• Suzana Ezzi

What determines how much each profession is paid?

We have all heard about the crazy cheques football players and actors get paid for the relatively few hours they spend in the field or on screen. You may have also wondered or even heard countless rants from other professions about how much they think they’re underpaid for what they provide to the community, like public school teachers, nurses, and farmers. [1] It makes it interesting enough that these wage trends are almost similar worldwide across different occupations. But what determines how much compensation they each receive?

The most basic, and perhaps most important theory is that of supply and demand. Professions that are “easier” to supply or are more abundantly available tend to be paid less. On the other hand, those that require special skills and abilities and need long years of education and training will generally yield fewer people applying for the job and thus more compensation. Similarly, when there is more demand for a certain job employers will be willing to pay more in return for the service. Take this case study as an example. Elementary school teachers are paid more than waiters because it takes educators much longer time periods and efforts to be trained to meet the responsibilities for their jobs. At the same time, football player Cristiano Ronaldo is paid more than most teachers because the supply for a similar “employee” is much less if ever will be available.[2]

The economic theory provides another explanation that helps understand how wages are exactly decided. It simply states that corporations would compensate each employee depending on how much they are able to achieve revenue for the company. This number is referred to as the Marginal Product of Labor (MPL). Although it perfectly makes sense, it does not always hold accurate. For instance, while it can be easily applied to those who work in sales or marketing, it would be difficult to calculate the MPL for those who work to provide public and social services, such as healthcare workers, educators, and security workers.[2]

Another reason this theory is not always applicable is that it only considers the conditions of an ideal world where competition doesn’t exist, and everyone is ready to work unlimitedly to maximize profit. In the real world, however, many circumstances, such as unemployment and governmental regulations are subject to alter the MPL concept. If an employee is not satisfied with their pay, they may simply quit in search of higher pay from another firm. So, if the company feels they would be irreplaceable, they might be ready to offer a higher wage, regardless of their MPL, alluding back to the supply and demand theory. Unions and strikes also can put more power in the employee’s hands and may push salaries higher. Furthermore, certain governmental policies can sometimes conflict with the MPL concept, such as guidelines that set specific minimum wages.[2]

These were a few theories that can help in understanding how wages are decided in our modern world. However, you would still notice a wide range of discrepancies, sometimes even within 2 employees with the same educational degree and job description. Nonetheless, this is highly understandable and makes it only fair, as compensation should not be a “one size fits all” ˜number. Every individual is unique in terms of their skills, personas, and what they can bring over to the table, not entities with price tags.


[1] https://www.thejobnetwork.com/top-8-most-underpaid-jobs-that-deserve-much-higher-pay/

[2] https://www.ecnmy.org/learn/your-livelihood/wages/who-decides-how-much-we-earn/