Wednesday, December 16, 2009

How Much Are You Worth?

How should we decide how much occupations are worth? In the US we use a market system. The greatest determinant therefore of what the highest worth professions are is simply what people are willing to pay for the services a profession provides.

It can’t be productivity or number of hours worked. Because there are some awfully productive fry cooks and barbers out there. At the same time, it’s questionable whether people on Wall Street, or in Law firms are producing anything in a meaningful sense in the same way that a factory worker produces cars.

And it can’t be that those professions are most useful to society. Military officers keep the country safe from foreign attack. Police officers keep the streets safe so lawyers and doctors in the office need not worry about thefts or vandalism. Without elementary school teachers to teach us reading and math, there would be no engineers, doctors, or lawyers.

Let’s compare some professions. The average salary for a starting lawyer at a corporate law firm is around $150,000. The average salary for a police officer is around $50,000. It’s undoubtedly true that we need some lawyers to function as a society. But is a corporate lawyer who spends 60 hours a week making sure every last comma is correctly placed in a business transaction worth three times as much as a police officer? On what grounds?

You might be tempted to say based on the number of hours worked. But that runs into a couple of problems. First, it’s not clear that lawyers work enough extra hours to justify the tremendous pay gap. After all, if the argument is that we should pay lawyers more for hours worked, they would have to work three times as many hours as the police officer. Assuming the officer works a regular 9-5 job (he probably works a lot more), the lawyer would have to work 120 hours a week! I know corporate lawyers work alot, but I seriously doubt they work that much.

Second, we’ve established that number of hours worked doesn’t equal wages. Or else single mothers working multiple fast food jobs would also make $150,000 a year. Some pundits on television would be paupers.

Perhaps that corporate lawyer is making somebody a lot of money. And that may be. But it’s always hard to know for sure. A company that is able to merge with another may make millions in profits the next year, or it may go bust. Besides, the lawyer isn’t actually making the profits. He’s a middleman who doesn’t produce any good or research that eventually makes the new company money.

But even if we grant that the lawyer brings some money into the economy, that’s true of much lower paid professions too. A teacher in an inner-city school could have a tremendous impact. Let’s say he has a class of 30 kids, and only five will go to college where they will learn a profession and most will drop out when they’re able. If he presents his class material in a really good way to engage students, and provides encouragement and support, he might be able to get five more kids to stay in school and then go to college. Let’s say one becomes a teacher, one becomes a lawyer, one becomes a doctor, one becomes a college professor, and one becomes an engineer. Over fifty years, they’ll all probably make over a million dollars each, and pay hundreds of thousands, if not millions of dollars in taxes. It seems like the teacher should be compensated more highly for bringing this money into society, but the average teacher salary for a beginner is often around $30,000. Is it fair to assume there’s an economic benefit due to the teacher? It seems as fair as assuming that a doctor added to the economy because he treated a patient who then went on to be a productive employee or that a lawyer who wrote up the contract added to the economy because business ended up booming.

Not even supply and demand is a complete explanation. It’s true that there aren’t enough doctors, so in a way it makes sense that the small supply coupled with a high demand for services would lead to higher wages. But is there really an excess supply of quality teachers in inner-city or rural schools? If so, then those schools wouldn’t have trouble staffing certain subjects. Moreover, a great teacher can change the trajectory of a child’s life and inspire him to do something better while giving him concrete skills along the way. Trust me, there are probably fewer people who can do that than there are doctors who can diagnose strep throat, or lawyers who can write up contracts.

The only logical grounds left to justify these disparities is that people are willing to shell out money for legal services or stitches in a way they aren’t for safe streets or quality schools. Paying a doctor more to prescribe cold medication might make more sense than paying someone a lot to produce a candy bar. But it’s far from clear to me that it makes sense to pay him more than a science teacher who gives the doctors the basic knowledge and curiosity to succeed as a doctor in the first place.

Now some people might be tempted to say “tough.” Instead of complaining about low pay, go to law school or medical school to get a higher paying job. But it wouldn’t be in the best interest of society not to have quality teachers, soldiers, or police officers. In fact, society would cease to function without these professions. Perhaps salaries should change to reflect that obvious reality.

Over time, a market system has proven the best—though flawed approach—toward organizing a society. I much prefer it to communism or the stifling socialism in much of Europe. In some of the instances described earlier though, I’m not sure the outcomes the market produces are fair, or even desirable.

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