Welcome to my blog where I discuss money, investing, politics, and anything else import in the world. I find it surprising that most people in their 30s have very little knowledge or interest in these areas. Of course everyone is interested in money, but very few take the time or have the discipline to properly save and invest it for the future or short term. For those who at least have the interest, I'll write about my experiences and methods of investing, and hopefully give you a head start in investing.

Wednesday, April 2, 2008

We're all paid what we're worth

I don't see, on average, how anyone is underpaid or overpaid in a free market, with the exception of those making minimum wage (who could be overpaid). In a free market professions are paid what they are worth to the employer and what the employee is willing to work for. Basic supply and demand. If it is really hard to find qualified people for a particular job, then the employer has to raise the wage until it becomes attractive for the employee. On an individual basis, it is true someone could be a bad value and normally things would self-correct and they are either fired or receive smaller raises. Unfortunately, if you throw in unions and tenure, that breaks the normal free market, and prevents individuals from being correctly compensated (whether more or less) according to their worth. However, professions on the whole are still governed by supply and demand.

That is why you see athletes and actors with large salaries. They a) make a lot of money for their employer and b) good ones are in very low supply. However, something like education is not a money making profession, but its value is set by what the tax payers are willing to pay for the service. Since there is no shortage of teachers who can do the job (compared to athletes who can throw 95 MPH fastballs) that wage can be held much lower. So whatever the current compensation for a profession, it has been set by the free market. Thus I find it hard to accept frequent comments about how certain profession are under or overpaid.

1 comment:

Brip Blap said...

You're assuming, of course, that all wages are set by the market. Some, like teachers, are set by the state and may be over or undercompetitive. If those salaries are too high, they will have too many applicants but will not lower wages; nor will a lack of applicants always drive up wages (because the state may lack resources to raise them).

Not to say I don't agree with your point in general, but there are definitely exceptions. A pure market economy could only exist without any sort of state regulation (such as minimum wage, as you point out).