Friday, July 30, 2010

You're underpaid. Get over it.

Just about everyone is. Except the unemployed and the soon-to-be unemployed.

What brought this to mind was the New York Times article The Case for $320,000 Kindergarten Teachers. According to the article, a good kindergarten teacher creates $320,000 worth of value a year. One can easily argue that such a teacher should receive a good deal more of the value that they create than they do now, but they'll never receive all of the value they create. If they did, no one would hire them.

Very rarely is someone hired for altruistic reasons. A worker is hired because the person who hires them can make money by hiring them, which means that the employee is producing more value than they receive. If you're receiving as much as you produce, there's no reason to continue your employment. If you cost them more than you produce, you'll join the reserve army of the unemployed.

Even if you're self-employed, you don't capture all of the wealth you produce. What you make is worth more to the customer than the money they spend on it. If it wasn't, they wouldn't buy it. The extra wealth you create goes to the customer.

Everyone is underpaid. Some are just underpaid more than others.

2 Comments:

Blogger Noumenon said...

What you make is worth more to the customer than the money they spend on it. If it wasn't, they wouldn't buy it. The extra wealth you create goes to the customer.

That's an interesting take on the idea of consumer surplus. Since Econ 101 says everybody except the very last customer at the margin would pay more for it than the final price, and since the price is set by that marginal customer... it basically means that out of all your customers, the one who decides what you get paid is the one who you just barely satisfy and is this close to not buying your product at all. No wonder we feel undercompensated.

On the other hand, what about producer surplus? Out of all the employees at any given firm, there should be some at the margin whose labor is just barely compensated and some who would sell it for much less, and feel overpaid. And no one who's underpaid -- according to that same theory you use to say no one hires for more than you're worth, no one should work for less than they feel they're worth.

I'm thinking we're seeing again that the employer/employee market is not an Econ 101 one with supply and demand. Heck, economists today often don't even consider labor a commodity, but a form of capital (organizational capital). The whole Econ 101 model of infinite farmers selling identical wheat to infinite buyers really doesn't apply.

2:00 AM  
Blogger Octavo Dia said...

no one should work for less than they feel they're worth.

Their perception is skewed by how much they produce. Just about everyone does believe they're underpaid, and if you define underpayment as I did above, it makes sense why they would feel that way.

3:08 PM  

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