What is the Value of a Job?
Everyone wants to get paid more. Get a higher raise. Or a larger bonus. It’s for a simple reason really, it is because money represents value. That’s all money really is, a way for everyone to quickly understand the value of a product or service. We could also use the trade and barter system but it would be difficult to accurately value items without a common currency.
This is how we should think of a job. That is the employee is selling a service. That service are the tasks that you are required to do as part of your job. The company hiring you is the one purchasing the service from you to be completed. How much are you selling your service for? That is your hourly wage or salary.
How is Wage Calculated?
Wages are determined the same way the prices for goods are determined, through the free market. The higher the demand for the service (how much the company needs the job to be completed) the higher the price they will pay for the service (the wages you receive for completing the service). At the same time the lower the supply of the service (labor participation rate for that position) the higher you can charge for the service (how much you can request to be paid).
It is just simple supply and demand, just like any other market. There are a few other things that go into calculating wages too that could changes things. One is quality of service. Increasing the quality of the service you provide will increase the value of your service thus increasing how much you can charge for said service. This goes hand in hand with experience. The more experience you have with your service the more you can charge because of the high correlation between experience and quality.
Another is Industry. If the cost of training in a specific industry is really high there is incentive pay large amounts for the service. This is because larger wages reduces the turn-over-rate in positions. And when there is a large training cost you want to minimize turn-over-rate. Likewise when training costs are low you can reduce the how much you pay for the service because a higher turn-over-rate doesn’t cost that much.
“I Deserve To Be Paid More!”
You will always find people who make this claim. “I deserve to be be paid more.” My first thought is “you don’t deserve anything, no one deserves anything.” I don’t understand where people get the entitlement of being paid more came from. It is typically backed up by the claim that they have rent/mortgage, a car payment, a child/family. Which all have nothing to do with the value you provide with your service. Which is exactly what determine what you get paid.
Just because someone has rent, or has a car, or has a child doesn’t mean they deserve a promotion, or a higher raise, or a larger bonus. What does determine those things is the value you provide to the people are paying for your services. A lot of financial freedom talks about investing in the S&P 500 but the entrepreneur Alex Hormozi says to invest in the S&Me 500. Which is essentially saying to invest in yourself. How do I increase the value I provide? Because when I increase the value I provide I can increase the amount I charge. That is how you get paid more.
Understanding the Labor Market
Why does my job not pay a lot? There are 3 reasons: High Supply, Low Demand, Misunderstanding Value.
High Supply
When there is a high supply for the service provided the amount you can charge for said service is low. If the service quality is the same for the all suppliers then the purchaser of the service will choose the cheapest one. Therefore to be the one that gets to provide the service (get the job) will have to lower how much they can charge. It is a race to the bottom. But the bottom is never free labor. But instead what people are willing provide that service for. At a certain point even with high supply everyone in the labor market agrees that at x wage is the bar minimum I will provide this service for. That is the market rate.
There are two ways to get out of that situation. One is to increase the quality of the service you provide. Gain more skills to provide more services. The other is to switch industries with a lower supply.
Low Demand
The other side is a low demand. If the service you provide is not in high demand, people are not willing to pay a lot of money for it. Thus leading to lower wages for that service. A low demand job right now is like a newspaper delivery driver. Newspaper is a dying industry, which means less people are buying papers. When less people buy papers don’t need as many drivers (less demand).
To get out of this situation you simply find a new service you can provide. Similarly you can switch industries where the demand for your service is higher.
Misunderstanding Value
This is when the employee or employer simply doesn’t fully understand the value of the service. So when the employee doesn’t understand the value of the service they provide they will accept charge a below market rate for said service. The way to avoid this is simple, look at what the median and average wage for your position in your area. If you are below those metrics, ask for market rate.
If the employer doesn’t understand the value of the service they will unlikely fill the position unless they find an employee who likewise doesn’t understand the value of the service.
Work is a Contract
Put simply, work is a contract. You provide a service and in return the company gives you a paycheck, that’s it. That’s the contact. Notice how there isn’t any mention of PTO, 401(k), or Healthcare. Some would say you deserve those things when you get a job. But they are wrong. Those are strictly incentives companies can provide you to say working for the company.
It is very common for companies to provide you with those benefits but it is not crazy for a company to not. The company doesn’t owe you anything. If you want those benefits then you must you are decreasing your own demand for your service. Which is entirely okay to do but you must know that comes with a risk of not finding someone to purchase your services.
In the end companies owe you nothing. You deserve nothing. A job is a contract. You provide the service. They provide you a paycheck. The wage is determined by the labor market. To increase your wages increase the value you provide.