# What is the relationship between income and productivity? **URL:** \ **Category:** Great Debates\ **Created:** [April 26, 2015, 1:55am UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547 "2015-04-26T01:55:50Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![Mijin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mijin/32/9369_2.png) [@Mijin](https://boards.straightdope.com/u/Mijin)\ **Post date:** [April 28, 2015, 6:45am UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/61 "2015-04-28T06:45:07Z")
> [@LinusK](#): > > That depends on who her patients were. If they were poor people, she’d be a poor heart surgeon. If they were rich, she’d be a rich heart surgeon. A poor heart surgeon? But yeah, you’re right. My plan is, I go to medical school and it doesn’t matter if I barely scrape through; I’ll simply choose to have wealthy patients from day 1 and I’m golden. OTOH if this was again comparing jobs in the developed vs developing world, I think that’s a very misleading point. It’s not like some town in Malawi can decide one day that being a doctor is such a noble job it shall pay $300k regardless of what they can actually afford or what people there are willing to work for. ---
**Author:** ![Robert163](https://avatars.discourse-cdn.com/v4/letter/r/4af34b/32.png) [@Robert163](https://boards.straightdope.com/u/Robert163)\ **Post date:** [April 28, 2015, 6:53am UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/62 "2015-04-28T06:53:53Z")
> [@Mijin](#): > > A poor heart surgeon? > But yeah, you’re right. My plan is, I go to medical school and it doesn’t matter if I barely scrape through; I’ll simply choose to have wealthy patients from day 1 and I’m golden. > > OTOH if this was again comparing jobs in the developed vs developing world, I think that’s a very misleading point. It’s not like some town in Malawi can decide one day that being a doctor is such a noble job it shall pay $300k regardless of what they can actually afford or what people there are willing to work for. I’m not really quite sure what your point is ---
**Author:** ![Mijin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mijin/32/9369_2.png) [@Mijin](https://boards.straightdope.com/u/Mijin)\ **Post date:** [April 28, 2015, 7:17am UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/63 "2015-04-28T07:17:51Z")
Well I’m trying to work out what was meant by “if you have poor patients, you’ll be a poor heart surgeon” ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [April 28, 2015, 7:47am UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/64 "2015-04-28T07:47:11Z")
Obviously there’s some tendency for more productive people to earn more than the less productive, but it is mistaken to treat this as a general rule. What about a professional poker player who earns $50,000? Did he “produce” $50,000? Certainly not in the sense OP, or most economists, would define the term. Or what about Wall St. analyst Henry Blodget who earned huge bonuses for touting stocks he privately thought were dogs? These are not isolated examples. All sorts of exceptions to an income/production relationship exist. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [April 28, 2015, 1:32pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/65 "2015-04-28T13:32:44Z")
> [@LinusK](#): > > IThe first one is only partly true. Income is not just a measure of how much people want your work; it’s also a measure of how much stuff you own. If you own a lot of things… bonds, stocks, land… you don’t have to work at all. These are examples of the “successful risk management” I mentioned above. > [@](#): > > I don’t mean to nitpick, because I know this is something you already know, but the people who have the most income are not those who sell their labor, but profit from the labor of others. Successful risk management is labor, in a sense. > [@](#): > > The second is also only partly true. The issue is not so much _how many people want your work_ as it is _how much money they have._ You could be the worst artist in the world, but if one wealthy patron wants your work, you could be a very wealthy artist, even if the number of people who wanted your work was one. > > Similarly, you could be a terrible doctor, but if your patient is Michael Jackson, you could make a lot of money. (Well, at least until your patient died.) True, but irrelevant. Aggregate demand for your work is what counts, no matter if it comes from lots of people or one wealthy patron. > [@](#): > > Mass producing junk email might make someone a millionaire (and in fact, it has), but depending on your definition of productivity, it’s not productive at all. There is a demand for the work of mass producing junk mail. Hiring someone to mass produce junk mail is an example of risk - if enough people buy the product or fall for the scam, it is a successful risk. But the cost of sending out mass e-mails is miniscule, so it makes even a very low response rate worth the effort. > [@](#): > > But on at least one issue we agree: it’s not someone’s productivity that determines his income. Not directly, no. It is someone else’s perception of what your productivity is likely to be. > [@Robert163](#): > > I think capitalism is Immoral. Again, this is saying "“Other people spend their money on things that I don’t want”. > [@](#): > > It turns people into commodities. Just the opposite is true. People are allowed to spend their own money on what they want. Under systems like Marxism, people are treated as interchangeable, and the state (which means, “Other People Who Have Guns and Can Condemn You to the Gulag”) decide what you want. Regards, Shodan ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [April 28, 2015, 8:32pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/66 "2015-04-28T20:32:22Z")
> [@XT](#): > > [Strawman](http://en.wikipedia.org/wiki/Straw_man): > > There isn’t really anything vague about it. It’s basically the outcome of our collective choices in the aggregate. Isn’t everything the outcome of our collective choices in the aggregate? > [@](#): > > If millions of us want to watch Dancing With the Stars or professional football then there will be a demand for those things…and so people who make those kinds of shows or who participate in those sports will be in demand and their labor will be worth more than, say, people who make shows less well liked or play professional tiddly winks or something. > > No, it’s not. There are regulations and policies that can impact it, distort it or shift it, but in the end it’s still impersonal in the sense that it reflects our collective and aggregate demand…and that is pretty impersonal in the aggregate. I suppose it depends on your definition of personal and impersonal. If the personal decisions of people “in the aggregate” is impersonal, then I guess you’re right. But many decisions are made by one person, or a handful. The decision to raise or lower interest rates, for example, is made by small group of people. The decision not to prosecute Wall Street banks or bankers for fraud was made by Eric Holder. The decision to perpetrate that fraud was made by a relatively small group of people (at least, compared to the millions who were affected by it). > [@](#): > > That has nothing to do with how the market works though or even what the market is…this is your personal observation. > > Again, this is your own personal assertion and really isn’t reflected by reality. CEOs (SOME CEOs of major Fortune 500 companies) make what they make because there is a perception that you need the best super star at the helm you can get in order to be a star company…and so companies are willing to pay a premium for that perception of super star power. That isn’t my assertion. My assertion is that their salaries are the effect of cronyism and backscratching, not “star power”. And I’m not making it from my own personal observation - but even if I was, so what? Whose observations am I supposed to may arguments from, if not my own? > [@](#): > > To put this another way, let’s say you are right and CEOs of major Fortune 500 companies are vastly overpaid and really aren’t worth it to the companies in question. You’d think that some of those companies would realize this at some point and hire a non-super star CEO type… You would think so, but it’s not happening. > [@](#): > > From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period. If you would think that, and the data contradicts what you would think, what does that mean? > [@](#): > > heck, from what you seem to think they could just grab any old guy off the street and put him in the CEOs office and he’d do as good or better, This is an actual strawman argument. I’ve never said it, and it’s not what I think. > [@](#): > > plus save the company (and the stockholders and boards of directors) millions of dollars. Why don’t they do that then? The CEOs have some sort of union and collectively hold a gun to the heads of ALL the boards of directors and share holders of ALL the Fortune 500 companies? Not one can get out from under the monopoly of the CEOs and just hire some guy off the street for a few hundred thousand a year…something a lot of folks would be happy with? > > They do. And the reason there is a market for them is because they know the system, how it works and who the players are, and so can demand higher salaries. It’s funny, but your example, presumably to continue to show how John was wrong and how the market doesn’t really work the way he was trying to say, does the opposite…it’s an example of how the market actually works. You don’t see the corrosive effect of government regulators going to work for the industries they used to regulate? You don’t think that might have some affect on the decisions they make as regulators? > [@](#): > > You are talking about individual cases here, not the aggregate. The majority of people don’t get and keep jobs they aren’t qualified for and can’t do simply because of who their relatives or friends are… Again, this is an actual strawman argument. I didn’t say they weren’t qualified. I said they got the job because of who their friends and relatives were. > [@](#): > > if that were the case our work system would be completely dysfunctional. There are, of course, distortions…jobs that are given to someone because of the color of their skin, their gender, who their relatives are or who they friends are or who they supported politically in a race…but those are individual cases, not the market as a whole. And regardless, those one offs don’t set the aggregate market rate for category labor in the US, which varies quite a bit from state to state and even within states. What percentage of people got the job because of their connections? Is it 10% 25% 50%? > [@](#): > > The market of course. Which can and is distorted by politics just like everything else. Some of the distortions I’m guessing you are all for (minimum wage, for instance) while others you oppose. Ironically, it’s the aggregate of THOSE choices, also by ‘the market’ (a.k.a. you, me, and everyone else) that create those distortions. I don’t get it. Distortions of the market are also the market? If distortions of the market are the market, why are they called distortions? Can you give me an example of something that’s not the market? Because throwing around words like the market, when you mean everything that happens, makes it confusing. > [@](#): > > No, that’s your personal observation, an unsupported assertion and you trying to tie that into the discussion about what ‘the market’ is…something you frankly don’t seem to have a good grasp of what it is and what it does, and what it isn’t and what it doesn’t do. If the market is everything, what is it that it does not do? And if I can’t make my own observations, whose observations should I make? ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [April 28, 2015, 8:43pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/67 "2015-04-28T20:43:00Z")
> [@John\_Mace](#): > > If you don’t know what a strawman is, I don’t think I can help you. Perhaps you should read the first sentence of your OP and give us a cite. > > As for the rest of your post, I’m always fascinated by folks here who think they have found so fundamental flaw in the existing economy. Because if you have, what a fantastic business opportunity that presents. Take advantage of that flaw, and make millions. You can even donate all your earnings to the noblest cause you can think of. However, if you are unwilling to stake your claim on a business venture, then we are certainly left to wonder why you are so certain of your claims. I mean, it should be so easy. Start a business that is NOT encumbered by all the shortcomings you have outlined. What is stopping you? Start a business based on what, exactly? Stopping the revolving door between businesses and industry? Making the very rich even richer? Getting born into a family with political and industrial connections? ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [April 28, 2015, 8:55pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/68 "2015-04-28T20:55:14Z")
> [@Robert163](#): > > I think capitalism is Immoral. It turns people into commodities. Your explaining the process by which people are turned into commodities “by the demand of the market” does not change my mind. I am more concerned with alleviating suffering than I am in hearing why the “market demands” that an interior decorator makes more than a school teacher. Your explanation, is accurate. And it makes me double down on my assertion that capitalism is immoral. You have to remember that markets are man-made, and subject to change. The Fed could pursue a policy that kept interest rates permanently low. The Treasury could pursue policies that ensured full employment. The law could be changed to prevent regulators from joining the companies they used to regulate (or keep keep them from coming from those industries in the first place.) Those are not policies that the rich and powerful would like to see implemented. But there are a lot more of us than there are of them. And we still - more or less - live in a democracy. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [April 28, 2015, 9:08pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/69 "2015-04-28T21:08:40Z")
> [@Mijin](#): > > A poor heart surgeon? > But yeah, you’re right. My plan is, I go to medical school and it doesn’t matter if I barely scrape through; I’ll simply choose to have wealthy patients from day 1 and I’m golden. > > OTOH if this was again comparing jobs in the developed vs developing world, I think that’s a very misleading point. It’s not like some town in Malawi can decide one day that being a doctor is such a noble job it shall pay $300k regardless of what they can actually afford or what people there are willing to work for. I’m not sure what point you’re trying to make exactly. I will say there was a story on NPR today about a brain surgeon who went to work in Uganda (I think it was) to work on babies born with encephalitis. Apparently it’s a very common problem there. The resources he had to work with weren’t very much, and he wound up coming up with a new way to treat the disease. Apparently it was more effective and efficient than the method used in 1st world countries, and it’s now being tried in the US. The story didn’t say how much he made saving babies’ lives in Uganda. But unless he was being supported by some charity or foundation, I’m guessing it wasn’t very much. Anyway, people are capable of doing the right thing, in spite of the market. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 28, 2015, 9:15pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/70 "2015-04-28T21:15:44Z")
> [@LinusK](#): > > Start a business based on what, exactly? Any of these businesses that you are so certain are overpaying their management. > [@](#): > > Stopping the revolving door between businesses and industry? Making the very rich even richer? I have no idea what that even means. Industry is business. > [@](#): > > Getting born into a family with political and industrial connections? If all new businesses were started by such people you’d have a point. But they aren’t and so you don’t. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [April 28, 2015, 9:44pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/71 "2015-04-28T21:44:53Z")
Damn…well, just had the board eat one of my posts. Sigh. In summary: [QUOTE=LinusK] I don’t get it. Distortions of the market are also the market? If distortions of the market are the market, why are they called distortions? [/QUOTE] Distortions aren’t part of the market…they are distortions TO the market. Some are good, some bad, some neutral. I’m assuming you were confused by this part of my post ‘Ironically, it’s the aggregate of THOSE choices, also by ‘the market’ (a.k.a. you, me, and everyone else) that create those distortions’…I was basically make a joke here. I’m referring to voting, since the government is one of the major forces for distortions to the market. > [@](#): > > If the market is everything, what is it that it does not do? The market isn’t everything. There isn’t actually one Market. And there are things that distort the market. What markets don’t do well, IMHO, is self regulate to provide an optimal outcome to society as a whole…or, at least not in a timely manner. For example, pollution control and labor safety would be things that a completely unregulated market would lag behind the public’s overall expectation. Oh, the market COULD self regulate if people had perfect information and could make aggregate decisions based on not just price but on other factors as well. But the public isn’t perfectly informed and information isn’t completely free…which is why we have government. > [@](#): > > If you would think that, and the data contradicts what you would think, what does that mean? I’m assuming this was from an unlinked cite? But let’s look at it: [QUOTE=??] From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period. [/QUOTE] My question would be, during that same time period what was the inflation-adjusted increase for A-List actors or the top shelf star athletes in the more popular sports? I’m guessing it’s similar. This was a time period where the all star CEO concept really started to take off, and (IMHO) companies gained the perception to be top of the line companies they needed the very best CEO at the helm. During this same time period, manufacturing became increasingly automated, and many of the productivity gains for companies came either from automation and/or expert systems and refined and streamlined processes…IOW, the workers weren’t the one’s making the major difference wrt their labor, but instead it was vertical specialists. I can tell you that in the IT field the prices for good engineers and techs skyrocketed especially in the 90’s…and it was based on perception. > [@](#): > > This is an actual strawman argument. I’ve never said it, and it’s not what I think. Ok, then you tell me what you think CEOs should be paid. You acknowledge that not just anyone can do the job, which means there is going to be a smaller pool of qualified people to do the job. How small do you think it is? Obviously you can’t just drag anyone off the street, but what’s the pool size? And what do you base your answer on? ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [April 29, 2015, 6:40pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/72 "2015-04-29T18:40:04Z")
Shodan: So can I just ask you straight out: do you think there is a relationship between productivity and income? Maybe you said earlier, and I missed it. If so, I apologize. What I get from your posts is that there is none, and that’s a good thing. For example, you say that people whose income comes from owning things, or sending junk email, take risks. That’s obviously true. I own a car, for example. Last week, I ran over a nail. If I didn’t own a car, or didn’t drive it, I wouldn’t be exposed to risks like that. (I might get hit by a car, walking to work, but at least I wouldn’t have to worry about running over nails.) But my income doesn’t come from owning a car. It just makes my life easier. So to get back to the original point: aren’t we all exposed to risks, all the time? And isn’t there an inverse relationship between how much money you have, and risk? Isn’t that one of the reasons for saving money in the first place? So if I lose my job, I don’t also lose my house? Or if I wreck my car, I can buy a new one, instead of having to walk? And what, if anything, does taking risks have to do with being productive? I mean, poker players take risks, but they’re not producing anything. Junk emailers take risks (I suppose. I don’t really know, but let’s suppose they do.) But they produce negative productivity, in form of all the wasted time of the people who receive them. At one time, we used get junk faxes. They wasted both our time, and our money. (We mostly don’t dont get them anymore. I believe some law was passed to prevent them.) Wall Street bankers took risks, when they packaged and sold bogus securities. Anyway, in what sense is taking risks a form of productivity? And if it is a form of productivity, how does it relate to income? If you and I own land, and you own a lot and I own a little, you likely collect more rent than I do. Does it mean you’re taking more risk? Because it seems like a small land holder is taking more risk than a large one. If you own a lot of land, you’re less likely to get wiped out by, for example, a flood. Similarly, someone who owns a large, diversified portfolio is safer than someone who owns, say, a small business. Many small business were wiped out in the recession that started in '09. If you look at the very richest Americans, on the other hand, they mostly rode out the recession, and are now worth, if anything, even more than before. If you own a lot of stuff and have a lot of income, are you more productive than someone who owns a small amount of stuff, and has a smaller income? If you own land, are you more productive if you own a lot of land, than if you own a little? So I guess my questions are (1) in what sense are people with lots of money taking more risks than people with less; and (2) what does that have to do with how productive they are? ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [April 29, 2015, 8:35pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/73 "2015-04-29T20:35:29Z")
> [@LinusK](#): > > Shodan: So can I just ask you straight out: do you think there is a relationship between productivity and income? Maybe you said earlier, and I missed it. If so, I apologize. The relationship between income and productivity is indirect. My employer hired me because he believed I would produce enough income to make up for my salary and benefits, with more left over for the company to turn a profit.I get raises and promotions because my employer can track my productivity in various ways. > [@](#): > > But my income doesn’t come from owning a car. It just makes my life easier. It would if you delivered pizzas or drove a taxi. > [@](#): > > So to get back to the original point: aren’t we all exposed to risks, all the time? And isn’t there an inverse relationship between how much money you have, and risk? Isn’t that one of the reasons for saving money in the first place? So if I lose my job, I don’t also lose my house? Or if I wreck my car, I can buy a new one, instead of having to walk? That’s not the kind of risks that produce income. > [@](#): > > And what, if anything, does taking risks have to do with being productive? The kinds of risks that produce income are investments. If I buy a stock, I am taking the risk that the stock could lose all or part of its value. If it does that, I have less money than when I started and it was a bad risk. Or it could increase in value, and then I have more money and it was a good risk. Some investments are riskier than others. There is a greater-than-average chance that they could lose value. In order to get people to invest in those kinds of things, they offer a higher return on investment than one could get investing in something else. So people take a risk by investing in those things, and if the investment goes up in value instead of down, they get more money than if they had invested somewhere else. This greater ROI is the reward for successfully predicting that the investment would do well. A person could be considered more “productive” if he were able to make a greater number of correct guesses about investments that would increase in value than someone else. > [@](#): > > Junk emailers take risks (I suppose. I don’t really know, but let’s suppose they do.) But they produce negative productivity, in form of all the wasted time of the people who receive them. So what? That does not affect the cost of the people who send the junk mail at all - it costs the same (almost nothing) to send out a junk mail that gets deleted unread than one that produces a sale. > [@](#): > > Anyway, in what sense is taking risks a form of productivity? Taking risks isn’t a form of productivity. Correctly predicting which risks will pay off is a form of productivity. Risks you can’t avoid don’t make you productive. > [@](#): > > Similarly, someone who owns a large, diversified portfolio is safer than someone who owns, say, a small business. And a diversified portfolio is going to return, on average, a lower ROI than a portfolio managed by someone who is good at assessing risk. > [@](#): > > So I guess my questions are (1) in what sense are people with lots of money taking more risks than people with less; and (2) what does that have to do with how productive they are? They aren’t, and very little. You are confusing two concepts - work productivity, and return on investment. Both produce income, but they are not the same. Regards, Shodan ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [April 29, 2015, 9:02pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/74 "2015-04-29T21:02:21Z")
[QUOTE=Shodan] The relationship between income and productivity is indirect. My employer hired me because he believed I would produce enough income to make up for my salary and benefits, with more left over for the company to turn a profit.I get raises and promotions because my employer can track my productivity in various ways. [/QUOTE] Right. It’s basically the perception of the employer to judge the worth of the job required in conjunction with the value the employer thinks they will get from the perspective employee but filtered by things like location (a company is probably going to have to offer more for a network engineer in California than in, say, South Dakota, even though they do the same amount of actual work) and how easy or difficult it will be to find prospective employees in the job they are trying to fill…or, in the case of giving raises or other incentives, in retention policies to be able to keep staff (or let them go) depending on perceived value to the employer. Productivity itself is going to be variable and dependent on what the employer is looking for and what that means to them…and, for sure, it’s going to be different than what LinusK THINKS productivity means, since he seems to have a very blue collar verse white collar oriented view of what labor and productivity are (or, as my in-laws think, real man work verse jobs they can’t believe anyone would be willing to pay someone to do…like, say, network engineering ;)). ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [April 29, 2015, 10:11pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/75 "2015-04-29T22:11:00Z")
Income is not related to productivity but to the expectation of productivity. Baseball players are not payed by the home run but by how many home runs the team expects them to hit when they sign their contracts. If a team is bad at predicting how many home runs their players will hit they lose games and money. Same as in any other business. Companies pay their employees what their expected productivity is. Companies that are bad at predicting employee productivity go out of business. Since the future is unclear to even the brightest many people are going to be wrong about their expectation of productivity. This is unavoidable. Capitalism and the market are evil because people are evil. If everyone had my values no one would own luxury or sports cars, jewelry, alcohol, or artisan coffee. Yet because people want these things, the market provides them. In order to get a moral market you need a moral people. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 29, 2015, 10:18pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/76 "2015-04-29T22:18:29Z")
I’m always befuddled by people who talk with such disdain about “the market”. They are the economic equivalent of Creationists. “The market” is nothing more and nothing less than every economic decision that every person participating in the economic sphere makes every day of his life. It is not directed anywhere, and it is not trying to accomplish anything. We can put limits on the market in the same way that we can affect evolution, but evolution is going to happen one way or another whether we want it to or not. And people are going to set a value on things whether anyone wants them to or not. That’s all the market is-- people setting a value on things. Do I want a non-fat chai latte today, or am I going to make a cup of instant at home? Do I buy the gas guzzler or the hybrid? Do I send my kids to public or private school? Do I take the job that pays more, but I have to travel 25% of the time, or do I take the job that pays less, but I get to make sure I can be at all of my son’s baseball games and my daughter’s soccer games? Do I save for retirement, or spend it all on hookers and blow? ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [May 2, 2015, 6:26pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/77 "2015-05-02T18:26:53Z")
> [@Shodan](#): > > The relationship between income and productivity is indirect. My employer hired me because he believed I would produce enough income to make up for my salary and benefits, with more left over for the company to turn a profit.I get raises and promotions because my employer can track my productivity in various ways. > It would if you delivered pizzas or drove a taxi. > That’s not the kind of risks that produce income. > > The kinds of risks that produce income are investments. If I buy a stock, I am taking the risk that the stock could lose all or part of its value. If it does that, I have less money than when I started and it was a bad risk. Or it could increase in value, and then I have more money and it was a good risk. > > Some investments are riskier than others. There is a greater-than-average chance that they could lose value. In order to get people to invest in those kinds of things, they offer a higher return on investment than one could get investing in something else. So people take a risk by investing in those things, and if the investment goes up in value instead of down, they get more money than if they had invested somewhere else. This greater ROI is the reward for successfully predicting that the investment would do well. > > A person could be considered more “productive” if he were able to make a greater number of correct guesses about investments that would increase in value than someone else. > So what? That does not affect the cost of the people who send the junk mail at all - it costs the same (almost nothing) to send out a junk mail that gets deleted unread than one that produces a sale. > Taking risks isn’t a form of productivity. Correctly predicting which risks will pay off is a form of productivity. Risks you can’t avoid don’t make you productive. > And a diversified portfolio is going to return, on average, a lower ROI than a portfolio managed by someone who is good at assessing risk. They aren’t, and very little. > > You are confusing two concepts - work productivity, and return on investment. Both produce income, but they are not the same. > > Regards, > Shodan I don’t think I’m the one confusing the concepts. I asked about productivity, and you brought up “risk”, and now “return on investment”. I don’t have time to point out all the problems with what you posted, but there are a few things I think are worth mentioning. There are two related concepts. One has to do with the stock market, and the other has to do with ROI. Poker players, like stock players, use the concept of ROI. Importantly, good players don’t use results oriented decision-making. In other words, if you make a good play, and it doesn’t pay off, that doesn’t change the fact that you made the right decision. In poker, you might make a decision to call, or even raise, if you have a 1/3 chance of making a flush. If the flush doesn’t come (and it won’t, 2/3 of the time) that doesn’t mean you made the wrong decision. If the pot odds were right, you made the right decision, regardless of the fact that you lost. In stocks it’s the same. You make a decision based on the numbers and information available to you. If you wind up losing on the trade, that doesn’t mean you made the wrong decision. Poker players, like stock pickers, take risks. Poker players, and stock traders, also trade money back and forth. The winners make money (after the house cut) by taking it from the losers. Nothing productive, however, is getting made. I understand what productivity is. But by bringing up stock trading and ROI, I think you’re confusing making money with productivity. The fact that somebody makes money - by winning a hand, or picking a good stock - doesn’t mean anything productive has happened. There are lots of ways of making money, and many of them have nothing to do with producing anything, or being productive. Many of them are illegal. For example, I could be a pick-pocket, or a corrupt cop. I could make lots of money doing that. But it doesn’t mean I’ve done anything productive. Before Lehman Brothers fell, it sold part of itself to a British bank. In the week or so before the bankruptcy the British bank paid millions of dollars to top Lehman executives. In the end, the British bank made about $5 billion dollars on the deal. It was very very profitable for them. And the Lehman executives, as well. But that money didn’t represent anything productive happening. It was a simple transfer of wealth, from Lehman creditors, to the British bank (and the Lehman executives). From your arguments, I’d infer you’d say that the millions paid to the Lehman executives represented the value of their services. Their “productivity” in securing the $5 billion windfall for the British bank. In other words: long as somebody is paying you to do something, or you’re making money somehow, you’re being productive. But that’s not what productivity means. It means producing goods and services. Not just transferring money from one pocket to another. Maybe I own some land, and I rent it to a farmer, who produces wheat. The farmer has produced wheat. But I have produced nothing. I get some of the value of the farmer’s producing. But that doesn’t mean I’ve produced anything myself. You might argue I’ve taken a risk, by renting to the farmer. Let’s say, for the sake of the argument, that’s true. So what? I still haven’t produced anything. “Making correct guesses” to use your words, is not the same as being productive. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [May 2, 2015, 6:35pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/78 "2015-05-02T18:35:31Z")
> [@John\_Mace](#): > > Any of these businesses that you are so certain are overpaying their management. Ok. I’ll ask my parents for a loan, like Romney. And then I’ll go head to head with Exxon-Mobil. > [@](#): > > I have no idea what that even means. Industry is business. My bad. I mean to write “government” and business. > [@](#): > > If all new businesses were started by such people you’d have a point. But they aren’t and so you don’t. Let’s just say that being born into the right family, with the right connections, helps a bit, and leave it at that. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [May 2, 2015, 6:49pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/79 "2015-05-02T18:49:15Z")
> [@XT](#): > > Right. It’s basically the perception of the employer to judge the worth of the job required in conjunction with the value the employer thinks they will get from the perspective employee but filtered by things like location (a company is probably going to have to offer more for a network engineer in California than in, say, South Dakota, even though they do the same amount of actual work) and how easy or difficult it will be to find prospective employees in the job they are trying to fill…or, in the case of giving raises or other incentives, in retention policies to be able to keep staff (or let them go) depending on perceived value to the employer. > > Productivity itself is going to be variable and dependent on what the employer is looking for and what that means to them…and, for sure, it’s going to be different than what LinusK THINKS productivity means, since he seems to have a very blue collar verse white collar oriented view of what labor and productivity are (or, as my in-laws think, real man work verse jobs they can’t believe anyone would be willing to pay someone to do…like, say, network engineering ;)). No. My point is that being productive isn’t about how much money you make for someone else. It’s about producing goods and services. Productivity: > [@](#): > > noun > 1. > the quality, state, or fact of being able to generate, create, enhance, or bring forth goods and services: > The productivity of the group’s effort surprised everyone. > 2. > Economics. the rate at which goods and services having exchange value are brought forth or produced : > Productivity increased dramatically last year. As you can see, the definition of productivity is creating goods and services. It’s not making money for your employer. Also, I’m not sure where you get the idea that I have a “very blue collar verse white collar oriented view of what labor and productivity are”. A network engineer would be a perfect example of someone doing something productive. Whether you’re doing something productive has nothing to do with whether you’re using a computer or a forklift. I’m pretty sure I’ve said that over and over before. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [May 2, 2015, 6:57pm UTC](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547/80 "2015-05-02T18:57:23Z")
Let me add one more thing: in addition to people who make money (either for themselves or for their employer) without producing anything, there are also people do are productive without making any money. A father who stays home to raise his children is doing something productive. But he’s not getting paid anything. Somebody who volunteers, say for Habitat for Humanity, or rehab facility, is doing something productive. But he’s not getting paid. As long as you confuse productivity with how much someone’s paying you, you’re making a really fundamental mistake. [Previous page](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547.md?page=3) [Next page](https://boards.straightdope.com/t/what-is-the-relationship-between-income-and-productivity/718547.md?page=5)