In college, I was duped.
But it wasn’t a band of conniving confidence men that hoodwinked me. Nor was it a Bernie Madoff wannabe that conned me. I was tricked into believing a set of ideas. Chief among them, the myth that you’re paid according to the value you create for the company.
I know, this sounds controversial, or even ridiculous. And many of my friends, who believe in the innate goodness of capitalism, shake their heads in dismay.
But I’ve learned something: Your job pays you what it would cost to replace you. Your labor is a commodity and is subject to the forces of supply and demand.
The great irony is that I took an economics course in college. My professor drummed the concepts of supply and demand curves into my mind until these ideas invaded my dreams at night. The prices of all commodities, from tomatoes to toboggans, were explained based on supply and demand. (When the demand holds steady and supply goes up, prices go down. As that supply goes down, prices go up.)
It made perfect sense to my little brain.
But it never occurred to me to think of my wage at work in terms of supply and demand. I believed wages were exempt from the forces of capitalism; I fancied that everyone received compensation equal to their value.
This led me to a few false conclusions:
- Low-wage earners deserve their paltry pay because they produce little value.
- High-wage earners generate more value for society.
(I blames books by Ayn Rand and Robert Kiyosaki for these bad ideas. But that’s a story for another time.)
I spent a decade in the workforce before I learned how supply and demand governed my earnings. I now understand that my labor is a commodity, just like yachts and yo-yo’s. If my work is valuable and irreplaceable, my wage will be high. If I’m easily replaced, my wage will be low.
And yet, the you-are-paid-according-to-your-value fiction persists for 4 reasons:
- It’s part of our belief in the just-world fallacy, i.e., some universal force enforces a moral balance and therefore, both rich and poor, deserve the life they have.
- We believe that anyone can move up in society and become rich if they work hard enough. Therefore, the poor are poor because they’re unwilling to work hard.
- We fantasize that someday we will be wealthy. Ronald Wright summed it up when he said, Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.
- No one wants to think of their labor, and by extension, themselves, as a commodity. We feel gross just thinking about it.
I know this may be difficult to accept; it was for me.
Let’s look at some examples.
Medical doctors get paid grundles of money because there is a steady demand for their services, and few people qualify to fill this role. (There are roughly 1.1 million doctors in the U.S. or 0.3% of the population. See U.S. Physicians - Statistics & Facts.)
They earn the big bucks because few folks can do their job, and technology has yet to replace them. (Sorry, WebMD!)
Within medicine, there is an enormous range of wages, based on specialty. Physicians specializing in Public Health & Preventative Medicine earn an average of $199,000 per year; plastic surgeons earn an average of $501,000. Source 2018 Physician Compensation Report Released.
Supply and demand account for this broad spectrum of wages.
And if the number of doctors magically doubled overnight, their wages would dramatically drop.
(Note: the cost of healthcare would decrease if the U.S. doubled (or tripled!) the number of accredited medical schools. The current shortage of medical professionals makes healthcare more expensive. More on this in a future post.)
Contrast this with job titles that begin with toilet scrubber. Unsurprisingly, these positions don’t pay much. And yet, we absolutely value clean toilets at work, school, or in public restrooms. (There’s nothing worse than sprinting to a bathroom only to find dried diarrhea caked on the only available toilet!)
But nearly everyone in the workforce has the skills to do this kind of work. Therefore, janitors are easy to replace and earn less than most other people.
Now, if you’re not convinced of the value of toilet scrubbers, imagine they all went on strike. For a year. Or what if all garbage truck drivers went on strike for a year? Or even all truck drivers?
When I assess the value of various occupations, I ask myself, What would society look like, materially, if this group went on strike and no one did that job for a year?
No truck drivers means no food in the stores.
No janitors means the bathrooms at work and school become extremely gross extremely fast.
No fruit pickers means no fruit in stores. Reported cases of scurvy would spike as well as sales of vitamin C supplements.
Contrast that with casino owners going on strike for a year. Each casino’s employees would figure out how to keep the business running, or the casino would close. Either way, society would keep truckin’ along, and we’d be no worse off.
My conclusion is that many low-to-mid wage workers (e.g., fruit pickers, janitors, truck drivers) provide as much material value as medical doctors. Therefore, they would earn an equal wage in a perfect world.
Now, I can hear you murmur, This is all well and good, but what do I do with this information?
There are 3 things you can do:
- Play the game — To earn more money, select an occupation that has a steady demand and a comparatively small supply.
- Be less judgemental — Think twice before turning your nose up at someone who earns less than you. There’s a decent chance they provide more value to society than you, despite their meager wage.
- Support minimum wage increases — A small, $1.00 per hour increase would put an additional $2,080 in the pocket of each full-time minimum wage-earning worker. A $10.00 per hour boost would put a whopping $20,800 in those same pockets.
In summary, you’re not paid according to the value you create at work. Your job pays you what it would cost to replace you. Make more money by becoming irreplaceable. Support minimum wage increases and be kind to low-wage earners. And dream of a better system.
Be well, my friend.
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