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Why We Are Paid What We Are Paid

DISCLAIMER: I’m not an economist. From an academic and theoretical perspective, I have no idea what I’m talking about. That said, I’ve contributed to and have benefited from the economy in many ways over the last half century, and in that time I’ve made a few observations. (Of course, passive observations—unchecked and unchallenged—also tell us that the earth is flat, so take this for what it’s worth.)

So with that said, and weirdly, let me start this article with my conclusion:

If you are an hourly manual laborer that makes minimum wage, this doesn’t mean that you are not extremely valuable to society and are not making important contributions every day. By the same token, if you are a highly-paid executive, managing armies of skilled knowledge workers, this doesn’t mean that you contribute great and wonderful things to society in all that you accomplish. Simply put, pay is not a reliable measure for evaluating a person’s worth to society.

So if this is true, why are we paid what we are paid?

I’m an existentialist, which means I believe that while we try to find meaning and reason in all that happens around us, there’s little meaning or reason to be found. Existentialism holds that life is absurd and has no intrinsic meaning, only the meaning which we choose to give it.

Let me give you an example: Why are people paid what they are paid? We would like to think that the more someone contributes, the more they are paid, and that the greater one’s skills and knowledge, the greater their ability to contribute. Therefore we run off to school, gain knowledge, develop skills, all in the expectation that we can find a way to make a meaningful contribution and be compensated for our efforts. This all sounds great. Unfortunately it’s a myth—at least partially anyway.

Here’s what I’m proposing:

How much you are paid says nothing about you, how much you contribute, or how valuable you may be to society. Rather, it is an indicator of how much your work stimulates economic activity.

The economy sets the benchmark in terms of what it’s willing to pay for that which it values. The problem is, the economy doesn’t value effort, knowledge, expertise, or level of contribution the way we might like to think it should. Instead, it values that which perpetuates it’s thriving existence; it values economic activity.

The way the economy values one service over another has nothing to do with what is right, fair, ethical, or even of valuable to society. For example, a schoolteacher is far more valuable to society than a professional athlete, but the economy valuates these two services very differently. This is because the economy rewards that which creates immediate economic activity. Payton Manning makes more than an elementary school teacher because he contributes more to the economy in the here and now, and across a wider spectrum. A single great performance from Manning sets into motion all kinds of economic wheels—television advertising, merchandise sales, fantasy sports, etc.—whereas a great day for a third grade teacher doesn’t make so much as a blip on the radar. Even drug dealers create more immediate economic  activity than a teacher. Sure, this activity has immediate as well as long-term negative consequences for society (while teachers work to build a thriving society), but the economy doesn’t made this distinction. As it turns out, the invisible hand is also blind.

All of this means that we should not look at how much one is paid as a yardstick for evaluating the person’s worth to society.

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