very vaguely. It applies kind of to some of Trent’s examples but not to others. Comparative advantage is when two people could do an activity. Society is best off if the one who has the lowest opportunity cost – gives up the least valuable other production – does that activity. This applies to individuals, firms, countries etc. So maybe Trent gives up less by cutting his grass himself than the boy does (by not cutting someone else’s grass). But certainly going to a local store instead of driving further isn’t an example of comparative advantage. It is an example of the opportunity cost of time.

  19. Henry says:

    Please send that kid to my neighborhood.

  20. deRuiter says:

    I’m with Henry #19. I’d hire the child and do something else with the time. There are so many lazy, entitled children around that to see one with drive and entepreneurial spirit is a pleasure. I’m tired of welfare queens breeding the next generation of welfare queens and the inmates of prisons, tired of people on unemployment for 99 weeks because they don’t want to take less than they earned before, tired of subsidizing the non workers in America who are fast approaching the bulk of our population. The child offered to do useful work, pay him. I don’t buy peddled items like cookies and magazines.

  21. Kevin says:

    I agree with the others. The article has a valid point, but the specific example was a poor one, in my opinion.

    I would definitely have hired the kid. He’s putting himself out there, getting off his butt (and away from his Wii) and actually trying to EARN some money. That’s the sort of entrepreneurial spirit we should be ENCOURAGING. Good for him for having the guts to knock on a stranger’s door and offer his labour.

    I just hope this kid didn’t get discouraged, give up, and shift to a lazy, entitlement attitude that is all too prevalent already in society.

  22. Jon says:

    I agree with Troy. I would have hired that kid, and I do like mowing. Trent, mowing may be work but it’s not really much for exercise. If a slow walk pushing a mower is your idea of exercise then that explains alot about your fitness troubles.

  23. Geoff Hart says:

    Sounds like a very familiar situation. I made a different decision, however. I chose the lawn-mowing service. I enjoyed the exercise (I used a manual spindle mower instead of a gas or electric mower) and it was a good excuse to get away from the computer for an hour, but I always hated the heat and mosquitoes. For me, the enjoyment from doing the mowing was far outweighed by the unpleasant aspects of the job, and since I earn far more than that per hour, it made good economic sense to spend the time working or doing things that earned no money but that were more pleasant, like writing.

    But the flip side of that is that I love doing yardwork in the early spring and fall, when the weather is cooler and the bugs aren’t around. That work I continue doing myself because it’s a pleasure, and that outweights the economic considerations.

    We hired a snow-removal service a couple years ago because my aging back was warning that it wouldn’t be up to the task forever. (The year the snowbanks were higher than my head also provided some convincing. *G*) I still enjoy shoveling, and because I work at home I could do it most days, but it was clear that couldn’t go on forever. More seriously, because we travel a few times during the winter (visiting relatives mostly) that we couldn’t afford to leave the driveway unplowed for several days. Our house- and cat-sitters aren’t up to the task, so a service was the only answer.

    Having earned most of my income as a pre-teen and teen by mowing lawns and shoveling driveways, I’d happily hand the job to a local kid (i.e,. paying back), but there aren’t any who are interested.

  24. Joan says:

    Trent: You have mentioned giving to charities for children several times. In my opinion, charity begins at home. Not that this child wanted charity, he wanted to work. I realize that you can write off what you give to charities, but $15 to a child for doing work would to me be much more profitable in the long run to the community, neighborhood and the country.

  25. Maureen says:

    I haven’t really found anyone willing to take on mowing my yard, but I used to always hire the little girls next door to keep my flower beds watered while I was away on vacation in the summer. It was an easy job for them to manage (particularly if it rained – I paid them a flat fee rain or shine) and they were so proud of themselves.

  26. Money Beagle says:

    I actually enjoy cutting the grass so I wouldn’t give that up unless I didn’t have time or if I had a broken mower or something else. Plus, I’m pretty fussy about my yard (not as bad as some but I do have particular things I make sure of) so I wouldn’t trust it to a kid trying to get done as quickly as possible so he can go spend the $15 on whatever. :)

  27. almost there says:

    I would have hired the kid. I remember growing up living in a foreign country with limitited means of earning money. A neighbor hired me to wash his car once a week for two dollars. It took quite a while because that included cleaning the inside and taking a cloth to the car and removing all water, and also chrome polishing. Now if Trent used a manual non motorized push mower I would understand the exersize excuse,

  28. Matt says:

    @ #12 Mari – Aren’t you being a bit judgmental when you say, “Also, I’ll put the money to better use (times are tight) than the 12-year old who was trying to earn money for a $600 bike or the 13-year old who needed a new Wii?”

    Many of their peers get this stuff given to them. I respect kids who will earn their own money to pay for their own needs/hobbies. This DOESN’T mean that you need to hire the kid (it’s your money and your choice), but saying, “I know I use my money better than they use theirs” is unnecessarily self-righteous and demeaning.

    Also… as a bike enthusiast myself… $600 is about the cost for a good entry-level mountain or road bike. If a 12-year-old knows he wants this, then I think it’s awesome! Double awesome if he’s earning money to do something outside by doing jobs outside… not enough kids get outside time these days!

  29. Shane says:

    I’d always hire the kid in this situation. Hopefully they learn the meaning of earning money by doing dirty jobs just like I did!

    I’ve recently noticed that individual kids group together to perform gardening tasks like this to improve their efficiency and therefore increase their earning potential. Got to respect that initiative.

  30. Julie says:

    I am with 90% of the other posters. I would have hired the kid. I have NEVER had a kid knock on my door looking for work and I have been a homeowner in So Calif for 25 years. It seems they are all provided with 100% of their needs and 99% of their wants already, so they don’t need to bother.

    I used to take my boys around the neighborhood to sell avocados from our tree when they were young. (younger than 12) We priced them in such a manner that they were a little cheaper than the store…so it was a good deal for everyone involved. The boys learned how sell their product and approach strangers. Virtually every neighbor commented on how much they enjoyed seeing the kids trying to earn some money. It is so rare these days.

  31. Annie says:

    I often travel to PA to visit my mother on the weekends and mow the lawn for her, she also has a neighborhood kid that offers to cut it for 5.00 front and back and sometimes we pay him to do it. He is in high school and often asks families in the neighborhood if they need their grass cut. I think it’s good to mow the lawn by yourself if you enjoy it but there is nothing wrong with taking one weekend off and letting a worthy kid do it either,it will make you feel good that you helped someone at a young age to earn money at the same time you get to do something fun and differnt with your family.

  32. Carol says:

    $15 bucks is cheap! I ‘d have taken the kid up on that deal in a minute. People in my neighborhood pay double that for grass cutting, sometimes more. This is what ‘adults’ are charging to cut lawns, so paying a kid only $15 is good for both the parties involved.

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