My short guide to basic job economics

The Problem

Over the past few years I have been repeatedly surprised by comments from (usually) younger friends who complain that they should be paid more or should be able to get a better job but cannot.  They seem to think they should be able to show up at a job with few applicable skills, be trained in a new profession, and be paid well.  This is such a common train of thought, I've decided to briefly tackle the underlying issue: lack of understanding of basic job economics.


So...When a company hires an employee, they don't do it out of the goodness of their heart.  They are hiring that person because the believe they can bring in more money than they are paid.  As an employee, your pay is calculated based on the increase in revenue that you will generate and the number of other people that could do your job.  It really has nothing to do with how much you think you should make or how much money it takes to support your family.  It's all about how net revenue you bring in for the company (the increase in profit minus your pay & benefits).

But wait, you say, that's awful.  Companies are just big evil machines run by greedy rich people; they should be more generous.  Ok, think of it this way.  Let's say you are tired of working for the man; you're going to start your own company.  You first come up with a killer idea - no small feat.  You work 16 hour days through nights, weekends, and holidays to scrape by while you're getting your idea off the ground.  After a few years, your idea/product/whatever is starting to sell.  You're getting more orders, and you're having a hard time keeping up.  Money is still tight, but you decide maybe it's time to hire an employee to help out.  It's risky because you'll then have another person (and possibly their family) dependent on you for income.  And, the extra money you have to pay them could prove to be too much and could cause you to have to lay them off or even go out of business yourself.  So with that in mind, you're going to want two things:

First, you're going to want to find an employee who doesn't need a lot of training.  All of the time you spend training a new employee is time that you have to pay for - out of your pocket, and the new employee is not making any money for you in return while in training.

Second, you're going to want someone who can do the job for the lowest rate.  Let's face it, if you have two equally qualified applicants, and one is willing to work for less money, you are going to hire that person.  After all, your struggling business is tight on money already.

As a business owner, every penny paid out to employees, taxes, utilities, transportation, etc. comes out of your pocket.  Not some mysterious stash in some big corporate account.  That is your money - that you worked hard for.

Now imagine, someone applies to work at your company who has few applicable skills and wants to make more money than all of the other applicants.  Hired? probably not.

What now?

So how do you get that job that pays more, or has better hours, or offers more agreeable work?  Get a skill.  What do I mean?  Go to college.  Learn a trade.  Learn how to do something which sets you apart from the crowd.  Let's face it, if you go to college and learn to write computer programs, you have learned to do something that the vast majority of people cannot do.  If you become an apprentice and learn how to weld & fabricate metal, you have learned something that few people can do (at least professionally).  You have set yourself apart.

I often get frustrated by people who say we should raise the minimum wage.  Why?  Flipping burgers at McDonalds requires very little skill.  McDonalds can take just about anybody off the street, train them for a few days or even hours, and they can do that job.  By contrast, some doctors go to college for 12 years!  That's why they make more money.  There are very few people qualified to do that job.

And yet, I find so many people coveting what others have.  They complain that everyone should be treated equally.  What they really mean is that they want what others have without having to work for it. general, when someone has done well financially, it is because they worked their butt off for it.  Take note, plan accordingly, and work hard yourself.

I like the way Stathi Pappas (a steam engine mechanic) said it in his Popular Science interview: "The stuff that everybody says is too hard to do?  Do that.  Really learn it.  Then you'll be worth your weight in gold."

Defending Myself

I realize at this point I may seem rather heartless.  I'm not heartless - at least, I hope that I'm not.  I understand that there are people struggling just to have enough food to eat, and I am not making light of their situation.  I believe we can and should help those people, but this is not a commentary on how we as a society should help those less fortunate.  It is a commentary for individuals looking to improve their own situation or plan for the future.


Realize this, the world doesn't owe you anything.  If you've grown up in a first world country.  It is easy to feel a sense of entitlement - that life should be easy.  I've struggled with this myself in a few areas.  Don't buy it.  You must work hard for what you have.

If you are lucky enough to be thinking about these things before you have a family, realize this, you will likely end up with a family.  You may think a spouse & kids are not in your future, but statistically, you are very likely to have one or both.  And, when that happens, what seems like a great paying job now suddenly becomes a very poor paying job.  A few dollars an hour above minimum wage might seem like big money when you're single and living with your parents, but with a family & expenses of your own, it is painfully tight.  Plan ahead.  Start preparing now.


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