The Obama administration is cleverly trying to change the
subject from Obamacare to the growing income “inequality” gap. We need to stay
focused on the destruction of our healthcare system but the issue of income
inequality is one in which people instinctively have negative emotional
reactions. These emotional reactions cling to the myth that CEO’s and the “rich”
are somehow unfairly taking/making more than they deserve.
The first question I instinctively ask is this: is income
supposed to be equal? Should a doctor and a garbage man make the same amount of
money? Should a nurse and a janitor make the same amount of money? Should a
professional athlete make so much money for playing a game? Income is
determined by many factors. The first and most important is the market. What
are people willing to pay for a service? Income is simply the economic principle
of setting prices for labor. Like any product, pricing is set by how much it
takes to produce, what people are willing to pay for the service, competition,
and how the service/product is delivered in the market.
The price to deliver labor for a doctor is based on the
investment that individual must make in their education and the loss of
opportunity during the years spent investing in education. A doctor spends
hundreds of thousands of dollars on education as well as remaining out of the
labor force for eight additional years beyond most professions. The number of
people willing to make this sacrifice is small which means less people compete
for positions in the profession increasing the demand for their services. A
garbage man needs little education and almost anyone that can handle doing
manual labor becomes available for that position. Since the skills needed are
limited, the labor pool (competition) is greater, so the employer has a huge
choice of candidates which means people compete heavily for the job keeping the
salary down.
I often have the conversation with my wife who has been a
nurse for over 25 years about why sports athlete/actors get paid so much more
than a nurse or doctor. It doesn’t seem right based on the nature of the
services provided but the laws of economics make it clear why the disparity in
wages is justified. To sum up the reason in simple terms: The athlete/actor
creates value to the team owner or movie producer worth millions of dollars.
People go to watch sports or movies based on the players of the team or actors
in a movie. To the employer of these people, the player and actor return millions
of dollars in value so the employer can pay them more. Take into account the
natural athletic ability or attractive acting skills of an actor and the people
that can create that value for the employer are a limited pool.
The only way to make income equal is to force employers to
pay everyone the same. The result of this mandate is counter to the laws of
economics and destroys the value of work for everyone. Individuals have
different skills and abilities. Jobs take different skills and educational
ability. Some services/products are more valuable in the market than others. No
matter what you think someone should be paid does not matter. What matters is
what the market determines a wage can be.
If we continue to allow the government to attempt to make
incomes more “equal” we will all be miserable and some positions and industries
will simply disappear creating even more poverty. The incentive to compete for
work through investments in education, developing new products, services, or
companies is eliminated. Why would anyone spend the time and money if in the
end we all make the same amount of money? We will all be equal in our misery,
poverty, and inability to earn a “fair” wage…
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