Thursday, October 20, 2011

Are you "Overpaid"?

I listen to sports radio quite often. Many callers often complain about a players lack of performance; and usually somewhere in the diatribe is a comment about the athlete being "over-paid." I often laugh because most people don`t think they are overpaid; only other workers are over-paid. Now we start with some basic economics. In a free market system, wages are determined by supply and demand. It is really simple as that. If you perform a duty that is high in demand but low in supply; you will experience the pleasure of extremely high wages. This is why Kobe Bryant and Lebron James earn so much money for just shooting a round ball in a basket. The duty that they perform is in very limited supply because they represent the elite in basketball in the entire world! Secondly, the duty they perform is in extremely high demand. This is what determines wages. Think of football players, baseball players, boxers, or any athelete for that matter. Think about the rarity of the duty they perform, and think about the demand for that duty. This is why Michael Vick of the Philadelphia Eagles could step out of federal prison into a $100 million dollar contract. He is not "over-paid," but he (NFL level Quarterbacks in general)  are in extremely low supply but very high in demand. Now take the best of the best of NFL quarterbacks; Tom Brady, Aaron Rodgers, Drew Breeze and Vick. They make astronomic amounts of money because of simple supply and demand. These simple rules can be applied to any profession. Why do actors get paid so handsomely? fill in the blank. Why do fast food workers get lower wages? Think about it. Almost anyone off the street can be trained in a few hours to perform the duties required at a fast food restaurant. This means there is a high supply; which tends to lower demand. Therefore wages will be lower. So the key to high wages is to be a rarity in high demand.

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