Genius begins great works; labor alone finishes them. -JOSEPH JOUBERT
In discussing the allocation of resources, we have so far been concerned largely with inanimate resources. But people are part of the economy too, and not just as consumers. People are a key part of the inputs which produce output. Most people are not volunteers, so they must be either forced to work or paid to work, since the work has to be done in any case, if we are to live at all, much less enjoy the various amenities that go into our modern standard of living. In a free society, people are paid to work.
How much they are paid depends on many things. Stories about the astronomical pay of professional athletes, movie stars, or chief executives of corporations often cause journalists and others to question how much this or that person is "really" worth.
Fortunately, since we know from Chapter 2 that there is no such thing as "real" worth, we can save all the time and energy that others put into such unanswerable questions. Instead, we can ask a more down-to-earth question:
What. determines how much people get paid for their work? To this question there is a very down-to-earth answer: Supply and Demand. However, that is just the beginning. Why does supply and demand cause one individual to earn more than another?
Workers would obviously like to get the highest pay possible and employers would like to pay the least possible. Only where there is overlap between what is offered and what is acceptable can anyone be hired. But why does that overlap take place at a pay rate that is several times as high for an engineer as for a messenger?
Messengers would of course like to be paid what engineers are paid, but there is too large a supply of people capable of being messengers to force the employer to raise his offer to that level. Because it takes a long time to train an engineer and not everyone is capable of mastering such training, there is no such abundance of engineers relative to the demand. That is the supply side of the story. But what determines the demand for labor? What determines the limit of what an employer is willing to pay?
It is not merely the fact that engineers are scarce that makes them valuable. It is what an engineer can add to a company's earnings that makes an employer willing to bid for his services-and sets the limit to how high the bids can go. An engineer who added $100,000 to a company's earnings and asked for a $200,000 salary would not be hired. On the other hand, if the engineer added a quarter of a million dollars to a company's earnings, it would obviously pay to hire him at $200,000 - provided there were no other engineers who would do the same thing for a lower salary.
The term "productivity" is sometimes used loosely to describe an employee's contribution to a company's earnings. The problem is that this word is also defined in other ways and sometimes the implication is left that each worker has a certain productivity that is inherent in that worker, rather than being dependent on surrounding circumstances as well. A worker using the latest modern equipment can produce more output than the very same worker employed in another firm whose equipment is not quite as up-to-date or whose management does not have things organized as well. For example, Japanese-owned cotton mills in China during the 1930s paid higher wages than Chinese-owned cotton mills there, but the Japanese-run mills had lower labor costs per unit of output because they had higher output per worker. This was not due to different equipment - they both used the same machines-but to more efficient management brought over from Japan.
Similarly, in the early twenty-first century, an international consulting firm found that American-owned manufacturing enterprises in Britain had far higher productivity than British-owned manufacturing enterprises. The British magazine The Economist said that "British industrial companies have under performed their American counterparts badly," that when it comes to "economy in the use of time and materials," fewer than 40 percent of British manufacturers "have paid any attention to this" and that "Britain's top engineering graduates prefer to work for foreign-owned companies." In short, lower productivity in British-owned companies reflects management practices, even when productivity is measured in terms of labor. In general, the productivity of any input in the production process depends on the quantity and quality of other inputs, as well as its own.
The same principle applies outside what we normally think of as economic activities. In baseball, a slugger gets more chances to hit home runs if he is batting ahead of another slugger. But, if the batter hitting after him is not much of a home run threat, pitchers are more likely to walk the slugger in a tight situation, so that he will get fewer opportunities to hit home runs over the course of a season.
During Ted William's career, for example, he had one of the highest percentages of home runs-in proportion to his times at bat-in the history of baseball. Yet he had only one season in which he hit as many as 40 homers, because he was walked as often as 162 times a season-averaging more than one walk per game during the era of the 154-game season. By contrast, when Roger Maris hit 61 home runs in 1961, breaking the record at that time, he was walked less than a hundred times because Mickey Mantle was batting right after him, and Mantle hit 54 home runs that season. There was no percentage in walking Maris to pitch to Mantle with one more man on base.
Maris' productivity as a home-run hitter was greater because he batted with Mickey Mantle in the on-deck circle.
In virtually all jobs, the quality of the equipment, management and other workers goes into determining a given worker's productivity. Movie stars like to have good supporting actors, good make-up artists and good directors, all of whom enhance the star's performance. Scholars depend heavily on their research assistants, and generals rely on their staffs, as well as their troops, to win battles.
Whatever the source of a given individual's productivity, that productivity determines the upper limit of how far an employer will go in bidding for that . person's services. That is the demand side of the equation.
Employers seldom bid as much as they would if they had to, because there are other individuals willing and able to supply the same services for less. By the same token, consumers would pay a lot more for their food than they do ,if there were no competing sellers and their only choice was to pay what a monopolist charged or starve. In short, it is the combination of supply and demand which determines pay, as it determines the prices of goods and services in general.
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Since World War II, there has been a tremendous change in the makeup and direction of kid baseball, as it is called. Adults, showing an unprecedented interest in the activity, have initiated and developed programs in thousands of towns across the United States programs that providebr wholesome recreation for millions of youngsters and are often a source of pride and joy to the community in which they exist.