Of Wages and Profit in the Different Employments of Labour and Stock
- Smith returns to the idea of why some jobs are paid more than others, and he gives us five reasons:
- the unpleasantness of the job;
- the easiness or difficulty of the job;
- the security of the job;
- the responsibility of the job, and;
- the likelihood of succeeding at the job.
- For starters, a job's wage will depend on how crummy it is to perform the job.
- Some jobs, for example, are so dirty and gross that you have to pay people a ton of money to do them.
- Second, some jobs require so much skill that you have to hire specialized people to do them. That means you'll have to pay more.
- Third, you'll probably have to pay more to attract someone to a job that is temporary or might go away at any moment. That's because the person will need extra money when they find themselves looking for a new job.
- Fourth, you'll have to pay more money if you're trusting a worker with a ton of responsibility. For example, you don't want to pinch pennies with a person who's running a nuclear reactor.
- Fifth, you have to pay more money to people who get jobs that are difficult to get. For example, a person wouldn't go through tons of years of medical school and rack up student debt if they didn't think they'd have a good-paying job at the end of it.
- Some jobs pay less because they involve work that people would do on their own time. For example, the salaries of journalists have gone down since the Internet became popular because there are tons of people out there who are prepared to write about the news as a hobby instead of a job. This ends up reducing the value of professional journalists.
- Adam Smith goes on to talk about how people are biased toward thinking that everything will work out for them. This is especially the case when people are young. They choose their careers based on what they like to do instead of basing their decisions on future wages or job security, so they end up taking risks on being artists or whatever and end up poor.
- Adam Smith admits that people sometimes make huge fortunes overnight by speculating in stocks. But he says that this kind of gamble has a huge risk and that for every rich stock guy there are a bunch of ruined ones.
- Sometimes, the wages of a certain job are lower because it's a job people tend to do in their spare time. Cottage industries are part of this, like when people knit sweaters in their free time and sell them. These knitted sweaters will be cheaper than their natural price because knitting them wasn't that person's day job.
- One of Smith's biggest beefs in this book is with government regulation, and here's the part where he starts sounding off about it.
- For starters, Adam Smith hates it when laws or government policies discourages competition in the marketplace. For example, certain policies around becoming a registered tradesperson can make it difficult for people to enter this business. For example, being an apprentice for seven years was part of becoming a legal carpenter in Smith's time.
- For Smith, this law is only in place to increase the salaries of working carpenters and to prevent these salaries from going down by having too many carpenters around competing for work. You'll see the same thing today with legal associations, which try to control the number of lawyers in the country in order to keep lawyers' wages high.
- Within every nation, there is always trade going on between town and country. The country provides the town with basic materials like food, wool, etc. The town pays them with stuff like manufactured goods (like machinery for their farms or TVs or other stuff). The town also has banks that lend money to the farms so the farms can expand.
- But Smith admits that the people of the towns have an unfair advantage because they can easily organize themselves against the farmers. Farmers are spread over a huge area and have a much more difficult time getting together and making sure they get fair prices for their crops.
- Smith also mentions that government taxes and restrictions on products from other countries tend to protect their own manufacturers from outside competition.
- This keeps prices up and profits high for these people, but everyone else suffers from paying more for these products.
- In some cases, government regulation actually drives down wages. For example, public school teachers don't make much because the government wants cheap education to be available to all children. This is good for the country, even though it comes at the expense of teachers by driving down their wages.
- Smith also hates government policies that prevent people from moving from one place to another for work. For example, people don't like it when immigrants move to their neighborhoods and drive down the wages by doing work for almost nothing.
- But Smith says that in the long run, this is a good thing. If businesses are able to move their factories wherever they want, then workers need to be able to move wherever they want, too. During Smith's time, England had harsh laws preventing workers from even moving from one town to another, which really messed up the labor market.