Many people would argue that nurses provide more value to society than investment bankers*, yet the latter position is paid significantly more than the former. This fact is often lamented. My question is: which mechanisms have been proposed to actually solve this perceived problem and achieve wages that are aligned with social value production (however one may define that term)?

Here is what I believe is the underlying structural issue (please correct me if you think I'm mistaken here): wages are tied to productivity in terms of monetary value. Aspects like ecological damage done or social value production are (mostly) ignored. [I believe that in economics, things that prices don't account for but possibly should are called externalities.] Jobs like investment banking produce a lot of monetary value, while jobs like nursing produce a lot of social but not a lot of monetary value - thus the difference in wages between the two.

For ecological damage, CO2 taxation is a proposed solution that works essentially by artificially adding (negative) ecological value production to monetary value production, and thus achieving a price that incorporates both. I could imagine a similar solution for incorporating social aspects, i.e., society might subsidize either the wages of people working in socially desirable but unprofitable jobs, or the price of the services they offer. (Society would thus "internalize" the externality "social good done".) Has something like this been proposed?

I am interested in all kinds of proposed solutions that attempt to solve the perceived structural problem.

(This a follow-up to my previous question in which I was convinced by the many great answers that money is probably the most efficient means of communicating social value.)

*This is an arbitrary but somewhat popular comparison - for the purposes of this question it's irrelevant whether you and I believe that this is actually true.

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    The fundamental problem here is deciding just who gets to impose their definition of "social value" on everyone else. E.g. from my point of view rap "artists", many professional athletes, or FTM celebrities in general actually have negative social value (since I must waste time paging past articles about them in my news feeds), yet they get paid lots of money.
    – jamesqf
    Sep 17 '20 at 0:02
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    In theory investment bankers actually can produce a lot of social value by fulfilling their original role in the economy - moving scarce capital where it is needed for growth. For example imagine a loan given to fund a new green technology which reduces emissions 30%. The banker would have played a crucial role. Modern investment banking has devolved into a lot of speculation. Sep 17 '20 at 5:40
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    @jamesqf I agree that that's a very important issue, but in my mind that's only half of the problem - the other half being how to actually achieve the wage alignment.
    – jhin
    Sep 17 '20 at 12:51
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    There are various ways to solve the problem: either you enforce it via a dictatorship of some sort, or you assume that market conditions have done a pretty good job of incorporating most people's ideas of social value.
    – jamesqf
    Sep 17 '20 at 17:44
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    Employment is much more voluntary than the question assumes: you know how much money a nurse makes, and how much a banker makes, so you are “free” to decide which career to pursue. Some people choose professions that are emotionally rewarding and prefer that emotional reward to a high salary. That’s not a perceived problem to them.
    – blud
    Sep 22 '20 at 21:06

I just stumbled upon an article that asks essentially the same questions (although much better formalized and much more clearly formulated!) and also discusses the potential solution I thought of (subsidies for 'socially beneficial' jobs).

Firstly, they define 'socially useful' as having a large 'spillover':

Economic research increasingly indicates some professions have “spillovers,” meaning that the social value of an individual’s work can be much higher, or much lower, than that individual’s compensation. The job market does not account for all social value.

Some spillovers are quite large. Given how much good teachers raise the eventual incomes of their students, we calculate that spillovers from teachers are twice as large as the salaries teachers are paid. The benefits from medical research are even larger, amounting to over one-fifth of total income in the U.S. On the other hand, some sectors involve “zero sum” endeavors, in which profits come at the expense of other market participants. Examples include excessive litigation or financial traders trying to beat the market.

Spillovers jam the signals in the economy, misdirecting talented students. This can lead to severe misallocations of the talent pool — arguably a nation’s most valuable asset. Recent work in macroeconomics indicates that when economies fail to allocate assets to their best uses, growth slows and incomes stagnate. Although economists have long focused on policies that promote the acquisition of human capital through education, the efficient allocation of the resulting talent is just as important.

They proceed to consider the option of taxing or subsidizing individual professions differently, based on their spillover. They essentially conclude that while in theory this would be a good solution and might have a lot of benefits both for society and the economy, it will be hard to implement in practice: how to draw boundaries between different professions? This will probably open up a whole new field of lobbying and loophole-seeking. They argue that the best solution is to do this on a case-by-case, which essentially means: wages should be significantly increased for teachers, researchers, nurses, etc.

Article in Harvard Business Review that I quoted from above: https://hbr.org/2017/10/what-if-socially-useful-jobs-were-taxed-less-than-other-jobs

Scientific article by the same authors on the same subject: https://www.journals.uchicago.edu/doi/10.1086/693393

Brief summary of numbers + research on externalities / spillover in different jobs: https://80000hours.org/2017/06/which-jobs-do-economists-say-create-the-largest-spillover-benefits-for-society/

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