Chapter 32 Chapter 3 The Mystery of the Workplace

Why do female models earn more than male models? Why do the salaries of the highest earners rise so much faster than the average person? Why do driveway resurfacing workers in suburbs of Dallas pay half as much as suburbs of Minneapolis? Why are waiters paid more than sous chefs in fancy restaurants? Why are Big Tobacco CEOs willing to testify under oath that nicotine is not addictive? Why is it that in the same work group in the same company, the income of the least productive employees is generally higher than the value they create; the income of the most productive employees is lower than the value they create?

Why do we tip for some services and not for others? Why do so many fast food restaurants promise you a free meal if you don't get a receipt when you pay? Why do employees' wages generally increase with their working years instead of with the improvement of work efficiency? Why do employers sometimes offer wages that are above par in order to attract the high-quality workers they want, or to attract a sufficient number of workers? Why do most companies have to conduct background checks on employees before formally hiring, while most MBA programs conduct background checks after accepting applicants for admission?

Why do independent musicians, especially the most talented, favor free music sharing programs, while established artists tend to resent them? Why is it more and more common to hire professionals to help you change tires these days? Why would a company pay a premium to hire a temporary management consultant rather than a full-time manager at a lower salary? Why is it that the power plant is willing to hire high-priced external lawyers for a long time, even though it only costs half the price to hire an internal lawyer? The labor market is an important one in which most of us participate.People themselves cannot be sold on the market, but the sale of human services is completely legal.The markets in which these services circulate are also subject to the principles of supply and demand.As the supply of carpenters increases, the wages of carpenters tend to fall.If the demand for computer programmers increases, we can expect their salaries to rise.

The examples discussed in the first part of this chapter illustrate the basic reason for a competitive labor market: Employee wages are roughly proportional to the value they create for employers above the breakeven point.