Output and Effort

The Randies have this Atlas Shrugged inspired fantasy that pay should be based on level of effort. This counters the supposed direction in which Rand claimed we were headed with her anti-collectivist theories that were later adopted by uninformed conservatives. The Randian’s great fear is that our economy would morph toward something that paid individuals based on need as opposed to effort.

Of course neither is true. Furthermore, if either were adopted in full in any economy, it would soon be valueless. But this never stopped corporatists with an agenda of diminishing wages from paying big bucks to permeate a theory.

Let’s take a walk, however, through the mind of a modern libertarian. If earnings are based on effort, then the breakout of effort by occupation would look like this in 2010:

Job	Salary	Level of Effort
Janitor	$20,000	1
Entry Level Marketing Manager	$45,000	2.25
Middle Manager	$90,000	4.5
Junior Investment Banker	$150,000	7.5
Professional Athlete	$2,000,000	100
Hedge Fund Manager	$1,000,000,000	50000

So if being a janitor requires a single level of effort, then a professional athlete works 100 times harder than a janitor. Certainly nobody will argue that a billion dollar hedge fund manager works 50,000 times harder than a janitor; however, if taken logically the theory would project that.

This is true because “hard work” is a relative term. There is no way to quantify how hard somebody works; cost per hour is an indicator of how much the economy is willing to spend for a given skill, but you can’t work more than 24 hours in a day. Someone who makes $250 per hour will always out-earn a $10 per hour worker.

It’s also interesting to note that if you’re working hard, you’re probably in the wrong career. Those who enjoy their work, who have meaningful careers, choose professions that come easily to them. (Sometimes, the profession chooses us.) Think about it. If you’re a left-brained practical person and someone hires you into a creative job, you have to work much harder to deliver that for which you’re being paid than someone who is an extreme right-brain. Chances are good you will struggle.

There is a confusing message in our lexicon asserting that those who are successful have worked harder than those who eek out a meager existence. It is rare, almost statistically impossible, to start and/or run an extremely successful company. Those who do are individuals who found work that connected to their personality, and they were motivated. Whether it was for vengeance, attention, or circumstance, people who catch a wave and ride it into successful career are heralded as successful. And deservedly so. (They are typically in the rare 5 percent of any population who require a strong balance between left and right brain – creativity and business sense.)

But we often simplify this phenomenon when we acknowledge these people as hard workers. Serial entrepreneurs describe their work as a labor of love. No doubt the overwhelming majority worked hard. But did they work any harder than the Vietnamese immigrant who bought a 7-11 franchise and put in dozens of (often risky) hours managing the store? Or the father who earned below the national median income as a teacher during the day and in a hardware store at night for a decade so his wife could only work part-time while raising two children?

Any reasonable person would agree that the entrepreneur, the franchisee and the moonlighting teacher, on average, sleep approximately the same number hours each year. All are more or less always working. And although it’s the entrepreneur who risks both capital and his reputation, his payday is the biggest. It has to be, otherwise he ceases being an entrepreneur. Arguably, the franchiser risks safety while managing the store during the overnight shift and the teacher has sacrificed time with his children in exchange for a stable home with their mother.

All of these are valid. Neither is more noble or deserving than the other.

While the risk/reward equation is ubiquitous, especially in free market capitalist economies, other factors are significant in determining someone’s pay. For the record, in America in the 21^st Century, there is no central authority determining who gets paid how much. Although, the government has significant influence over which industries get preferential treatment in the free marketplace and tax policy most definitely determines the haves and the have nots. This is indisputable.

The market, however rigged by a permanent ruling class, determines wages. Some factors include scarcity of a skill. This was clear in the mid 1990s when Internet technology was emerging and there seemed to be fewer than 100 engineers who knew how to program a router. These geeks had a license to print money. Then, hundreds of thousands worked their way into the field, knowledge became more widespread, and wages fell to a reasonable level.

Although the Ayn Rand crowd fears a world in which people are paid by “need,” which is practically and systematically impossible, there is one factor of which utopians dream and freepers fret: the value to society. The collectivist majority, in all human cultures, understands that most of our income is not a function of the amount of joy and we disperse into the air we all breathe. If it were, then hedge fund managers provide a service that is 50,000 times more valuable than janitors. They give us 50,000 times more happiness than the office bathroom that is cleaned twice a day.

In any market, labor works under the simple rules of supply and demand. It works toward an equilibrium that balances both, unless distorted by an outside force. Government interference in the market notwithstanding, supply of labor depends on individuals with skill sets. Low-skill workers will always make less, and skill is not always a function of education, but the two are closely associated.

A social need very much determines demand for a skill. In the router engineer example above, businesses were very desperate to connect to the Internet in the mid 1990s for many reasons. Visionary market makers saw it as an opportunity to offshore white collar jobs to India. Others saw it as a way to sell goods worldwide without the geographical limitations of a rented store. These needs drove a labor market in the same way so many had emerged before. Scarcity, the fundamental principle of economics, created a wild ride until stability ensued.