How to Win Those Arguments about Overpaid and Underpaid Workers

Once you get your mind around subjective value, the world makes a lot more sense.

As a kid, I remember my father trying to explain to a relative (who worked in medicine) at Thanksgiving why it made perfect sense that Bret Favre was getting paid millions of dollars while school teachers and nurses were making far less.

“How many people can throw a pass like Favre?” he asked. “Now tell me how many people can teach math class, take someone’s temperature or draw their blood, or run a boiler.”

My dad wasn’t trying to diminish these jobs, mind you. The last job he was describing was his own. (He worked as a boiler operator in a paper mill for 45 years.)

What he was doing, whether he knew it or not, was explaining the simple economic idea that income is determined largely by the scarcity of one’s contribution, not a person’s “human worth” or even the value of their work.

My aunt did not like this response, and she pointed to all the value created by schools and hospitals, compared to a silly football game.

I don’t recall how my father responded to this point. Maybe he was stumped, maybe he offered some zinger. But I remember thinking this was a tricky question to answer.

On one hand, my dad’s point—that people with exceptional talents reap financial rewards because they possess rare skills—made sense. On the other hand, it seemed odd that a guy makes more money for throwing a football than most brain surgeons. Or a professional pool player makes more than a nurse. Or a famous rapper makes more than a Red Cross worker.

Later in life, I’d learn the other part of this economic lesson, the part that would have helped my dad completely win his argument: value is subjective.

You’ve probably heard the term subjective value before, but maybe not. It’s the idea that “the value of an object is not fixed by the amount of resources and the hours of labor that went into creating it but is variable according to its context and the perspective of its users.”

Maybe that makes perfect sense to you, but maybe not. It’s kind of a complicated definition. This is not unusual in economics. Important ideas are often explained in terms that are difficult to understand.

My FEE colleague Maggie Anders has a much better explanation. She points out that value is ultimately determined by our individual preferences, which are of course subjective.

“[This] explains why people spend thousands on Taylor Swift’s Eras tour while I just watched the movie,” Maggie points out, “and why a CEO is paid far more than a laborer who spends hours of arduous labor working with his hands.”

It makes sense, right? We all have individual tastes. We like different movies, different music, and different foods.

So think about all this the next time your hear someone say CEOs are “vastly overpaid.” Or NFL quarterbacks. Or PGA golfers. Maybe these professionals are not valuable to you, but others see tremendous value in their work. And the question, of course, is who gets to decide what is valuable. If you believe in freedom, the answer is simple: individuals.

Once you get your mind around subjective value, the world makes a lot more sense. And as Maggie points out, it can even help you navigate your love life.