You Make What You’re Worth

by JT McGee

I don’t think that there’s any other way to say this without sounding smug.

Really, you earn what you’re worth.

I would venture to guess those who earn “enough” agree with me, and those who don’t earn “enough” disagree with me. In the interest of full disclosure, I currently feel as though I don’t earn “enough” due primarily to the fact that there is always more, in which case there can never be enough.

That said, I still think people earn what they’re worth.

Econ 101

The employment market is a market like any other. Two parties come together – workers and employers – and agree on a wage. Employer offers X, and employee accepts X. If X is unfavorable, employee suggests Y.

Yada, yada.

This works for probably 90% of jobs. If you don’t make “enough,” it’s because you work in a field where you:

1) Don’t use your most valuable skills

2) Produce a good or service that other people do not deem as valuable as you do.

3) Work for the government, which inefficiently sets wages because it is not motivated by a profit or loss (P&L being necessary for making good decisions.)

How to Silently Screw Yourself

Going back to my favorite vocabulary word, cost structure, I think most people end up underearning because of their own cost structure.

If you purchase too much home, you risk falling behind if you end up underwater. You can’t move to chase better paying opportunities, and therefore you earn what you’re “worth” with respect to available (read: accessible) opportunities.

If you purchase too much education, you risk falling behind because you spend 60 hours a week working to pay back Sally Mae when you’d be better to spend 40 hours a week working and 20 hours a week on the job hunt.

If you have no emergency fund, you risk taking the first job that comes your way rather than waiting for a better opportunity. This is somewhat related to purchasing too much education – or purchasing too much of anything.

Do you think people earn what they’re worth?

I think most people earn what they’re worth given available and accessible opportunities. I do not think most people earn what they’re worth if we exclude the “available and accessible” part of the equation.

For example, a worker in China does not earn what he or she is worth if we discount the difficulty in coming to the United States. If we do factor in that difficulty, then said worker earns what he or she is worth.

Basically, for the most part, I think the labor market is fairly efficient. Some people do not.

{ 9 comments… read them below or add one }

Financial Samurai August 1, 2012 at 02:24

I once had an opportunity to earn 30% more a year for two years, but I would have had to move back to NYC.

If I did, I would probably have several hundo more in the bank, but maybe the firm would have welched on their 2nd year contract as the economy took a dive, who knows.

I think owning a home has helped me build wealth. Made me focus, build a career, and allow me to engineer my layoff.

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JT August 1, 2012 at 07:28

What if you were to lose your SF job, and your home were to have gone down, not up, in value? You’d have an opportunity at +30% more pay, but not much of a chance to ditch SF to chase it given that you might be significantly underwater on your home.

The point is, you could have earned 30% for 2 years but you turned it down. Are you really underpaid? No. You’re underpaid only if you want to move to NYC, a variable you can’t just take out. So you’re paid what you’re worth, since you were only willing to stay in SF.

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PK August 1, 2012 at 10:51

Very Chicago school of you – and I agree, of course. Best quote I can come up with off the top of my head is “you teach people how to treat you.” Basically, your current pay reflects a balancing act between your employer not wanting you to leave and you wanting more (and being able to get it). That balance can be upset by doing things as simple as asking for more money or discussing an external job offer – without actually leaving…

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JT McGee August 3, 2012 at 00:32

I feel dirty for it – supply-side for life.

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krantcents August 1, 2012 at 14:31

No, I think most people do not earn what they are worth. I think they earn what they are willing to accept. Most workers justify their earnings in various ways such as convenience or benefits.

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JT McGee August 3, 2012 at 00:32

Good point about the differences between worth and perceived worth. That may be the biggest dividing line between earning what you’re worth and what you actually get.

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Ornella @ Moneylicious August 2, 2012 at 10:47

Most people don’t earn what they are worth. Partly because they don’t know how to market themselves and partly they don’t know how to negotiate a higher salary or fee for their services. They would rather accept the first salary they get and justify it by the additional benefits–which may not always be financially beneficial.

From an economic standpoint, you may be right. But when you mix in the psychology that goes behind the decision-making, I would have to say most people are not paid what they are worth.

But I do understand where you are coming from. 🙂

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A Blinkin August 3, 2012 at 11:57

The way I explain it to people who say that they’re underpaid is — I start by asking how replaceble they are. Tom Brady cannot be replaced thus he makes a lot more than you. If someone can train for a few months and do what you do, then you’re easily replaced. Hence why you’re underpaid.

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20's Finances August 3, 2012 at 20:29

Great points on why people screw themselves salary-wise. I know I am giving up salary by not going into finance or working on wallstreet, which I probably could do, but I’ll be making up for it in other ways (via real estate and online efforts). Much rather earn a modest income that I can live off of working for myself than work for the man

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