Did you suck at ‘Economics’ in college. I did. So when my friend and mentor, Ron Baker, recommended that I read The Economic Naturalist by Robert Frank, I smiled politely, assured him I would, and then blew it off. (I did buy it, just so I could document my intent and not feel entirely guilty for lying through my teeth.) Last week, I again found myself in an airport, having mistakenly thrown this tome in my computer case, thinking it was an adventure novel. With no other entertainment, besides trying to determine which passenger had the worst hang-over in the Las Vegas airport, I read the book.
It’s a great book! Very entertaining. The format is a series of questions, e.g. “Why do bars charge for water, but peanuts are free?”, or “Why do cleaners charge more for a woman’s blouse, than a man’s shirt even though they are both made of the same fabric?”, or “Why are brown eggs more expensive than white eggs?” (and it’s not a scarcity issue). The answers postulated are supported with economic principles.
On p. 62 he asked the question “Why does a worker’s wage often rise more quickly over time than his or her productivity?”
One hypothesis was “employees in such firms are paid less than they are worth during the early years of their tenure, and more than they are worth during their later years.” Is the logical extension then that staff accountants are underpaid? And management is over-paid? While this might be the case for laborers, it is not the case for knowledge workers.
In my opinion, Adam Smith’s theory of compensating wage differentials in The Wealth of Nations is more appropriate. That is ‘wages are higher in jobs that are more risky, require more arduous effort or are located in ugly or smelly locations’.
No, it’s not more risky, and hopefully neither more ugly or smelly. It’s more intellectually ‘arduous effort’. Simply stated, you get paid for how effective you are at your job. As your career progresses, productivity is not so much defined as how fast you complete your engagement, but how ‘effectively’ you complete it.
The more effective you are, the more you get paid. Being more effective requires being more knowledgeable. And not just technically. It can also include your skill in client interaction and supervision of subordinates which are both key components of effectiveness. Hopefully your firm defines what constitutes ‘effectiveness’ at each level necessary for advancement. If not, it should be the first topic you discuss with your mentor.