I was asked this question on Facebook
" do you really think all the CEO & top management work 1000 times as hard as the entry level employee... then why should they get 1000 times more salary ...."
It is simple, yet, an important question. Questions like these help me realize the importance of economics. So here is my answer.
Donkeys work harder than human beings, does that mean they should be paid higher than human beings? We see in India that rickshaw pullers and people engaged in physical labor are among the lowest paid. However, these are the guys whose work is more (physically) exhausting than any entry level employee.
Water is more useful than diamond. We will die without water while diamond is much less useful. Still while water is available literally free of cost, diamonds costs a fortune?
Than why is it that donkeys, manual labourers (in India) and water command much lesser price than human beings, skilled workers and diamonds?
This is because wages and prices donot depend upon how hard working a person is or how useful a thing is. The wages and prices are determined by the demand and supply of labor or commodity.
For example, the supply of water is infinite, hence water is cheap in comparison to diamond. On the other hand, diamond is a lot less useful but its supply is very low which pushes up its price.
Similarly, in India manual labourers are paid pittances in comparison to skilled workers because the supply of manual labor is much more in comparsion to skilled workers.
For the same reason, the entry level workers command a much lower salary in comparison to CEOs. Besides, ability to take decisions, leadership qualities and experience is much more scarce in a crowd busy in a rat race. Scarcity commands a higher price, not hard work.
