Lately I’ve been thinking about our means of determining what people should be paid, and what things should cost. Mostly, the issue is how much top executives are paid, and how little, comparatively speaking, the lowest level employees make.
The disparity between the top earners and the bottom earners has never been greater, it is said, though I would think that the royalty and nobility of Europe would give today’s CEOs a run for their money, so to speak.
Many call for increasing the minimum wage and/or limiting how much the highly paid folks are allowed to make. Here’s my question about all that: who gets to decide how much is not enough, and how much is too much?
Adam Smith, the father of free enterprise economics, suggested that the invisible hand of supply and demand would answer such questions better than other mechanisms. People would be paid equal to their market value, and items would sell for what they were worth.
Our country largely follows Smith’s model, and we’ve done quite well. Our poor people, on average, have a better lifestyle than the typical citizens of many countries. And, our rich people are really, really rich. Some would say they are too rich. But, what’s a fair way to determine that?
For example, imagine someone making $15 million per year. If that person is a CEO, we say that it is way too much, even if she or he is responsible for managing an enormous enterprise with thousands of employees and billions of dollars in assets. If the person is a professional athlete, however, we are less likely to question that pay scale, because it’s clear that the athlete’s value is equal to what a team is willing to pay. But, isn’t that also the case for that CEO? His or her value is determined by what the company thinks it is, and by what other companies might offer to pay.
Likewise, the fellow who cleans the team’s locker room could be easily replaced, having no special athletic skills, so he makes a much, much lower wage.
Telling a company how much they have to pay for an employee goes against the logic of paying someone according to the value they bring to their job. And, for some workers, a higher minimum wage might make their cost to the company greater than their value, meaning they will be let go.
Someone made a point about minimum wage by saying we should raise it to $100 per hour, since that would be more fair than $10 per hour. That’s an example of showing that something is illogical by taking the idea to an extreme.
Limiting how much someone can make has more complex implications, but telling a company how much they can pay makes as much sense as telling them how much they must charge for their product, or even what product they should make.
Life is inherently unfair, and it is very laudable for us to help people move up economically, through extra education, internships, and incentives for hard work. But, I’m uncomfortable having the government tell me how much I can or must pay, or be paid. I might just try out for the Packers some day.