Sunday, August 16, 2015

Market wages are fair wages

Pittsburgh Steeler's linebacker James Harrsion recently returned two participation trophies that his sons received. Below is why he did it:

"While I am very proud of my boys for everything they do and will encourage them till the day I die, these trophies will be given back until they EARN a real trophy. I'm sorry I'm not sorry for believing that everything in life should be earned and I'm not about to raise two boys to be men by making them believe that they are entitled to something just because they tried their best...cause sometimes your best is not enough, and that should drive you to want to do better."

I support Mr. Harrison's decision and I think that there is too much trophy inflation, grade inflation, etc., all designed to make everyone feel like they are better at something than they really are. I think this does children a disservice in the long run since it makes them more likely to pursue an activity that they are not relatively good at, which sets them up for a bigger disappointment once the world outside of their family and friends lets them know that they are not good at it (think of all those American Idol contestants from the audition episodes who are truly convinced they can sing...)

But that aside, the thing I want to talk about here was inspired by a comment on the article linked to above. One commenter wrote:

"And you get paid millions of dollars for doing what? Playing a game. How about returning the money because you didn't really do anything for it except play a game? Give it to the police or fire department that risks their lives everyday. When you do that, you can return your sons' trophies. Your sense of what is deserved is quite unbalanced."

The second to last sentence is a non sequitur, but the commenter hits on a point that I hear all the time -- that some professions are systematically "underpaid". "James Harrison makes millions to play football while the average policeman makes $47K per year and this is unjust", the thought goes. But this reasoning is flawed because it ignores how wages are determined in a market economy.

People value police work, i.e. there is some demand for police, and people are willing to be a police officer for the right price, i.e. there is some supply of potential police officers. The value that the residents of a town put on police work at the margin determines how much they are willing to pay for each officer and the people who are willing to accept that wage (or lower) and who qualify for the job become police officers.

There is nothing unfair about this process. No one is forced to be a police officer. Current police officers are free to quit their job at any time and pursue a different occupation that pays more if that is what they want. If a town is unable to hire the amount of police officers it wants at one wage the taxpayers have to raise the wage to induce more people to become police officers or be content with less officers patrolling their streets. All of these decisions are voluntary though, and no one is forced to do anything that they don't want to do. While there may be some individual police officers who are underpaid due to a variety of reasons, to say that police officers as an occupation are underpaid does not make any sense.

The market that determines the wages of workers does not make any judgement about the moral quality of the various occupations. Individuals have different preferences over police work and are willing to pay an amount that corresponds to their preferences. All the market does is provide a venue for aggregating these preferences into a wage.

If police officers are "underpaid" in some sense it is because society undervalues them. That is not Mr. Harrison's fault though. What is not fair is to imply that Mr. Harrison is somehow stealing from police officers because he makes millions and they don't. Again, Mr. Harrison does not force anyone to pay him money. Steelers fans could quit coming to games at anytime. We all could quit caring about the NFL and start caring more about police work and then relative wages between the two occupations would adjust appropriately. But we don't -- society loves the NFL. Mr. Harrison has made a voluntary choice to give Steelers fans what they want and they in turn have voluntarily chosen to compensate him for his services.

What is unfair is to blame Mr. Harrison for his wealth, as if he did something morally wrong to obtain it, and then imply that the "fair" thing to do is to take the fairly earned money from Mr. Harrison via force = taxation and give it to the police officers who have not earned it. As long as Mr. Harrison is paying his local taxes he has compensated the police officers for their services according to their mutually-agreed-to terms and he owes them nothing more. The same goes for the rest of us.

People who think like the commenter are mistaken and unfair, not Mr. Harrison.