Rob Henderson's Newsletter

A while back I read a fascinating book called Choosing the Right Pond: Human Behavior and the Quest for Status by the Cornell economist Robert Frank.

One question it tackles: Why are the least productive workers in an organization typically paid more than what they produce, while the most productive workers are paid less?

This is especially true in government and nonprofit jobs, where raises and promotions are based more on time served than on productivity. In the military, I was occasionally perturbed upon realizing I was working harder and doing more than some people who outranked me. Yet I earned less and would have no chance of obtaining a higher rank until I’d reached a certain number of years in service.

According to the theory of competitive labor markets, workers are supposedly paid based on the value of what they produce for employers.

In other words, if you take a selection of workers in an office who are all earning $80k/year, what is the likelihood they are all producing the same amount of value for the firm?

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