23 Things they Don't Tell You About CapitalismBy: Chang Ha-Joon
Major Topic: Economics
Minor Topic: Politics
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Thing 3: Most People in Rich Countries Are Paid More Than They Should Be
We are told that people are paid according to their value; that people who are more productive are paid a higher wage than people who are less productive because their value is determined by how productive they are.
However the truth is that people are not paid according to how productive they are. It is hard to see how a bus driver in a rich country can be fifty times more productive than a bus driver in a poor country although the rich country's bus driver makes fifty times more money. Almost all professions are paid more in rich countries than in poor countries; both skilled and unskilled professions.
If a rich country were to allow the free flow of immigrants into the country all wages for all jobs would drop because there would be a huge increase in the supply of every available profession – skilled and unskilled. This should give a hint as to one third of the answer to why people in rich countries are paid more in spite of not being more productive.
Immigration control allows rich countries to limit the supply for jobs thus making each job a little bit more valuable. However this cannot account for the whole story. There are two vital and more important factors.
Rich countries are rich because of a small minority of supper productive people: some managers, engineers and scientists who organize, design and develop extremely productive companies, products and or ideas. The wealth created by these companies and/or products and/or ideas increases the benefit to the whole society which can share in the profits. So, in the case of two workers, relatively close in productivity, but with one worker who benefits from a larger group of extremely productive people than the other; this first worker will have a higher wage than the other worker who has a smaller group of extremely productive people.
The third and possibly the most important factor is the collective inheritance of the society. That is the laws and attitudes; the institutions and infrastructure; and the technology education of the society. None of these by themselves would be enough to make a poor country rich but together and with time (sometimes generations of time) these six things have the greatest impact on the wealth of a country.
In summary the difference in wage rates between rich an poor countries is not due to productivity (poor people are often individually more productive than rich people). It is a combination of at least three factors: immigration control, the collective productivity of the whole society and all the none human factors such as laws, institutions and technology.
Added on: 2012-10-05 12:01:14
Text Crawl by: James McLaren
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